Mara Dobrescu: This is Mara Dobrescu and I'm here at the pan European Morningstar awards for investing excellence. I'm here with Michael Krautzberger, who has won the Outstanding Portfolio Manager of the Year award.
Congratulations, Michael for your award.
Michael Krautzberger: Thank you very much.
Dobrescu: Well, it's been a challenging period for fixed income investing. Bond yields are extremely low. Investors may be asking themselves, is it even possible to still make money from bond investing in these circumstances? How have you adapted to this?
Krautzberger: Yeah, it was definitely a decade with a fair deal of crisis as well, the Euro crisis, the U.S. crisis. I think our strength was always not to be too top-down just saying, oh, yields will rise, we need to be short duration or we need to long credit, be very bottom-up, having a team approach and really creating a portfolio of bottom-up trades which are not necessarily dependent on the yield level. For example, overweight in one country versus another, being long financials versus industrials, having a yield curve trade. And I think that will be what we are focusing on. What we really need is a world where things are happening. And if you look at political risks in China, in the U.S.; if you look at central banks, where it's quite unclear what's the next step, I think there's still a lot of opportunity for alpha and hopefully, to have reasonably attractive returns going forward as well.
Dobrescu: Okay. And what do you think sets your investment style really apart from most other managers in this field?
Krautzberger: Yeah, I think what sets us apart is really this focus on bottom-up and really finding high confidence trade, we then build the portfolio off and also sometimes to step back and say, oh, you know what, at the moment, we don't have a strong view on euro dollar. We've built a lot of other trades, but we leave euro dollar alone until we have a strong few. So, always almost observing the market, where's consensus, where's the market price and then coming in when we feel, oh, now it has really gone too far for one side. So, building a diversified portfolio of relative value, and also have a very much a team approach, where not every trade is dependent on me where really everyone is contributing trade ideas.
Dobrescu: Okay. And what do you make of the competition from passive investing in European fixed income? Is it a threat? Is it an opportunity?
Krautzberger: Working at BlackRock I get that question quite a lot, because iShares is quite a relevant passive vehicle. And I actually worked for 2011 to 2014, I worked for our German office and was responsible for the iShares business there. So, I actually have some emotional attachment to that business. And even at that time, said, well, if you are an active manager, you have some pressure to beat the benchmark, to beat the benchmark by more than the cost. If that's not happening, it doesn't matter if it goes to passive, or if it goes to a successful competitor, it will not stay with you. So, to me, it didn't change the pressure.
If you are an active manager, you always have to show value for money. And maybe it's almost a good thing. We now maybe have an investor who would say, oh, I don't want active anymore, it could stay in BlackRock. But obviously, it's my job to convince them that active has a good proposition. Hopefully, this award shows that we are doing something right. And I would actually argue the negative yields in Europe will probably help that people will look for active solutions because you know that yields will be very, very low if you stay in passive.
Dobrescu: All right. Well, thank you for your answers. Congratulations again on your award. Thank you for watching.
