Wealth, Liquidity and Credit Resilience
A country’s Net Foreign Asset (NFA) position - the surplus of its foreign assets over its external liabilities - has become an increasingly important indicator of sovereign resilience in an environment marked by higher rate volatility and fiscal uncertainty. A strong NFA position provides a form of financial buffer, supporting sovereign credit quality and helping to stabilise funding conditions for both governments and their affiliated issuers during periods of market stress.
The EPIC Fixed Income strategy is constructed around this principle, with core allocations to asset-rich sovereign ecosystems such as Abu Dhabi, Qatar, Saudi Arabia, and Norway. These issuers combine high-quality balance sheets with strong external positions and high credit ratings. In addition, they continue to offer modest yield premiums over US Treasuries, a feature that has become less common as fiscal pressures increase across many developed markets. Norway’s Equinor illustrates this profile, benefiting from both the country’s exceptionally strong net creditor position and its long-standing reputation for conservative fiscal management.
Alongside these structural anchors, the strategy maintains a meaningful allocation to US Treasuries. Despite the US’s negative NFA position, the US Treasury market remains the most liquid and widely used risk-free reference globally. In 2025, Treasuries performed strongly across G7 markets as inflation moderated and the Federal Reserve shifted toward a more accommodative stance, with the Bloomberg UST Index gaining 6.32%. Within the portfolio, Treasuries primarily serve as a liquidity and duration hedge, providing flexibility and downside protection during periods of heightened uncertainty.
This framework creates a balanced portfolio structure. Higher-yielding opportunities in select emerging-market quasi-sovereigns are complemented by the stabilising characteristics of USTs. A key example is Mexico, where the strategy has focused on the convergence between the sovereign and its major state-owned enterprises, Pemex and CFE. Over recent years, the market has increasingly treated these entities as sovereign-equivalent credits, reflecting the government’s explicit support. As portions of Pemex’s liabilities have been absorbed onto the national balance sheet, the yield spread between Pemex bonds and Mexican government bonds has narrowed, contributing to both income and capital appreciation. Pemex’s 2050 bond, for instance, delivered returns above 30% last year.
Looking ahead through 2026, these core themes remain relevant. As investors navigate an environment of uneven growth and constrained public finances, balance-sheet strength and liquidity are likely to remain central considerations. Duration can also remain an important contributor to performance as monetary policy cycles mature. By combining global liquidity through US Treasuries with exposure to asset-backed sovereign and quasi-sovereign credits, the EPIC strategy seeks to maintain a measured balance between capital preservation, income generation, and long-term return objectives.
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