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 Ricardo Adrogué, head of global sovereign debt at Barings, who manages the Morningstar Silver-rated Emerging Market Sovereign Debt fund and the Bronze-rated Emerging Market Local Debt fund.
1. Which sector provides the biggest investment opportunity as we approach the end of 2021, and why?
As we approach the end of 2021, global central banks are starting to remove accommodation and the emerging markets fixed income environment has become more challenged. Credit, both corporate and sovereign credit, seems to offer the best opportunities in the current market context. Should global central banks waver in their decision to start withdrawing accommodation investors should be ready to jump into emerging market currencies.
2. What's the biggest economic risk right now?
A miscalculation of inflation, either concluding that it is not temporary when it is, or the opposite. The Fed is increasingly concerned that inflation may be here to stay and is preparing to act to confront it. The risk here is that the Fed overreacts and prevents a sharp economic recovery that has started to take hold from transforming itself into true economic growth/expansion.
3. Describe your investment strategy
On the basis of detailed country analysis, we estimate the probabilities of default, positions in the economic cycle, and degree of economic competitiveness to invest in USD sovereign bonds, local currency sovereign bonds, and currencies respectively. These are three distinct investment processes based on distinct investment philosophies that zeroed into the key risk drivers of returns for each of the assets in which we invest.
4. Which famous investor or business professional do you look up to, and why?
Our work focuses on economic analysis and in that field a name we respect very highly is Larry Summers, the former Treasury secretary under Bill Clinton and former director of the National Economic Council for President Obama. He has never been shy in stimulating controversy as a thinker and politician and has made important contributions across many areas of economics.
5. Name your favourite forever stock(s)
The top economies, our favourite countries to invest are Poland, Israel, and South Korea. These countries have seen high levels of growth over the last decade and have hosted industry-leading cutting-edge companies. Both Israel and Korea are countries that have shown the ability to grow at high rates and achieve high living standards. Though they are small geographically, they have productive and competitive economies and from a macroeconomic perspective, they are diversified and balanced. We believe they are both solid credits and safe places to invest.
6. What would you never invest in?
Cryptocurrencies, I don’t understand them enough to be able to have any confidence in the value I would assign to them.
7. Investment grade or high yield?
The global economy and emerging markets have been recovering from the shock of the pandemic this year. Not surprisingly, high yield has done better than investment grade. High yield had suffered more at the inception of the pandemic and some of the good returns are still a recovery from the initial shock. But more fundamentally, as US rates have gone higher on the back of the US recovery, the investment grade space has suffered. This has not been an important headwind for high yield (rising US rates).
8. House or pension?
A diversified portfolio that includes both is ideal.
9. What are your thoughts on crypto?
I don’t think many understand the fundamentals of crypto, it’s a risky investment which could be profitable but could also lose all of your money. Great concept. Great potential. Many limitations.
10. What can be done to increase diversity in the fund management industry?
At Barings, we have very extensive internship programmes to showcase the industry and look for talent with the widest possible net. We believe that in an increasingly complex world, diversity of views will be the winning investment strategy.
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!)
Gabon, in Central Africa, is a country where our team has been encouraged to increase transparency and we have been proud of the progress that has been achieved. Through multiple meetings, we have advised the Gabonese authorities on the need to provide greater transparency and quality data on the fiscal accounts.
We have explained to companies that this data provision would give investors the ability to understand their constraints and see how they react under evolving economic conditions. It is a gradual process but transparency has improved and investors are happy.
12. Best bit of advice you’ve ever been given?
It’s always best to take it one day at a time.
13. What would you do if you weren’t a fund a manager?
I would definitely run for office.
