Emerging markets struggled in the first quarter, but Neuberger Berman and Pimco’s global emerging market bond strategies still shine. One with conviction, and the other with diversification.
In the first quarter of 2025, unfavorable tariffs toward emerging markets initiated by President Trump, took center stage which pushed emerging markets spreads wider. Coupled with lower US Treasury yields, the JPMorgan EMBI Global Diversified Index posted a negative 2 percent return during the quarter.
In the Morningstar Global Emerging Markets Bond category, Neuberger Berman’s Emerging Market Debt Hard Currency and Pimco’s Emerging Markets Bond strategies stand out. Neuberger Berman boasts a People pillar rating of High compared to Pimco’s Above Average rating while both strategies earn a Process pillar rating of High.
People
Since 2013, Bart van der Made has led Neuberger Berman’s strategy alongside comanagers Rob Drijkoningen and Gorky Urquieta. The managers have been working together for more than two decades, first at ING Investment Management and then at Neuberger Berman, when they were part of a group that left ING to establish Neuberger Berman’s emerging-markets debt capabilities. The managers are backed by a nine-member hard currency debt team which stands out for their experience and stability. Additionally, the managers’ collaboration and strong track record over nearly two decades, sets them apart from their peers.
In contrast, the cast at Pimco has a shorter history of working together and higher team turnover. Yacov Arnopolin joined the strategy in 2019 while Javier Romo’s presence dates back to 2017. While the duo is ultimately responsible for the strategy, Pimco’s head of emerging-markets debt, Pramol Dhawan, has added his flare in the form of process enhancements since roughly 2019. Although turnover in the emerging-markets debt team has been higher than most, the overall team remains larger and better resourced than most peers. A large group of around four sovereign economists, four quantitative analysts, and 23 portfolio managers spanning emerging-markets sovereign debt, corporate debt and private capital, contributes in some way or form to the strategy.
Process
Neuberger Berman’s approach has been unchanged for more than 20 years. Bottom-up country selection is the main driver of performance with top-down views a supporting act. A distinguishing feature is their penchant for finding value in overlooked corners of the market such as high-yielding and lesser traded names. Here, the team follows a high-conviction approach and is willing to build up more concentrated positions. This requires patience during periods of short-term underperformance for the bets to play out over the longer term.
In contrast, Pimco’s structured approach is backed by significant technological and personnel resources which stand out from the crowd. In choosing the themes that feature in the portfolio, the managers incorporate growth and inflation views from Pimco’s macro specialists, fundamental economic views from the team’s country experts and credit analysis from the vast credit analyst team. The team leverages a raft of quantitative tools to reduce trading costs and capture relative value opportunities. Contrary to Neuberger Berman, Pimco aims to avoid big directional bets and positions are more modest.
Portfolio
Unlike many peers, including Pimco, the Neuberger Berman team does not buy local-currency emerging markets bonds or take active duration bets. However, they do have freedom to invest in emerging-markets corporate bonds (capped at 15 percent) and debt issued in euros which is hedged back to US dollars (historically as high as 20 percent). Unlike Pimco, where the team has stricter limits on individual country positions and high-yielding benchmark names, Neuberger Berman often has more concentrated and high-conviction bets.
Pimco allows themselves a fair amount of freedom. While they invest in hard currency government debt, emerging-markets corporates and off-benchmark euro denominated debt, this team can also invest in local emerging-markets currency debt (kept below 10 percent of portfolio assets). Furthermore, they actively manage duration within 1.25 years of its benchmark and take modest currency bets, moves that Neuberger Berman avoids.
Performance
Neuberger Berman’s high-conviction approach can meaningfully swing performance and investors should be willing to tolerate higher volatility and periods of underperformance. For instance, during the first quarter of 2025, the strategy lagged roughly 70 percent of its peer group. By comparison, Pimco’s focus on risk management and its more diversified approach, kept it ahead of roughly 80 percent of peers.
Given their distinct processes, return drivers are different. This was on full display in 2023 for instance when Pimco’s active interest rate management contributed to outperformance with a well-timed duration underweighting early in the year. That was the same year that Neuberger Berman’s ability to rebound and make up for losses, was in the spotlight. That year, outperformance was driven by overweightings in high-yielding sovereign bonds of El Salvador, Argentina and Sri Lanka which recovered sharply.
But over time, each strategy has demonstrated investment merit and delivered solid results. During the five-year period through March 2025, both outperformed the Morningstar Emerging Markets Sovereign Bond Index category benchmark on an annualized return and risk-adjusted basis, while staying ahead of roughly 70 percent of their peers. However, investors in Neuberger Berman experienced a bumpier road with volatility—measured by standard deviation—about 1.4 percentage points higher than Pimco’s 7.5 percent.
Fund comparison
Elbie Louw, CFA, CIPM, is senior analyst, manager research at Morningstar Benelux. Morningstar is a member of Investment Officer’s panel of experts.