UNDISCOVERED OPPORTUNITIES IN EMERGING MARKET CORPORATE BONDS

Emerging market corporate debt offers investors a high-quality universe of securities that exhibit higher yields and lower correlation than other asset classes. Adding emerging market corporate bonds to a portfolio of U.S. stocks and bonds can create a more efficient portfolio.

By adding an allocation

of EM corporate bonds,

the efficient frontier has

shifted up and left, due

to the low correlation to

the U.S. assets.

This shift has allowed

investors to earn a

similar return by taking

on less risk, or to earn

a higher return at the

same level of risk.

7.5

7.5

7.5

7.6

7.6

7.7

7.7

7.8

7.8

7.9

7.9

7.9

8.0

8.0

8.1

8.1

8.2

8.2

9.0 10.09.99.89.79.69.59.49.39.29.1 10.810.710.610.510.410.310.210.1

Retu

rn (%

)

Portfolio Risk

Improved Portfolio Including EM IndexGeneral Portfolio

Allocation (Ret=8.0; Risk=10.1)S&P 500 Index 50%Barclays Capital Aggregate Bond Index 30%Barclays Capital U.S. Corporate High Yield Index 21%JP Morgan Corporate EM Bond Index 17.9%

Allocation (Ret=7.8; Risk=9.6)S&P 500 Index 50%Barclays Capital Aggregate Bond Index 35.8%JP Morgan Corporate EM Bond Index 14.2%

Allocation (Ret=7.8; Risk=9.8)S&P 500 Index 50%Barclays Capital Aggregate Bond Index 40.3%Barclays Capital U.S. Corporate High Yield Index 9.7%

Allocation (Ret=8.0; Risk=10.34)S&P 500 Index 50%Barclays Capital Aggregate Bond Index 35.5%Barclays Capital U.S. Corporate High Yield Index 14.5%

Asset Class

Representative Index Spread Yield Duration

Avg. Credit

Quality

Correlation to Barclays Capital Aggregate Bond

IndexCorrelation to

S&P 500 Index

EM Corporate JP Morgan Corporate EM Bond Index—Broad 393 5.74 5.21 BBB 0.37 0.56

EM Investment Grade Corporate

JP Morgan Corporate EM Bond Index—Investment Grade 270 4.52 5.66 BBB+ 0.57 0.41

EM High Yield Corporate JP Morgan Corporate EM Bond Index—High Yield 631 8.12 4.37 BB- 0.07 0.70

EM Sovereign JP Morgan EM Bond Index—Global Diversified 369 5.57 7.16 BB+ 0.49 0.43

U.S. Fixed Income Barclays Capital Aggregate Bond Index 70 2.07 5.45 AA 1.00 -0.30

U.S. Investment Grade Credit Bank of America Merrill Lynch U.S. Corporate Index 136 2.96 7.13 A- 0.86 0.06

U.S. High Yield Credit Bank of America Merrill Lynch U.S. High Yield Index 482 6.63 4.39 B+ 0.15 0.76 Source: JP Morgan, Barclays Capital and Bank of America Merrill Lynch as of 3.31.15

As emerging market (EM) corporate bonds become a more mainstream and established asset class, the comparison between them and more traditional investment securities is important to understand. EM corporate bonds offer a yield advantage compared to similarly rated U.S. investment grade and high yield bonds and intrinsically should provide superior returns than developed market (DM) bonds in a U.S. Treasury rate-rising environment. Yields for EM corporate bonds can be higher and trade at wider spreads than their developed market peers, while retaining low correlation. As such, they can become a solid diversifier to a fixed income portfolio for some investors as seen in the table below.

VALUATIONS AND CORRELATIONS OF EMERGING MARKET CORPORATE BONDS

Improvement in Risk Characteristics by Including Emerging Markets Index

Source: FactSet and JP Morgan, rolling 1-year returns from 1.1.02 to 3.31.15 Portfolio risk is measured by standard deviation of the returns.

