In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal the biggest risks to the bull market, tell us their unpopular investment opinions, and discuss what they'd never buy.
This week our interviewee is Damien Hill, senior portfolio manager at Insight Investment. He manages the Morningstar 4-Star-Rated BNY Mellon Responsible Horizons UK Corporate Bond and Silver-Rated BNY Mellon Responsible Horizons Strategic Bond fund.
Describe Your Investment Strategy
We have a dual focus on delivering attractive financial outcomes while taking environmental, social and governance (ESG) factors into account. We seek to emphasise the best and avoid the worst performers on ESG issues, avoid investments in industries that have a negative impact, apply a higher hurdle when considering investments in environmentally-sensitive industries, and harness long-term themes such as climate change.
What Are 2024's Biggest Investment Opportunities?
Fixed income is back for sure. Yields are once again around the levels last seen in the global financial Crisis – well in excess of those available on most broad-based equity indices in terms of dividend yield. But investors don't need to reach down to alternatives, private credit or high yield to access yields at these high levels. Our current bias is to allocate more to high-quality investment-grade. Both our Responsible Horizons UK Corporate Bond and Responsible Horizons Strategic Bond strategies have a broad enough opportunity set to access yields at these higher levels.
What Are The Biggest Risks to The Current Bull Run?
If we start to see increasing tensions between rising growth, high-for-longer inflation and rising yields, then there could be an inflection point where the bull market environment becomes less supportive. Separately, concentration risk in indices like the S&P 500, where the Magnificent Seven dominates, is somewhat worrying.
Who is the Most Inspiring Person You've Worked With?
I've been at Insight Investment for nearly 20 years and the firm's chief executive Abdallah Nauphal has always been a charismatic individual. Our co-head of fixed income, Lucy Speake, has also been an important mentor to me. She has managed me for 12 years, gives me room to grow, the responsibility to make decisions, and the freedom to express myself.
What (if Any) Investments Fit the 'Buy and Hold Forever' Category?
We broadly think risk-adjusted fixed income needs to be a part of more people's allocations. Investing on a five-to-10-year horizon, we argue high quality fixed income is a decent place to be and it's hard to look past the yields on offer in pockets of the market like global government bonds and investment grade credit, where default rates are traditionally low.
What Would You Never Invest in?
If we cannot appropriately assess the risks of a company and what we're getting ourselves into, we won't invest.
How Worried Should Active Managers be?
There are lots of periods where passives do well, especially within equities where it can be hard to beat the S&P 500. But within fixed income markets, there are still great complexities and inefficiencies, which require careful and rigorous analysis to get right. There's still great value in being active – certainly when it comes to credit.
What Unpopular Investment Opinions Do You Have?
Within credit, many fixed income investors will tout the attractiveness of broad-based high yield for the simple fact that yields are high and default rates are likely to remain low. We think investment-grade offers a much better risk-reward potential. While we do see opportunities in high yield – for example, we favour short-dated high yield. Many high-yield investors are very focused on yields and not enough on spreads or excess yields.
Will We See a Crypto ETF in the UK?
Crypto is not an asset class widely owned by professional investors. It doesn't offer the transparency necessary to conduct rigorous financial analysis. In that sense, sentiment and supply/demand-driven price swings are not a surprise. In the long run, bringing the asset into regulated structures is probably a good thing for stability and access.
Does Asset Management Have a Role in Assessing Social Factors?
Exclusions alone are not enough to pursue the best possible outcome, so we consider social risk as part of our analysis. We engage with issuers through a combination of direct dialogue, group meetings, collaborative initiatives and via our counterparties. Labour management is also one of Insight's ESG engagement themes for 2024.
Have You Ever Engaged With a Company and Been Particularly Pleased (or Disappointed) by the Outcome?
In 2023, we engaged with a company in the hope it would set out clear commitments to end its funding of expanded oil and gas exploration and production. Its oil and gas policy now excludes new oil and gas project funding. By committing to net-zero alignment and stronger ESG goals, we didn't have to exclude the company.
What's The Best Bit of Advice You've Ever Been Given?
Learn from your mistakes but don’t hold onto them – the onus is on you to move forward.
What Does Your Life Outside of Fund Management Look like?
My life has changed rapidly in just two years. My partner and I now have two young boys who are totally engrossing. I give them my full attention outside of work.
