In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This time our interviewee is Omotunde Lawal, head of emerging markets corporate debt at Barings, where she also manages the Morningstar 5-star rated Baring Emerging Markets Debt Short Duration fund.
Which Sector Shows The Biggest Promise in 2022?
Events in Ukraine have created considerable uncertainty for emerging markets corporates, and the current environment remains fluid and difficult to predict. The economic sanctions put in place and the supply side distributions have resulted in prices for oil and other commodities spiking, adding to inflationary pressures globally. However, there will be corporates that benefit. Specifically, crude exporters in Brazil, Mexico, Colombia and mining companies in Peru, Chile and Brazil, and soft commodity exporters in Latin America. The global re-opening of economies following the pandemic is also set to continue and we expect some bright spots in support of global economic activity.
What's The Biggest Economic Risk Today?
Geopolitics. The unintended consequences of Russia's invasion are the elevated energy costs, the additional fiscal costs for countries to provide subsidies at the national level for the elevated commodity and food costs, not to mention the spill-over effect for inflation/higher rates globally. Then you also have China and its continued zero-Covid-19 policy, and a new three-year anti-money laundering campaign, which could cause further downward drag on the Chinese economy beyond what the market expects.
Describe Your Investment Strategy
Our investment strategy focuses on each individual issuer based on its own unique business model. Our process involves detailed, bottom-up, fundamental analysis, while combining detailed ESG analysis.
Which Investor Do You Admire?
Ark Invest chief executive and chief investment officer Cathie Wood, because she is a woman making history. She is blazing a trail in the investment world.
Name Your Favourite "Forever Stock"
I am a fixed income investor, so I will go with a bond issuer, Petrobras, which is the Brazilian National Oil company. Petrobras has been one of the biggest turnaround credit stories in recent years. The company was struggling and on the brink of default back in 2015/2016 with the Lava Jato scandal, but since then it has transformed itself into a best-in-class integrated oil company.
What Would You Never Invest In?
Bonds where we find the level of corporate disclosure from such issuers sub-par to the typical levels needed to conduct a proper detailed fundamental credit analysis. In light of recent events, quasi-sovereign issuers in jurisdictions with weak sovereign governance such as the type seen in Russia.
Investment Grade or High Risk?
Given the numerous idiosyncracies in several high yield emerging markets countries like Turkey, Ukraine, Brazil, India, and China at the sovereign level, the high yield segment of the market provides more opportunities to leverage market dislocations where bond prices are not justified by fundamentals.
House or Pension?
House, as it’s a physical asset, which could be a good hedge against inflation.
Crypto: Brilliant or Bad?
It's useful as a diversification option, but investors should also bear in mind that it’s important to diversify within a crypto asset class as well.
What Can be Done to Increase Diversity in Fund Management?
It's not just about attracting diverse talent. Firms also need to nurture, train and develop it so people can push beyond the glass ceilings. It's also key to have diversity champions at a senior level. They should advocate for and champion diverse talent in rooms and spaces people may not normally have access.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We engaged with issuers in the Brazilian protein sector on ESG. Protein, especially the beef sector, is one of the largest CO2 emitting industries. As a result of the engagement by a group of investors with these issuers on climate change, we have seen all issuers in the sector start to set targets around reduction of scope 1 & 2 emissions. They are also using geo-spatial monitoring tools to combat deforestation risk within their cattle and grain supply chains. There's much more to do, but the change is encouraging.
What's The Best Bit of Advice You’ve Ever Been Given?
If you can’t explain what a company does to your grandmother then you shouldn’t invest.
What Would You Be if You Weren’t a Fund Manager?
A chef! I love to experiment with fusion dishes!
