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FC meets: Fixed Income Strategist

One rainy autumn day, I had the chance to speak to Sandrine Perret, Senior Economist and Fixed income Strategist, voting Member of WM Investment Committee, at Vontobel, about her professional path, current economic environment, and thoughts on career prospects for the generation Z.

Anna Vasileva – Hello Sandrine, nice to meet you. Let us get started. Please tell me first about the education you got before you stepped into the investment world.

Sandrine Perret – Hello Anna, nice to meet you too. I started my studies at the University of Geneva with a Bachelor in economics, focusing on econometrics and monetary policy classes. After I graduated from the bachelor's, I moved on to a Master Degree at the Graduate Institute. I completed the Master in international economics with a focus on global macroeconomics and monetary policy.

Sandrine Perret; photo credit: Vontobel

How we evaluate fixed income products? We run a top-down analysis, and we have models that try to determine the relative attractiveness of the sub-segments within the fixed income space

AV- What was your first job after you graduated?

SP – I started working in a global macro hedge fund as a junior economist. I was working on the research side, on macroeconomic trends and economic analysis. The research was investment-focused and was afterwards used as a basis for the investment decisions and portfolio trading.

AV – Please tell me a bit about your role and responsibilities at Vontobel?

SP – I have two different roles that are linked and well defined. On the one hand, I am an economist covering the US economy. So, I take care of all the macro forecasting for the US, as well as the economic and political analysis. On the other hand, I am responsible for the fixed income strategy within Vontobel Wealth Management. Within the team we build a top-down view on fixed income and its sub-classes.

AV – Since you cover the US, what do you think will determine the economic power of the States for the next few years?

SPWell, leaving political discussion apart, I really think it is whether the country will have the ability to invest in the right technology, which means being able to keep the innovative power that is benefitting the big technological firms in the US that has helped them over the last ten years. And I think they need to make sure this continues.

AV – I would like to touch upon the big hype about the environmental, social and governance issues and impact. Do these issues play a bigger role now for economic projections and forecasting?

SP I believe they do. That is probably a global phenomenon. But advanced economies also have more pressure to implement ESG changes. In the US, the Biden administration put a lot of the campaign activities at the time of election in 2020 around climate issues and is now trying to push for adoption of the Build Back Better Act, which incorporates a large share of climate investments. It is probably also true that in terms of financing, the US might be a bit behind. For example, if you look at the number of green bonds issued, there are still many more of them issued in Europe compared to the US. And I think Biden will have to deliver a lot in the remaining three years of his administration, because that is how people will judge his presidency and what defines his chances of being re-elected.

AV – Don't you think it is an easy win for him [compared to Trump] now rejoining everything? So being “green” and “good” compared to his predecessor?

SP I think it is true that he started from a very low base because the previous administration under Trump was sceptical about climate issues. But oppositely, there are now huge expectations at this stage for Biden, and there is also a risk that he underdelivers versus expectations. I think people will want to see concrete actions rather than promises. And a 4-year term is definitely not that much to deliver drastic changes on the climate agenda.

Anna Vasileva; photo credit: Vontobel

Our take on interest rates? Over the medium term the low yield environment will stay, which is a factor of lower potential growth and high level of government debt, an even bigger problem after Covid-19

AV – Now, we will turn from you as an economist to you as a fixed income strategist. So you said you overview the models?

SP We run a top-down analysis, and we have models that try to determine the relative attractiveness of the sub-segments within the fixed income space. Whether you want to go in high-yield bonds, high-quality/junk, depending on expectations in terms of economic development and valuation. And the technical side of whether it is a good timing to invest into these sub-assets. We give the birds-view strategy, meaning which asset class we should focus on strategically with a horizon of three to six months, sometimes a bit longer.

AV – Do you think the low yield environment will stay much longer in the developed market?

SP I don't think the Covid-19 crisis really changes the overall situation, even though we are at the moment observing higher inflation and rising yields, and in the short term they should continue to rebound and normalise. I would say normalise rather than increase because it is normalisation after a period where yields were extremely depressed. But over the medium term the low yield environment will stay, which is a factor of lower potential growth and high level of government debt, an even bigger problem after Covid-19.

AV – Do fixed income investments become less attractive in such an environment?

SP It is true that the low yield environment and current high inflation make generating return in fixed income difficult, but the asset class can still create interesting investment possibilities. There are still attractive returns depending on the credit rating. Fixed income assets also play a key role on a portfolio level. We saw that during the Covid-19 crisis, portfolios with fixed income actually suffered less during the peak of volatility in March 2020. Hence, I would say that you really need to take that into a portfolio context and focus not solely on returns. And this is what we do in our team – investing with a multi-asset framework.

AV – And now in terms of this relative attractiveness, do the ESG issues also play a role in your attractiveness matrix? Should it be integrated somehow in the models?

SP – I do believe it should be integrated. We started to explore how to implement these criteria into a top-down preference matrix for the investment strategy. But I think there are two issues. Firstly, the availability of factors for the analysis. At this stage, not all factors or ESG ratings are broadly available for the entire fixed income markets. And second, it is quite difficult to compare your ESG analyses for different asset classes. But I think that is something that will become more and more available and will help investors to integrate ESG considerations into their investments.

AV – Let us now suppose for a moment that a country issues a green bond together with usual bonds. Is it true that the green bond will have a lower yield?

SP – If you compare two very identical bonds, in most cases yes. The green bond will most likely be slightly more expensive, or incorporate a premium, as the issuer will need to conduct external review, and impact assessments. This is called the “greenium”. However, the higher cost, or lower yield from the investor’s perspective can be compensated by future excess returns and higher demand for these green bonds. You can have green bonds issued for various types of projects or investments, and these investments can have various levels of risk too, something to keep in mind.

Sandrine Perret; photo credit: Vontobel

Finding the perfect first job? It is as easy as it sounds – just focus on what you enjoy the most during your studies

AV – I will now switch towards the last block of my questions. So in your role as both an economist and a fixed income strategist, I guess you need to read quite a lot of news in order to be well informed. What would you recommend for the students to always keep updated?

SP I think especially now with social media trends, it is important for students to focus on good paid sources of information. It is also crucial to try to make your own opinion out of this information, and check the validity of the source in all cases. Lots of economic research articles are also available freely from international organisations such as the IMF, the World Bank, the UN and central banks.

AV – From a career point of view, what would you recommend to students to narrow down the search for a perfect first job?

SP – First of all, it is as easy as it sounds – just focus on what you enjoy the most during your studies. If this is already true for you, step two is, for example, to make use of the university mentorship program and get yourself a mentor. This can help to understand which career path to take and which industries are better linked to your topics of interest. During your university journey do not hesitate to ask questions if something doesn’t seem obvious to you. Mentors from the professional world can sometimes help see things clearer.

AV – Now we are coming to my last question. If you were to choose a new junior specialist in your team to start a career, what would you be looking for in this person?

SP On the soft skills, I would say a person should be motivated and interested to ask questions despite the feeling of asking something silly. I would be looking for an open-minded personality with a deep wish to learn and understand what is going on out there and be able to bring their own ideas. A good critical thinking will do a good job, being able to weigh all the pros and cons of a situation. Also, I would say being able to communicate clearly and having a sense of teamwork is crucial. These are skills that are in high demand today. Lastly, I would probably mention the sense of altruism - being aware of the needs of other people in the team and ready to contribute to those needs.

AV – Thank you very much for this conversation, Sandrine.

Text by Anna Vasileva

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