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Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Anthony Gillham, Co-Head of Multi-Asset for Old Mutual.
Hi, Anthony.
Anthony Gillham: Hi, Emma.
Wall: So, we're running a back to basics week this week and we're focusing on retirement today and that ties in with the fund range that you run and it's looking at how to build a portfolio for retirement in retirement. How does one go about that?
Gillham: Yeah, that's right, Emma. Yeah, actually, I think it's an interesting challenge and when we were building those portfolios last year, a lot of the market research that we've done and some of the work with advisors actually indicated that whist there were a lot of investment solutions out there that have been designed for customers who are actually accumulating money for their retirement, there's actually very little out there to help customers who want to remain invested in retirement but draw an income from their retirement savings.
So, we spent quite a lot of time working with advisors really just to understand what are the, I suppose, most important or kind of the key characteristics that investors expect. And I think there's broadly three things that we're looking to do. The first is flexibility. So, very interestingly, the generation portfolios that we designed, they don't target a specific level of income.
Actually, what we're trying to do is by defending on the downside, guard against this so-called sharp market drawdowns and actually allow clients instead of just relying on taking an income, which is quite flexible actually, to be able to withdraw from portfolios whatever their income need might be. So, we're looking to defend on the downside.
The other risk that we're looking to mitigate, I suppose, for clients who are looking to take retirements savings or take a retirement income rather from retirement savings, is of course inflation. Inflation is running quite low at the moment but there are some nascent signs that inflation is picking up.
And so what we're trying to do is to put together a diversified blend of different types of assets; so company shares, corporate bonds, but also real assets, so infrastructure assets, for example, that aim to guard against the effects of inflation that over a 20 or 25-year retirement period actually might eat quite substantially into the ability of retirement portfolio to generate that income.
Wall: And income is what everyone wants in retirement, but it's no mean finding income in this current market environment. The Bank of England has just dropped interest rates for the first time in 7.5 years, 0.25%, bond yields have come down. Some equity players which previously were paying out very healthy dividends have been hit by market losses and so therefore are no longer paying dividends. So where do you find that sustainable flexible level of income for those people in retirement?
Gillham: Well, I think being a multi-asset investor really helps with that actually. Of course, being a multi-asset investor means we can pick from across different asset classes, whether it's company shares, whether it's corporate bonds, whether it's even cash actually, that's certainly an investable asset for us. So, by tilting the portfolio to, I guess, where we see the most attractive risk-adjusted returns, I think we can continue to meet those objectives that clients have.
Now, you mentioned, the Bank of England recently cutting interest rates, extending its quantitative easing program, actually extending its quantitative easing, its money printing program actually further than just government bonds but into corporate bonds as well. Well, actually, corporate bonds is an area that we've been favoring really over the past, I'd say, 9 to 12 months really emphasizing those types of investments in our portfolio. And of course, particularly in the U.S. actually, there's an interesting example.
Last year a lot of the market in the U.S. actually had a little bit of a torrid time as yields started to rise in the U.S. on the back of the energy crisis. So a lot of corporates running into a little trouble as the oil price fell quite sharply last year. That actually prompted a number of investors, actually quite a lot of investors in the U.S. to withdraw their money from the asset class and of course, there's this classic supply/demand thing.
If there' too much supply and not enough demand, well the price goes down. Well, that's an opportunity for investors such as ourselves and we've been emphasizing that corporate area of the market and I think there's still actually some quite attractive risk-adjusted yields.
Now, of course, in an environment where you've got quite attractive risk-adjusted yields in corporate credit, particularly in the U.S. but by the same token, you've got central banks continuing to print money, continuing to cut interest rates, well that really opens up the opportunity for that asset class to really perform quite well and certainly, we've seen that over the last nine to 12 months. And certainly, since the Bank's decision back in August we've seen some really good performance from corporate credit.
Wall: Anthony, thank you very much.
Gillham: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