THE EMERGING MARKET CORPORATE BOND UNIVERSE

Total Debt Outstanding (US$Billion)

EM CorporateUS High YieldEM Sovereign

0

500

1000

1500

2000

QTD 20152014201320122011201020092008200319981993

Size of Universe

The EM corporate bond universe is large, having tripled over the last five years and valued by JP Morgan at approximately $1.6 trillion (as of March 2015). The universe is heterogeneous and well-diversified by region, country and industry.

This universe encompasses over 70 countries, which provides opportunities to diversify and take advantage of different economic cycles.

Leverage in EM and DM (Net Debt/EBITDA)

1.67

2.24

1.31 1.20

3.132.85

4.57

3.70

Investment Grade High Yield

Developed MarketEmerging Market

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

BBBBBBA

Average Credit Quality

Last 12 Months Total Returns

-40%-30%

-4%-2%0%2%4%6%8%

10%20%30%

Dom

inic

an R

ep.

Czec

h Re

p.Th

aila

ndTu

rkey

Mal

aysi

aHu

ngar

yCh

ina

Phili

ppin

esPe

ruIs

rael

Hong

Kon

gIn

dia

Sing

apor

ePo

land

Mex

ico

Chile

Arge

ntin

aGu

atam

ala

Kore

aKu

wai

tUA

EQ

atar

Bahr

ain

Sout

h Af

rica

CEM

BI D

iv.

Indo

nesi

aSa

udi A

rabi

aJa

mai

caCo

lom

bia

Kaza

khst

anM

acau

Russ

iaBr

azil

Ukra

ine

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

EM SovereignEM CorporatesUS Corporates

A-

BBB+

BBB

BBB-

BB+

BB

BB-

B+

Quality of Securities

The majority (approximately 70%) of EM corporate bonds are rated investment grade. These ratings have converged with the rating of DM, making them an attractive way to diversify a portfolio. Shifting from lower quality high yield bonds into EM corporate bonds can increase the quality and diversification of an portfolio without sacrificing yield.

Fundamentals

One of the biggest misconceptions about EM corporate debt, that these companies are a riskier investment, we believe is incorrect. If you look at the balance sheets of these companies, you’ll see they are actually managed more conservatively than companies in the developed world. Leverage is lower across the credit quality spectrum and they run structurally higher cash balances as a proportion of total debt than DM corporates. Furthermore, given that the vast majority of these companies adhere to international reporting standards and many have outstanding public equity, issues of transparency and access to management are no longer impediments to investment.

Inefficiency and Alpha Potential

Given the heterogeneous nature of the universe, there is tremendous opportunity for active managers to select credits. With significant dispersion of returns, the market is increasingly doing a better job of differentiating between ‘good’ and ‘bad’ credits and improving versus deteriorating stories. This lack of contagion is positive for this universe, particularly as geopolitical and idiosyncratic headline risks have been elevated.

Source: JP Morgan as of 3.31.15

Source: Bank of America Merrill Lynch as of 3.31.15

Source: Bank of America Merrill Lynch as of 3.31.15

Source: JP Morgan as of 3.31.15

HOW TO ACCESS EMERGING MARKET CORPORATE BONDS

Each of the below strategies can be implemented using a combination of hard and local currency.

Approach Targeted Allocation Broad Allocation Unconstrained Allocation

Scope Invest in a product that exclusively buys EM corporate bonds.

Invest in a product that buys both EM corporate bonds and EM sovereign debt.

Benchmark agnostic, absolute return strategy geared to deliver positive returns irrespective to the underlying market environment.

Benefits Investor can choose a manager whose strategy and beliefs align with their own without having to research and trade individual bond issues. Retains precise control over how much of a portfolio is invested in EM corporate bonds.

Investor benefits from manager having full authority to use expertise in EM corporate bonds of both sovereigns and corporations.

Investor benefits from manager having full authority to use expertise in wide range of debt instruments while also making tactical decisions across bond sectors.

Drawbacks Manager is limited to EM corporate bonds and cannot buy other sectors, even if there are good opportunities elsewhere.

