13 Questions for Invesco’s Alexandra Ivanova

Which Sector Shows the Biggest Promise in 2024?

Being a credit fund manager, my preference leans towards the credit markets. By definition, these are more leveraged companies. Within credit, I like European banks across capital structure: from senior to subordinated debt. Bank equity valuations are mostly driven by growth and profitability. Of course, those things matter for credit as well. However, when there is a weak economic backdrop, banks tend to be more conservative – they preserve capital, cut costs, increase liquidity, and focus on asset quality which helps bonds. And most of the bonds are trading at a meaningful discount currently.

Additionally, after the debacle with Credit Suisse AT1 bonds, other banks have been supportive of their lowest capital bonds by calling them at call dates and refinancing them. The new bonds are coming in with healthy coupons which provide investors with high current income to compensate for volatility.

What's the Biggest Economic Risk Today?

Without a doubt, it’s the risk of stagflation. In that event, all asset prices would suffer and the only game in town would be cash. A growing economy can deal with a moderate level of inflation. However, if inflation returns with second or third round effects, while economies fall into recession driven by high interest rates and tight financial conditions, this would be the worst type of macroeconomic environment for companies to deal with. It would mean the end of the road for many firms that are highly leveraged, unable to generate cash, and cannot access sources of funding. The public sector could try to cushion the blow. However, as the governments are highly indebted, there is limited room to provide strong fiscal support without fuelling inflation further.

Describe Your Investment Strategy

There are three pillars to my strategy: First, to focus on long-term horizon. It is easy to get distracted by daily news flow and the next central bank decision. For my portfolios, I start with strategic asset allocation that helps me take a step back and thinks of the big macroeconomic picture and asset class valuations.

Second, to manage risk appropriately. It is about calibrating between factors that are intentional and those that are unintentional. I like to balance risks between systematic macro factors, beta risk, which tie back to the strategic allocation in step 1, with idiosyncratic risks through credit selection process that provide consistent source of alpha. It is also worth mentioning that the balance between the two has shifted in the wake of increased macroeconomic uncertainty in favour credit selection. Credit volatility and dispersion is back so it makes sense to be more active to capture additional alpha.

And third, to keep portfolios diversified. This means not only name or sector diversification, but also factor diversification. This is a sure way of spreading my risks and accumulate many small winners that compound my returns over time. 

Which Investor(s) Do You Admire?

That’s a tricky question for me. I have a few role model fund managers that I admire for different reasons. For example, I admire the ‘Bond King’ - Bill Gross, who paved the way for active trading in bonds and credit markets which we take for granted now. I respect Warren Buffet for his intelligence and his ability to control the emotional impulse to sell during difficult times.

I also had an amazing opportunity to work with two great investors, Paul Read and Paul Causer. I learnt a lot by watching them make decisions, build their convictions, and take risks appropriately.

Name Your Favourite 'Forever Stock'

Bonds have a maturity date, so the concept of ‘forever’ isn’t relevant to bonds. We do, however, have perpetual bonds – i.e. technically ‘forever’ bonds that normally get called and refinanced at specified call dates.

Let’s look at DB 10 Perp. It’s going to keep paying 10% unless the bank replaces that bond or interest rates in Europe go back close to zero, in which case the coupon in 5 years-time would be close to 7%. Of course, there are risks about the longevity of DB itself, there is a mark-to-market risk along with regulatory risks, temporary write down language, etc. But the fact is, ‘forever’ doesn’t apply here. I just need 10+ year horizon – By then I would make my money back and thereafter just keep clipping 10% coupons.

What Would You Never Invest In? 

A ‘never’ assets doesn’t exist - there is always a price. You might not like the price, but all assets present possibility. Even in dire situations, if I believe there is some value, it makes sense to invest. Some deeply distressed names sometimes trade at the value of an option premium, for example. However, the investment rationale needs to make sense. Not everything that is deeply discounted represents good value.

Investment Grade or Yield?

High yield every time. It requires more skill in name selection, it’s more esoteric, and there are market inefficiencies that offer opportunities for alpha.

House or Pension?

Both. I prefer to invest in the house to make sure it grows its value and diversify my pension to reduce risks.

Crypto: Brilliant or Bad?

Nah, it’s not something I have expertise in. If I were ever to invest, it would come out of my entertainment budget (i.e., happy to lose it all). Then I would forget about it and in 20 years come back to see how it has fared.

What Can be Done to Improve Diversity in Fund Management?

The industry, society, and institutions have a lot of work to do to increase diversity in a number of industries. We need to reduce education biases that are formed from school age; offer apprenticeships to young female and diverse talent early in their careers; tackle maternity coverage for female fund managers so leavers don’t lose their track records; actively promote women and minorities within their respective fields through senior management sponsorship (mentorships helps but sponsorship is more powerful); create positive role models; celebrate successes within an inclusive framework where everybody participates not just women or minorities.

What Key Things Should Young Investors Consider When Establishing a Portfolio?

The answer is in your questions – invest mostly in equities. Currently you can create a balanced portfolio with equities and bonds where bonds should, in the long-run, give diversification along with good level of income. Make use of your compound interest! And review your portfolio periodically but do not overtrade.

What's the Best Advice You’ve Ever Been Given?

Make your own path – it’s challenging but ultimately rewarding.

What Would You be if You Weren’t a Fund Manager?

I would be teaching math to secondary school children.  Since I started primary school, I have dreamt of becoming a math teacher inspired by my own teachers. Fortunately, at the beginning of my career I got to do exactly that: I taught math at the Russian School of Mathematics in the evenings after work. It was the easiest way to earn extra money (although I loved it so much, I would have done it for nothing).