What does the Credit Suisse fallout mean for bond holders?
It’s not often the Swiss Central Bank makes headlines. It is even more rare that bonds are a subject...
Our popular ‘speed dating’ event returned this week, with seven journalists interviewing seven fund managers for seven minutes each.
The theme was Elite Radar funds – those which have been launched within the last three years, or those that have had new managers take over, and which we think should be on investors’ radars as their track record is built.
Our guests were:
Colin Finlayson, co-manager of Aegon Strategic Bond
Neil Goddin, co-manager of Artemis Positive Future
Anjli Shah, manager of Aberdeen Standard SICAV I – Global Mid Cap Equity
Rosemary Banyard, manager of VT Downing Unique Opportunities
Carl Vine, manager of M&G Japan
Hugo Machin, co-manager of Schroder Digital Infrastructure
Ian Rees, co-manager of LF Ruffer Diversified Return
While the journalists looked for their scoops, we took the opportunity to get the managers’ thoughts on a few things ourselves….
Carl: The global political backdrop. With the exception of Japan, I don’t have much confidence in the political elite around the world. And that’s concerning. I just don’t think they understand how economies work.
Anjli: How long this phase of the market will last. Phase one was the market readjusting its expectations on inflation, and it resulted in a rotation away from the quality growth stocks I invest in. The market is becoming increasingly concerned about recession or a global slowdown, and I expect a flight to safety at some point – a flight back to quality growth. But I’m not sure when that will be.
Neil: Recession. It’s not nice for anyone and the cost-of-living crisis has gone to levels, no one thought it could go. Even people with a bit of money are feeling the pinch.
Colin: The possibility that central banks increase interest rates more than expected. At the moment, we expect rises to come to an end in the first or second quarter of 2023 – at least in the US. The UK has very different problems, and is less attractive from a fixed income point of view. The US is the most ‘normal’ environment, with Europe somewhere in between. But actually, we think Europe is more attractive than the US when it comes to corporate bonds, and we’re currently allocating more money there.
Ian: We’re natural worriers, so quite a lot! An overarching backdrop of higher and stickier inflation would be the main one though. The US central bank won’t stop raising rates until inflation is finished, or something breaks. It’s as much about not losing money, as making money in this market.
Neil: Energy security has changed the narrative forever and this means opportunities for renewable and clean energy will be accelerated.
Carl: Innovation and technology. It is simply stunning what is going on around the world, in artificial intelligence, cell and gene therapy, etc. And I think the progress we make in the next few years will be mind-boggling. It is exciting and unnerving at the same time, but it is
solving a lot of very big problems we have in the world.
Hugo: The unbelievable growth runway in Indonesia. The current level of communication penetration is very low, but everyone wants the same apps and connection as elsewhere in the world. It’s a population of about 265m people and quite wealthy, so I see it as a multi-generational opportunity.
Anjli: Mid-caps tend to do well coming out of recession, and I’m positive they will do so again. Whereas small caps are high growth, they also tend to need lots of rounds of funding, which could be more difficult, now rates are rising. Mid-caps tend to be more established, but still expanding and lower risk. They are also trading at attractive valuations today.
Ian: We think things could become much more challenging in the short-term, and the portfolio is positioned very defensively. But Energy stocks could do well. Valuations are reasonably low still, supply is constrained, and demand is not expected to fall. They can pay dividends, pay down debt and invest in new projects. All that can protect in this environment.
Rosemary: Autotrader. It is moving from being just a portal, to a vital connection. It’s embedding the data and processes into dealerships, giving guaranteed exchange prices, finance offers and delivery. It’s not retailing, it’s facilitating.
Anjli: Insulet. It’s a US-listed insulin pump manufacturer. The old way of getting insulin was multiple daily injections. But this company has tubeless insulin pumps that go on the skin, and you can control the glucose levels on a smart phone. It’s great for parents with children who need insulin, and it’s available through pharmacies. It’s also expanding outside the US now, and is an example of a product that people will still pay for in a recession.
Carl: Showda Denko [the chemical company]. It’s a multi-year story, with a new CEO, new CSO and new CFO – the most important people in the company have changed as a result of improved governance. It has incredible intellectual property, and I think it has the chance to grow substantially. I also like Renesas, the semi conductor company. It has a mixed history and some baggage, so the stock market has an emotional relationship with it, but the CEO is one the most impressive in Japan in my view. I think it can rival Infineon and that’s not yet reflected in the stock price.
Ian: Long-dated inflation-linked bonds. We own them, as there will come a point when central banks realise they can’t raise rates any higher. We’ve had a significant increase in yields, but people are not yet desperate for inflation protection. Central banks still seem to think we’ll be back at 2% in two years’ time, and when that thesis breaks, these gilts will do well.
Hugo: Tower Bersama in Indonesia, which has access to the huge growth story I mentioned. I also like American Tower, which is a more mainstream company, but like a regulated utility and pretty bullet-proof, and Helios Towers, a London-listed company with exposure to Africa and the Middle East.
Neil: TOMRA, the plastic bottle recycling company. The number of emissions it saves, is in excess of 20 million tons a year already, and that number will only get bigger.
Colin: The recent weakness in investment grade corporate bonds has made the risk/reward more attractive. Financials, in particular, stand out. They have been beaten up by the weakness, and there has been some forced selling, but they are well-capitalised and at
Anjli: Dino Polska. It’s a discount food retailer in Poland, and it’s gaining market share by opening in rural locations. With the cost-of living crisis, it’s attracting more and more customers. We held it in other funds as a small cap, and now it’s graduated to the mid-cap fund.
Rosemary: Aptitude Software. It provides software to finance departments to help them become more efficient. Take T-Mobile for example, which is one of its customers. T-Mobile customers have lots of different deals, different triggers over certain call minutes, etc. and it’s actually very complex. Aptitude translates all this into a report to form a trial balance.
Neil: Badger Daylighting. Traditionally, to fix a leaking pipe or broken cable, you’d need to dig a hole and you might get the wrong pipe or put people in danger if it’s an oil, or gas, pipe. Badger Daylight uses pressured water to find the problem. It saves money and lives.
Colin: Greek banks! If you had asked me 10 years ago if I’d ever invest in Greek banks, I would have said, no. But in the last few years, my perception has changed. Their creditworthiness has improved. They’ve used support from the EU well, sold off bad assets, cleaned up balance sheets and look good today.