Manager is limited to EM corporate and sovereign bonds and cannot buy other sectors, even if there is good opportunity elsewhere.

Allocation to EM corporate bonds will only be a slice of overall allocation. Vehicles may not always be suitable for all investor types.

All figures as of March 31, 2015

RBC GLOBAL ASSET MANAGEMENT

n Over $300 billion in assets under management

n 1,338 employees worldwide

n 337 investment professionals

n Offices in the United States, Canada, Europe and Asia

RBC Global Asset Management (RBC GAM) fosters a culture of risk management, investment and service excellence. With experienced investment teams in the United States, Canada, Europe and Asia, investors around the world have access to our globally integrated investment platform and comprehensive range of results-driven investment strategies.

Contact UsRBC Global Asset Management (U.S.) Inc.50 South Sixth Street, Suite 2350Minneapolis, Minnesota 55402800.553.2143us.rbcgam.com

n In excess of $50 billion in assets under management

n Over 400 staff, approximately 25% are investment professionals

n Diversified institutional and financial intermediaries client base

We are next generation fixed income specialists. BlueBay was founded in 2001 in response to opportunities in the European corporate debt market, and in anticipation of the expansion of EM fixed income as an institutional asset class. Then as now, we aim to offer clients new thinking and fresh opportunities. With our hedge fund heritage and by staying true to our specialist fixed income roots, we pioneer new investment strategies using our broad range of sub-asset class expertise, with a focus on absolute return and capital preservation.

Emerging Market Corporate Debt Team is:• an international, multi-lingual team with deep roots in EM• from diverse backgrounds with complementary skill sets• a solely London-based team which facilitates quick decision-making• continuously leveraging the expertise of our 20+ person EM sovereign team

Head of DeskPolina Kurdyavko Senior Portfolio Manager

Average Team Industry Experience6 Portfolio Managers 12 years6 Credit Analysts 8 years2 Traders 20 years

14 Total 11 years

BLUEBAY ASSET MANAGEMENT

The JP Morgan Corporate EM Bond Index – Broad is an unmanaged index consisting of U.S.-dollar-denominated emerging market corporate bonds. The index limits the weights of those index countries with larger corporate debt stocks by only including a specified portion of these countries’ eligible current face amounts of debt outstanding. The JP Morgan Corporate EM Bond Index – Investment Grade is an unmanaged index made up of U.S. dollar investment grade corporate emerging market bonds representing Asia, Latin America, Europe and the Middle East/Africa. The JP Morgan Corporate EM Bond Index – High Yield is an unmanaged index made up of U.S. dollar corporate emerging market bonds representing Asia, Latin America, Europe and the Middle East/Africa, restricted to those that have a maximum rating of BB+ by S&P or Ba1 by Moody’s (based on the higher of the two). The JP Morgan EM Bond Index – Global Diversified is an unmanaged index made up of U.S. dollar denominated Brady bonds, Eurobonds and traded loans issued by sovereign and quasi-sovereign entities. It defines emerging markets countries with a combination of World-Bank-defined per capita income brackets and each country’s debt-restructuring history. The Barclays Capital Aggregate Bond Index is an unmanaged index made up of investment grade Treasury securities, mortgage-backed securities (MBS) foreign bonds, government agency bonds and corporate bonds. The BofA Merrill Lynch U.S. Corporate Index an unmanaged index that tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The BofA Merrill Lynch U.S. High Yield Index an unmanaged index that tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the US domestic market. The Standard & Poor’s 500 Index is an unmanaged index made up of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. The Barclays Capital U.S. Corporate High Yield Index is an unmanaged index considered representative of fixed-rate, noninvestment-grade debt.This document is issued in the United Kingdom (UK) by BlueBay Asset Management LLP (BlueBay), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission, the US Commodities Futures Trading Commission and is a member of the National Futures Association. To the extent this document is distributed outside of the UK, it is done so by the following respective BlueBay entities or affiliates. 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