Capital Group's portfolio managers have been riding the highs and lows of fixed income for 50 years and have been sharing their insights
In a fast-changing world it sometimes seems like nothing is like it used to be any more, whereas many things are actually much the same and provide us with valuable insights.
Take bond investing. The current market feels bumpy, with what appears to be the end of the low interest rate environment and inflation still higher than it should be given the rate hiking.
But for Capital Group, with 50 years of actively managing fixed income portfolios for investors, this is one of the multitude of scenarios their portfolio managers have seen over the years.
Four of their most experienced PMs, including two who are now retired, have been sharing what they make of the current market based on what they have seen before.
The simple power of coupons
Kirstie Spence, portfolio manager, Capital Group Multi-Sector Income Fund™ (Canada) has 27 years of industry experience and says that the concept of fixed income investing is simpler than many people think, thanks to a nugget of wisdom shared with her by a seasoned PM: “Your most important job in fixed income is not to lose money.”
“One of the things that gets forgotten with bonds is simply the power of a coupon,” Spence said. “In most bond structures, you earn an interest rate that is paid out over a specified period. The coupon is a powerful cushion in terms of protecting that investment.”
Know when to surrender
Mark Brett, retired after 20 years with the firm as portfolio manager, Capital Group Global Balanced Fund™ (Canada), Capital Group Canadian Core Plus Fixed Income Fund™ (Canada), Capital Group World Bond Fund™ (Canada) says investors should not hang on to bad ideas.
High-profile examples include fuelling asset bubbles such as the tech bubble of the late 90s and the housing bubble in 2007.
“The biggest lesson is some important lessons come from mistakes. Part of being a good investor is knowing when to surrender a bad idea and move on. Don’t ignore the obvious,” he said.
Company relationships are key in credit markets
David Daigle is a portfolio manager with 28 years of experience and says that having good relationships with the management of portfolio companies is hugely beneficial in credit markets.
For the companies, it means they get to hear the views of the investment community to help them with their decision making, and there is a benefit for the PM and their clients.
"In active management cultivating strong connections with the C-suite of the companies we invest in is essential. What we get as investors is a better understanding of their strategy and whether they are good candidates for our portfolios," explained Daigle.
Collaborative research is crucial
John Smet, retired as a portfolio manager after 36 years with Capital Group and is now a fund investor. He says the two contrast sharply in terms of assessing investment opportunities.
“There are questions in many investors’ minds. Those questions are difficult to answer for professional investors with vast resources. But they’re near impossible to answer as a shareholder. As I look at the world and the markets, I see how blessed I was to have all those resources as a fund manager and the value of collaboration,” said Smet.
The full article is available on the Capital Group website.