Looking across traditional markets, valuations are stretched with yields near record lows, and investors need differentiated sources of return – and that’s just part of the challenge. In an economy increasingly driven by monetary and fiscal policy, it is also critical to recognize mounting risks on the horizon, and alternatives to both stocks and bonds can be a real difference-maker in portfolios. The pandemic and extraordinary levels of stimulus have shaken up prior market relationships, and we believe strategies that can systematically adapt to these changes stand to benefit from a growing opportunity set for excess returns.

What are the greatest opportunities you see and why?

Markets are recalibrating to a new trajectory for the economy, and the natural friction behind this creates mispricings across asset classes. We see the dynamic playing out most acutely in fixed income, where central banks have a direct impact and changing expectations for growth and inflation continue to produce dislocations. In this environment, we expect a growing number of opportunities for factor-based approaches amidst persistent uncertainty and widespread policy intervention.

What are the greatest challenges you face and why?

Our investment strategy is designed to avoid large-scale directional risks while seeking consistent and differentiated sources of return in fixed income. As a result, one challenge we face is that many of the large-scale market bets people hear about on CNBC and other media outlets are not part of our process. Investment-wise we see a clear advantage from this; however, it can require some extra explanation when your approach counters a lot of the common narratives people hear from other asset managers.

What keeps you up at night?

The noise in financial markets has only increased through the pandemic, and we expect this trend to continue. Limiting the impact of noise on our portfolio day-to-day while focusing on longer-term signals is the bedrock of our process, and this alleviates many short-term pressures faced by other investors. As a result, I can focus beyond individual market scenarios toward future investment capabilities and leave it to my two-year-old daughter to keep me up at night.

***