04 Dec 2024
Jonathan Platt, Head of Fixed Income
“The more I practice the luckier I get”, is the famous adage attributed to Gary Player, a leading golfer of the 1970s and 1980s. In essence, he is right. Dedication and hard work are important building blocks of success and what could be seen as chance is, in reality, the results of painstaking effort. Yet success is a curious mixture – inspiration, perspiration, and indeed luck.
Looking back at the last 40 years of my time at Royal London there is a temptation to emphasise the inspiration and perspiration elements but chance has intervened at key points. Let’s look at three of them. When joining Royal London’s investment arm in 1985 there was the good fortune to be starting at a smallish asset manager where responsibility was delegated at an earlier stage. There was a strong collegiate spirit and it was a great place to learn from more experienced colleagues – who were happy to share their knowledge. I liked it from day one.
The second slice of luck was finding myself running the gilt and corporate bond strategies at an early age. My initial training was in equity analysis and management – I especially enjoyed being the brewing and leisure analyst. But having run a high income fund – a combination of equities, convertibles, sterling bonds, and preference shares – I was asked to take over the fixed income business following the promotion of my boss. This sounds grander than it was. Royal London was exceptionally well capitalised and ran a high equity exposure – in total, bonds were around £1bn of our total AUM. What was not known at the time was that global bonds were in the initial stages of a decades-long boom. The ‘backwaters’ of gilts and sterling credit started to become more appealing. On the day I started at Royal London the 10-year gilt yield was in excess of 10%. It was never envisaged that 35 years later the rate would be 0.1%.
The third slice of luck, although it did not feel it at the time, was the problems of the equity market in the early 2000s. It is hard to remember now, but the FTSE100 index hit a peak in 1999 that was only surpassed 16 years later. The Global Financial Crisis of 2007-2009 was preceded by a less heralded crisis that saw a retreat from equities and much higher allocations to bonds. It meant that the size of assets being managed grew significantly, increasing our credibility in the institutional marketplace. It also allowed for a significant build out in the fixed income team. Courtesy of acquisitions made by Royal London in previous years we were in a strong position to build on solid foundations. Eric Holt, Martin Foden, and I formed the nucleus of a credit team, articulating a strong and differentiated investment philosophy. But it was complemented by recruitment – with the focus not exclusively credit, with Paul Rayner joining to bolster government bond management.
It is important to recognise the role of chance – and it is fortunate that none of us can see the alternative scenarios. What is important is to take advantage of the opportunities when they come around – and this is where practice and effort is rewarded. Our conversion ratio from business pitches became exceptionally high: is this luck or the effort we put into getting our simple message across effectively? We never convinced a few pension consultants who were sceptical of our insurance heritage. Funny how things change and that many now see this as an advantage.
What is important is to take advantage of the opportunities when they come around – and this is where practice and effort is rewarded.
The US Thanksgiving holiday disrupted markets last week. However, the downward trend in yields persisted. US treasury 10-year rates closed below 4.2%, 20bps lower on the week, despite continuing evidence of economic resilience. The market picture was similar in the UK where the equivalent yield settled below 4.4%. although the economic outlook was less favourable with business confidence continuing to decline post the October Budget. The deteriorating political situation took a toll on French government debt, with the yield spread to German bonds approaching 90bps. Credit remained steady with spreads broadly unchanged.
Will the incoming President be lucky or unlucky? Events will unfurl and history will determine whether President Trump’s second term was good or bad. Chance will play a part but it is how leaders deal with uncertainty and crises that are the true measure of success.
This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.