KJ Sinha, fund manager, fixed income, talks about his approach
How would you sum up your investment approach?
Fixed income investing needs a multi-tiered approach. We use a top-down macro-driven approach first to look at broad trends across different geographies, looking at inflation, growth and interest rates across the G7 developed markets we invest in. We form our views on the stage of the economic cycle of the region, particularly forward inflation expectations, which feed into our duration sizing.
We also use our macro assessment to form our view of sectors we should be invested in. We then use a bottom-up approach to choose the credits we want to invest in. We use our in-house credit analysts to conduct fundamental analysis into each company that we buy for our funds. Our aim while investing for our clients is to ensure capital preservation while generating a regular income from the coupons. We have a strong track record of preserving capital and generating excess returns over benchmark by focussing on safety first and being patient in order to take opportunities whenever they arise.
What is your current favourite investment play (over the time horizon of your choice)?
The series of rapid rate rises across US, UK and EUR over last 18 months has caused a lot of misery for fixed income investors. However, this has meant the yields being offered by corporate bonds is now a lot healthier and provide some downside mitigation to any further rate rises. While there is no certainty in investing, the current yield levels give us confidence that going forward bonds are an attractive asset class that should work in their traditional role of risk diversifier while offering an income.
US, Europe or UK?
Currently, investment grade sterling corporate bonds are my favourite investment play. Compared to the US and Europe the yields are highest given the rise in underlying gilt yields. The credit spreads are also trading close to the upper end of the historical range. In my view, even if a recession were to hit the UK the spread move would be relatively contained and higher yields provide a buffer against losses.
What do you view as the biggest current investment risk?
The current expectation of the market is the current trend of falling inflation (albeit from higher levels) will continue and central banks should be able to bring inflation back down to the 2% area without causing a hard landing in the economy. The risk to this thesis is if inflation were to rise again by the end of this year or early next year.
What would you never invest in?
I don’t go for definitive exclusions because as an investor we need to look at the best risk-reward opportunities for our clients on a broad basis. However, one aspect which I consider quite important for long-term returns is governance. A company failing on governance has a greater probability of making poor decisions and investments that put its ability to pay back its creditors at risk.
What is your main ESG consideration?
We put ESG considerations at the core of our investment process, which is aligned with both our investment strategy and CLAM’s wider responsible investment strategy. We take a holistic approach to ESG, with integration and engagement at the core of it. Before we invest, we first screen the investment using a third-party research tool, before conducting our own assessment for companies that are flagged by the tool. You can read more about our approach to ESG within Fixed Income here.
Which investor/economic thinker do you most admire and why?
I greatly admire the behavioural economist Daniel Kahneman. His work on human biases in decision making, in my opinion, has been key in challenging my biases and helping me make more rational decisions. I believe behavioural economics enriches our understanding of financial markets by incorporating behavioural and psychological factors into our analysis. By considering the impact of human behaviour on decision making, investors can make more informed decisions and better navigate the complexities of financial markets.
What is the best advice you’ve ever been given?
Be patient and disciplined in your investment approach. Avoid making impulsive decisions driven by emotions or short-term market movements and stick to the investment process and plan.
Disclaimer
The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice.
No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness.
Canada Life Asset Management is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Promotion approved 16/08/23