Video transcript
Speakers
Transcript
Victoria: Hello, I’m Victoria Bartlett, Senior PR Manager here at Rathbones. I’m delighted to be joined today by the Fixed Income team at Rathbones Asset Management. Thanks, everyone, for joining me. Let’s start by introducing yourselves.
Stuart: Thanks, Victoria. I’m Stuart Chilvers, a Fund Manager in the Fixed Income team, and I’ve worked at Rathbones since 2017. As you can probably hear from my accent, I’m originally from South Africa.
Christie: My name is Christie Goncalves and I joined the Fixed Income Fund Management team at Rathbones in 2024.
Elisa: Hello, I’m Elisa Bellantonio. I’m a Senior Fixed Income Credit Analyst and have been with the team since 2018.
Bryn: Hi, I’m Bryn Jones, Head of Fixed Income. I’ve been with the firm since 2004. As you can probably hear from my accent, I’m from Gravesend.
Victoria: Bryn, can you give us an overview of the fund and the core principles that sit at the heart of it?
Bryn: The core principle of the fund is allocating across a broad range of fixed income asset classes to deliver the best risk-adjusted returns over the long term. The fund aims to generate strategic sector returns with lower levels of volatility while maintaining a very low correlation with equities. That philosophy underpins how we construct and manage the portfolio.
Victoria: Let’s dive into the process a bit. When you’re scanning the investment landscape, how do new ideas surface and become portfolio positions?
Bryn: We start by determining asset allocation across a range of fixed income sectors, including government bonds, index-linked gilts, high yield, global credit and emerging market debt. We operate around core benchmark weightings and use defined ranges to ensure we don’t take excessive risk or become overly defensive.
Each year, we run an efficient frontier analysis to assess whether our strategic weightings remain appropriate. Where assumptions change, allocations may also change. Once that work is complete, we allocate within each sector using the Rathbones investment process, with different team members responsible for specific areas of the portfolio.
Victoria: Once positions are in the portfolio, how do you manage risk and decide when to adjust allocations?
Bryn: We manage positions within our asset allocation framework, adjusting duration, credit risk and individual security exposure where appropriate. The process combines top-down macroeconomic analysis with bottom-up security selection.
We monitor market developments, carry out credit research, review broker research, meet company management teams and conduct ongoing valuation analysis. Importantly, decisions are made as a team, which helps create a robust and consistent investment process.
Victoria: If investors could take one thing away about the fund, what would you want that to be?
Bryn: The fund offers a diversified fixed income return with relatively low volatility and low correlation to equities. It’s managed within a disciplined risk framework and benefits from a team-based approach that reduces reliance on any single fund manager.
Victoria: Stuart, do you invest in inflation-linked bonds within the strategy and how do you assess them?
Stuart: Yes, absolutely. Inflation-linked gilts are one of the sub-asset classes with defined minimum and maximum exposure limits within the fund. We can also invest in inflation-linked bonds from other countries through our global government bonds allocation.
When assessing them, we consider several factors. These include where breakeven inflation rates are trading, the level of real yields available and the diversification benefits they can bring to the portfolio. Short-dated inflation-linked bonds can provide useful protection if rising inflation becomes a significant risk to broader markets.
Victoria: Christie, how do you assess risk and identify opportunities in emerging markets?
Christie: Emerging markets reward curiosity because every country has its own economic, political and institutional story. We don’t treat them as a single asset class.
An attractive opportunity must satisfy two key criteria: fundamentals and valuations. To assess fundamentals, we use an in-house sovereign macro dashboard that evaluates indicators such as growth, inflation, fiscal accounts, debt levels, foreign exchange reserves and current account balances.
We also assess monetary policy, central bank credibility and political developments, as politics can change a country’s outlook very quickly.
Strong fundamentals alone are not enough. We also need attractive valuations. We compare countries with peers of similar credit quality and assess whether investors are being adequately compensated for the risks involved.
Once we identify both attractive fundamentals and valuations, we look for additional catalysts such as economic reforms, political improvements, strategic partnerships or potential credit-rating upgrades.
Risk management remains crucial because emerging markets can be volatile. Position sizing, staying informed and being willing to challenge our own views are all key parts of the process.
Victoria: Elisa, what separates a high-yield company from a bad company?
Elisa: A good high-yield company is often a business in transition, sometimes even an investment-grade company in the making. Companies may borrow to fund growth, acquisitions or investment opportunities, and that can temporarily increase leverage.
The key question is how that borrowing is being used. Is it supporting future growth and strengthening the business, or simply helping a struggling company survive?
I want to understand whether management has a clear plan for reducing debt and improving the balance sheet. Covenants are also important because they provide protection for bondholders and can indicate management’s commitment to financial discipline.
At the same time, a good company can still be a poor investment if its success is already fully reflected in the bond price. Conversely, some companies remain stable double-B credits for many years and can still offer attractive investment opportunities when purchased at the right valuation.
A bad company, by contrast, typically allocates capital poorly, fails to improve over time and ultimately weakens its competitive position. My role is to understand the difference and identify those characteristics before they become obvious to the broader market.
Victoria: What type of investor is this fund designed for?
Bryn: This fund is suitable for investors who want to outsource fixed income asset allocation decisions to an experienced team. It may also appeal to investors seeking a steady level of income alongside lower correlation to higher-risk assets elsewhere in their portfolios.
