00:00We spoke to you, of course, shortly after the U.S. ousted Venezuela President Nicolas Maduro.
00:06That feels like a long time ago.
00:09And it's interesting, you have an ETF, it's called the Virtus Stone Harbor Emerging Markets High Yield Bond ETF.
00:14And at the time, in the wake of Venezuela, of course, you're a holder of Venezuelan debt.
00:19You saw that as an opportunity.
00:22Are there any parallels that you can draw to this situation that we're seeing unfold in the Middle East right
00:28now?
00:28There are. So this is a significant development and it does have it does produce winners and losers.
00:34We're looking at Latin America and Africa as being the effective winners in this.
00:38Higher oil prices, certainly. But also, if you look around the Middle East, there's some there's been enormous volatility more
00:46recently and some spread widening.
00:47So we're actually looking at getting back into the Middle East, which we're underway right now.
00:51Getting back into the Middle East, does that involve investing in Iran directly?
00:55Is that something that you can do or do you kind of have to approach it around the sides, if
01:00that makes sense?
01:01You need to approach it around the sides. So we would love to be able to invest in Iran.
01:04Certainly that that's not something that that we can do as U.S. investors.
01:09We would certainly need to see a lot more clarity on the endgame here.
01:12We're only three days into this, but that's something that at some point will be in our available investment list.
01:20Yeah. So I was looking at your portfolio. The closest country you have, it seems to be, is Bahrain.
01:26You have two percent and you just added it. This is pretty interesting to me.
01:31That is across the Gulf from Iran. It is very close. You have Israel as well.
01:35Let's start with the first one, though. Why did you buy it and what do you expect to happen here?
01:40So we saw a lot of spread widening heading into this. Obviously, the ships in the region, the rhetoric going
01:45back and forth.
01:46And we saw spread widening in most of the Gulf countries, including Bahrain, the biggest one and the least credit
01:52worthy.
01:52So we began adding into it. We're still fairly significantly underweight there.
01:56We would expect that over the next several days that'll play out and we may be looking to add more
02:02there.
02:02And let's talk about what Katie tapped into, which I always find interesting.
02:06There's there's a group of countries that are sanctioned. You can't invest in them. You can't travel there.
02:10Let's say it gets democratic in Iran and it comes back.
02:14Do you kind of salivate to invest in a country that is going through a process like that?
02:20Is that a good thing for an investor, a bondholder, or do you want to wait a while?
02:25How does that work? And are there any precedents for this?
02:28Depends on the price. So we would assume that the Iranian debt would be on default.
02:32So my history is in defaulted debt. So we would look at that from from what is the restructuring value.
02:38There could be enormous potential in Iran further down the road.
02:42So we'd like to get into that that trade, a restructuring trade early on.
02:46And there are precedents here. So we've done most of the countries in my market.
02:50At one point, we're in default. You know, we've we've seen we still have Venezuela and Lebanon in default right
02:56now.
02:56And we would expect that that over time those will be restructured.
02:59And Iran will hopefully be part of that at some point as well. But that's a ways off.
03:03I do want to get to Venezuela. But before we get there, you clearly have a pretty high risk appetite
03:08compared to most of the investors that we speak to.
03:11And I hear what you're saying that down the road there could be a lot of potential in Iran and
03:16the broader Middle East.
03:16But at what point, you know, if we do see broader regional disruption here, would you maybe take a step
03:23back altogether?
03:24I think that's exactly the trade. So we probability weight everything that we invest with at Stone Harbor.
03:30And we went into this given all the volatility in the region and the ships in the region underweight the
03:35Middle East.
03:36So we're looking at it from the standpoint of, OK, now we've had a repricing.
03:40Let's look at the endgame here and let's try to factor in what the potential upside is.
03:44And I think at this point, you know, we're still pretty early into this, so only almost three days into
03:49it.
03:50So as this week plays out and we see what the data looks like, we may be looking to add
03:55add more to the Middle East.
03:57And you have really ramped up your exposure to South America, right?
04:01Let's talk about Venezuela. You've also beefed up on Argentina and that has paid off.
04:05In your portfolio, Venezuela bonds are up 46 percent year to date.
04:09When do you sell those and what's your what's your plan for the rest of South America?
04:13That's a good question. Last time I was here, I think they're up 30 percent.
04:16So we're happy. We're happy to stay overweight right now.
04:19What we see in Venezuela is a fairly significant change and that's likely to continue.
04:24So oil production is up from roughly six, seven hundred thousand barrels per day to about a million.
04:30We've seen some significant changes in the judiciary.
04:32We've seen some prisoners release. We've seen a real warming to the relationships of the United States.
04:38And also oil exports are being more directed towards the to the government as opposed to corruption.
04:43That's a positive. So we want to stay long, Venezuela.
04:45When do we get out? Again, it depends on what the facts look like down the road.
04:49Right now, we don't we don't see an environment where the restructuring value of the debt that we own will
04:55be will be will be lower than where it is now.
04:57We think it'll be much higher. So we want to be in that for the time being.
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