Trying to time the market in today's environment is a 'foolish strategy and difficult to get right consistently,' according to Oliver Kettlewell, head of fixed income and global multi-asset at Mashreq Capital.
On the other hand, the resulting dovish pivot in January by the Fed in response to slowing growth has proved to be a boon to the long duration positions in fixed income by the manager.
Kettlewell gives Citywire Middle East exclusive insight into the themes he is keeping an eye out for, the types of products lacking in the region, as well as why ESG funds is not a concern yet.
Q: Can you tell us about your team and your role?
A: I’m head of fixed income and global portfolio. My responsibilities are top-down, namely leading a five-person team’s macro positioning of duration, countries and sectors in addition to managing three fund-of-funds portfolios where I’m responsible for asset allocation and fund selection.
Q: How did you get started in the industry?
A: From majoring in economics at university, I was interested in markets and the efficient allocation of resources. Fund management fits this interest as I view it as effectively allocating capital to the best-managed companies in the market.
Q: What investment sectors and funds have been popular with clients?
A: Income products continue to dominate client demand. This year our biggest selling products have been newly launched fixed maturity plans (FMPs) and our long-running Sharia-compliant bond fund.
Q: Can you describe any specific calls that have paid off?
A: For fixed income, long duration has been our best call this year. We more than doubled duration across our portfolios following the US Federal Reserve’s dovish pivot in January.
We played this theme through the Pimco Real Return fund with its hefty 11-year duration that is invested in long-dated treasuries and gilts.
In equity, simply maintaining a decent-sized allocation to the asset class in spite of Trump-tweet volatility has helped portfolio performance.
Q: What investment themes are you keeping an eye on?
A: Diversification is important as we enter the late cycle. We believe maintaining a balance between the core asset classes of fixed income and equity is one of the best ways to deliver strong returns over the long term.
Q: What are essential traits for a fund manager?
A: Qualitative attributes are key, such as chemistry between team members and humility when explaining performance.
For example, we appreciate fund managers who aren’t afraid to admit their mistakes and the lessons they’ve learned.
Risk-aware managers are also preferred, such as those who talk about downside risks as much as the upside potential of a particular theme.
Q: Are there any types of fund products you would like more access to in the region?
A: Index funds. Asset managers keep launching ETFs, but index funds would do a better job of encouraging long-term investing.
Index funds are priced once a day and the subscription/redemption time frame makes day trading impossible in contrast to ETFs, whose tradability makes them susceptible to short-termism.
Q: How many funds are on your platform and how many fund groups do you work with?
A: Our fund-of-funds watchlist comprises 20 funds of which we’re currently using 15. Portfolios can deliver sufficient diversification with a 20-fund list.
For example, we would rather have one US index fund than trying to time our US exposure across a range of US-themed funds focusing on either growth, value or tech.
Trying to time the market is a foolish strategy and difficult to get right consistently, especially in today’s environment where markets often move irrationally based on Trump’s latest tweet rather than fundamentals.
Time in the market works better than trying to time the market.
Q: Have you added new strategies this year?
A: Actively managed funds focusing on frontier markets and emerging market small caps as these are two of the few equity sub-asset classes where active management can still make a difference.
Q: Is ESG something of a concern for clients when investing in funds?
A: The Middle East already has ESG-type funds in the form of Sharia-compliant products that follow some of the same values as ESG, namely screening out companies that are harmful to society such as tobacco, alcohol, weapons manufacturing, etc.
We would rather promote our Sharia funds as ESG alternatives than launching an ESG fund that looks similar to our Islamic products.
Q: If you could ask a fund manager just one question, what would it be?
A: Do you invest in your own fund? Fund managers who self-invest directly align their interests with fund unitholders, sharing the rewards when the fund does well and feeling the pain during difficult times.
Fund managers earn enough money to invest at least a token amount in their own funds, so I’m disappointed when a fund manager states that they’re not invested.
Q: Do you work with many alternative managers?
A: No, we do not allocate to flavour-of-the-month alternatives/thematic funds as we believe in a tried-and-tested approach to fund selection rather than expensive, unproven alternatives.
Q: How can regulatory authorities further facilitate the growth of the mutual funds industry?
A: Educating clients about mutual funds. A lot of individual investors still view funds as opaque investments, so education is needed to clarify that funds are a simple, lower-risk option relative to a single stock or bond.
Single securities are still the preferred investment vehicle for a number of individual investors in the UAE due to a client’s familiarity bias, so we all need to increase the awareness of the risk of holding single-security positions.
Q: If you could choose an alternative career outside of finance, what would you do?
A: Footballer, but at the age of 37 I’ve begrudgingly accepted I’m not going to get the call from England manager Gareth Southgate.
Q: What’s the toughest part of your job?
A: Client expectations. Clients have enjoyed 10 years of largely upward-trending markets, but the next few years are unlikely to be the same.
Q: Where’s your favourite place to visit in the region?
A: The desert. Dubai has created more than 100km of cycling tracks in the desert and I enjoy riding along the paths that cut through the desert sand dunes. It’s peaceful, and a pleasant contrast to the skyscrapers of Dubai.
This interview was first published in Citywire's 2019 Middle East Selector supplement.