This blog loves “out-of-the-box” thinking when it comes to investments, so Forward Management‘s strategy deserves a special mention here by our team.

Below is an excerpt from a recent Forbes’ (Kenneth Rapoza) article:

David Hinman and Ray Zucaro manage a fund called Forward Global Credit Long/Short for a $5.1B investment company (Forward Management) designed to short the over-leveraged economies that are low growth and go long the under-leveraged economies that are growing.  The idea is that a country growing at two times, but is leveraged at six times has no room to move in a crisis compared to a country that is growing at six times and levered out only two times.

The Forward Global Credit fund launched on Oct. 3 and it’s not for everyone.  Most of the corporate and sovereign bonds it holds are rated B or BB+, which is speculative grade.  It invests in small to mid-cap companies in the developing world that have a few hundred million in debt, not billions. These are not household names in the States, by any means. More than half of them are not even publicly traded and are just looking to raise capital to list on an exchange in the future.  All of them are U.S.-centric, looking for investment capital in America and playing by SEC rules that require they file annual 10-K and quarterly 10-Q reports.

The fund’s shorts are some of its best bets, with most short positions being against European sovereign and corporate debt as of November.  But they are also shorting the Brazilian currency, the real, because they expect the dollar to gain as the Brazilian economy slows and the flight to safety trend continues into next year.

The crisis in Europe is having knock-on effects in emerging credit markets now. “You take a country like Kazakhstan that has recently been upgraded. They can’t get the credit from the core markets anymore not because of the risk, but because those investors need the money to shore up losses at home,” says Zucaro.”
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