Every market correction is unique
The recent turmoil in financial markets triggered by the COVID-19 global pandemic is another (albeit historically significant) episode of market volatility punctuating the history of financial markets.
Like those before it, there are many aspects of this current crisis that we haven’t seen before, starting with the COVID-19 pandemic itself and the simultaneous global demand and supply shocks it induced. This was further compounded by Russia’s recalcitrant attitude towards OPEC and the consequent decision by the Saudi’s to increase oil supply, at time when oil demand was already waning as a result of the pandemic. The markets have struggled for precedent, to what is now shaping up to be the largest global economic shock since World War II.
Coming into this crisis the warning signs were there
Only seven months ago there was US$18 trillion of bonds globally trading with negative yields. Just last month credit spreads were at post GFC tights and equity markets were at record highs. In the context of a low interest rate world, investors have been faced with the choice of accepting lower returns or taking more risk in order to maintain returns (chasing yield). The chase for yield has resulted in risk premiums on lower quality investments being driven ever lower.
A stark example of this occurred in mid February when Greek 10 year sovereign bond yields (rated non-investment grade) went below 1%! This was lower than where both Australian and U.S 10 year sovereign bonds (with their AAA ratings) were trading! A world away from the 40% peak that these Mediterranean bonds were trading at during the Greek sovereign debt crisis.
What has followed could almost be described as a Greek tragedy, where the protagonist who strove for greatness (of returns) was brought undone by a combination of fate (the COVID-19 pandemic and the inability of central banks and governments to fully address a biological crisis with financial tools) and their own human flaws (chasing return at any cost).
Whilst no one had a crystal ball forewarning of the impact of COVID-19, our portfolios were strongly positioned. By early 2020, Perpetuals outlook for credit had remained in neutral or negative territory for almost 6 months (as measured by our credit score), prompting us to defensively position portfolios (with well diversified portfolios with a predominant weighting to domestic, senior investment grade debt with short dated maturities). Our defensive positioning has helped cushion the blow, as credit spreads widened to levels last seen during the Greek sovereign debt crisis in 2011 and in some cases since the GFC in 2009.
We are well equipped to navigate these stressed market conditions
The senior members of the team (consisting of nine) are industry veterans, with three of them having worked together for almost two decades and importantly having experience managing portfolios during the GFC and its aftermath.
Due to the asymmetric risk profile of credit investing, screening out of downside risk is an important contributor to returns. The team has a long history of conducting bottom up fundamental credit analysis to construct their investable universe. Our focus on quality supports liquidity and capital stability.
Our active management style is well suited to taking advantage of opportunities and managing risks as they arise, with periods of volatility playing to the teams’ strengths.
Find out more about Perpetual's range of Credit and Fixed Income Funds.
Years of experience: 27
Years at Perpetual: 15
Vivek is Head of Fixed Income, joining Perpetual in 2004. He has over 20 years of experience spanning accounting, finance, investments, governance and risk management. He has managed multi-billion dollar fixed income, credit and currency portfolios and his role involves credit analysis, trade execution and portfolio construction.
Previously, he spent nearly 8 years at Macquarie Bank in roles including Assistant Portfolio Manager (Credit, Global Fixed Interest and FX), Credit Analyst, Compliance Manager (Funds Management Group) and Operational Risk Analyst (Internal Audit). Prior to this, Vivek spent almost 4 years at Coopers & Lybrand (PwC) as an accountant / auditor.
He's aimed to give back to the communities, organisations and people with whom he's connected. Vivek joined the Board of The Deaf Society of NSW in 2011 and currently serves as Director and Treasurer. He joined Perpetual's Diversity Council in 2012, chaired by Perpetual's CEO. Since 2010, Vivek has regularly mentored university students, colleagues & finance industry professionals, leading the Fixed Income stream for Perpetual's Investment Analyst Program.
He was awarded the 2011 Financial Services Institute of Australasia (FINSIA) Hugh DT Williamson Performance Scholarship, an award recognising professional accomplishment, social responsibility and leadership. In 2011, he was also awarded a not for profit directors scholarship from the Australian Scholarship Foundation.
Years of experience: 38
Years at Perpetual: 15
Michael Korber is Head of Credit and Fixed Income and is responsible for the ongoing strategic review and development of process, reviewing the weekly credit process and reviewing the analysis of all new credit securities. Michael joined Perpetual in August 2004.
Michael has over 24 years industry experience and prior to joining Perpetual worked as the first Head of Credit at Macquarie Funds Management, spending six years developing its credit investment processes and building the business from inception to over $7 billion in funds under management.
Prior to this, he spent seven years as Divisional Director in Corporate Banking and four years as second in charge to the Head of Macquarie Bank Credit. Earlier, he had spent five years as a Credit Analyst with Westpac Corporate Banking.