Emerging market corporate debt continues to outshine US high yield – an opportunity for investors
26 FEB, 2026
Emerging markets represent half of global GDP and drive 80% of global growth, yet fewer investors allocate to emerging market corporate debt, which has historically delivered strong returns with lower volatility than mainstream alternatives, and is currently yielding 1.5% more than US high yield.
Emerging market corporate debt presents a compelling investment case today, offering attractive yields, low volatility and diversification benefits. While some investors have embraced this opportunity, many still prefer US high-yield bonds or private credit. According to J. Stern & Co., most allocate 1-3% to EM corporate debt, versus 7-10% to US high yield within their fixed-income exposure¹.
The emerging market hard-currency corporate bonds asset class is almost twice the size of the US high-yield market ($2.5trn v $1.3trn²) and has been less volatile despite delivering higher returns. EM corporate debt has shown lower annualised volatility than not only US high-yield debt but also US investment-grade debt over the past three years. On a risk-adjusted basis (Sharpe Ratio), EM corporate debt has delivered, particularly in the high yield subset.
| Asset class | Return(3-year annualised) | Volatility(3-year annualised) | Sharpe Ratio (measure of risk-adjusted performance) |
| EM | 8.5% | 4.0% | 0.9 |
| EM HY subset | 10.6% | 4.2% | 1.4 |
| US HY | 9.9% | 4.8% | 1.1 |
| US IG | 6.3% | 6.5% | 0.3 |
With more than 1,000 companies across 60+ countries and a broad spectrum of sectors, EM corporate debt brings genuine diversification to portfolios, yet hard-currency EM corporate debt remains unfairly stigmatised by its association with sovereign debt and wider perceptions of emerging markets risks. The perceived risks exceed the actual risks, with the strong fundamentals and financial resilience of these companies far outweighing sovereign risk, says J. Stern & Co.
Charles Gélinet, Co-Portfolio Manager on the J. Stern & Co. Emerging Market Debt Stars Fund, which has just achieved its three-year milestone, says: “Investors are missing out by under-allocating to emerging market corporate debt. The asset class offers strong returns with lower volatility than mainstream alternatives – particularly US high yield. It also offers real diversification in today’s multi-polar world. A quality company with a strong, sustainable and competitive position and predictable cash flow to boot, is well positioned to repay its debt, regardless of where it is based. The geographic risk premium is often mispriced and herein lies an opportunity. Our hard-currency emerging-market corporate debt strategy currently offers investors a yield to maturity of 8.4%, compared to US high yield at 6.5%3.”
J. Stern & Co.’s Emerging Market Debt Stars Strategy
The EM Debt Stars strategy targets total return and diversification through a portfolio of hard-currency corporate bonds issued by high-quality emerging market companies. The portfolio of 40-60 bonds is actively managed using a bottom-up approach, with a short duration and a focus on risk control. The objective is to generate attractive total returns with controlled volatility and meaningful diversification from traditional asset classes. The strategy is actively managed and unconstrained by indices, allowing the team to capitalise on idiosyncratic opportunities across geographies and sectors.
Launched on 17th February 2023, and having achieved its three-year milestone last week, the J. Stern & Co. Emerging Market Debt Stars Fund has delivered a cumulative return in US dollar terms of 22.7% since inception to 16th February 20264, or 7.1% annualized. Over this period, the annualised volatility has been 3.0%.
¹ State Street, August 2025 / US public pension funds worth $6 trillion. J. Stern & Co. estimates
2 JP Morgan
3 ishares.com; USHY ETF, data as of 12th February 20264J. Stern & Co.
