In this series of profiles, we ask leading fund managers to reveal everything from their investment strategy, to their views on cryptocurrencies, famous business leaders they look up to, and what they’d never invest in.
This time our interviewee is Michael Matthews, fund manager of the Silver-rated Invesco Corporate Bond fund.
1. Which sector provides the biggest investment opportunity as we approach the end of 2021, and why?
I wouldn’t say there is any sector of my market that offers a stand-out opportunity for yield. All parts of investment grade have been strong this year and spreads are tight. Right now, I think it’s more about doing the fundamental research at the bond level to find the opportunities for incremental yield and to avoid taking risks that aren’t sufficiently rewarded. There’s a lot of supply, so there is plenty of work to do!
2. What's the biggest economic risk right now?
Inflation is always a concern for bond managers and I’m wary of the risk that poses. But in terms of what might create volatility in my market right now, a change in expectations for monetary policy is high up the list.
3. Describe your investment strategy
I want my clients to be paid for the risk they take. We work to understand all the risks in the bonds in our market and then build the portfolio with the aim of delivering good returns on a risk-adjusted basis. Sometimes, like last year, that can mean taking more risk because there are good rewards. Other times, like this year, it can mean taking less risk and not chasing returns.
4. Which famous investor or business professional do you look up to, and why?
Any investor who has managed their clients’ money sensibly through multiple cycles. In my career I’ve seen managers operate in very different circumstances, through different macroeconomic environments and different monetary regimes, and through multiple crises. Spotting the opportunities and setting the right course looks a lot easier in retrospect than it does at the time!
5. Name your favourite forever stock(s)
It’s gone now, but the Barclays 14% that they issued in 2008 I would have loved to hold forever. It traded as low as 76 and as high as 139, so there were lots of opportunities along the way as well as that 14% coupon. It was a mainstay in my funds until it was called in 2019. Paul Causer teased me at the time, “what are you going to buy now Mike?”
6. What would you never invest in?
There are plenty of things I cannot invest in within the parameters of the mandates of the funds I manage. However, my philosophy is not to rule anything out, and keep an open mind as long as the valuation stacks up.
7. Growth or value?
In my world this translates to ‘credit or duration’. Despite credit spreads being close to record lows, I’m much more comfortable taking credit risk over duration risk from here.
8. House or pension?
Both. You need something to live in and you need something to live on.
9. What are your thoughts on crypto?
As a bond investor I’m focussed on the income stream and return of capital on the investment. So, it’s fair to say it’s not an area I’m looking at.
10. What can be done to increase diversity in the fund management industry?
I think the industry is waking up, but we’ve a long way to go. Skewing the industry intake into more diverse groups is a good start.
11. Please give an example of how you’ve engaged with a company you invested in where you were particularly proud of the outcome? (Or disappointed!)
The engagement we do is carried out by our credit analysts when we can, or we ask our ESG team to coordinate with the relevant equity teams when it’s less easy for us to engage. We’ve had some notable successes, although I’m very aware that some of those issuers we’ve pushed hardest are also big investors in my funds. One area that’s added value to our funds has been the great work Julien Eberhardt has done in pushing the banks to tidy up some of their legacy securities. We added discounted perpetual bonds a few years ago at nice discounts to par and through engaging with issuers, being active in bondholder groups and also involving the FCA and PRA we’ve now seen most banks call these bonds at par.
12. Best bit of advice you’ve ever been given?
To do what’s in the best interest for your investors, even when it can seem uncomfortable. Avoid giving them any nasty surprises and they can remain invested with you for a long time.
13. What would you do if you weren’t a fund a manager?
If my weekends are anything to go by, I’d be a full-time taxi driver for my kids!
