Transcript:
Karen Watkin: Welcome to AB Alpha Females, the Multi-Asset investment podcast. I'm Karen Watkin, and I'm a fund manager in the multi-asset solutions team here at AB. As a multi-asset investor, I love the challenge of looking across the capital markets to deliver the best outcomes for our clients. I work closely with colleagues across all areas of the investment universe to tap into their research and expertise along the way. The Alpha Females are those women who have developed these unique areas of expertise and made their mark in the investment industry. We'll also discuss their career journeys, the challenges they faced and the lessons they've learned along the way. So stay with me as we uncover the stories of these impressive and inspiring women and gain a deeper understanding of the multi-asset investment landscape.
As a multi-asset investor, bonds can often be thought of as the least exciting part of a client's portfolio. Yet as the market volatility of the last few years have shown us, bonds can be anything but boring, and not always in a good way. In 2022, we saw US Treasuries post their worst loss since the United States ratified its Constitution in 1787. The bumpy ride of the past few years brought about by high inflation, rising interest rates, and the Covid-induced credit crunch has made it a challenging time for fixed income investors. So how can bond investors be nimble enough to navigate these changing markets and deliver that predictable return investors are looking for? What new tools can be used to scour the fixed income universe to find the most attractive bonds and trade them for the best outcome? What does responsible investment mean in terms of both practise and returns for bond investors? And finally, after a decade of rock-bottom yields, can we now declare that bonds are back? Joining us to answer these questions and more is Tiffanie Wong, who is AllianceBernstein's Director of US Investment Grade Credit and Director of Fixed Income Responsible Investing Portfolio Management. Tiffanie has done a huge amount of work to bring new technology into our fixed income research and trading to enhance AB's approach to credit investing. She's also part of the leadership team that develops the responsible investment strategy across AB's fixed income business. On top of all that, we're especially lucky to speak to Tiffanie today as she's in her final week at work before she heads off on maternity leave. Tiffanie, welcome to the podcast and congratulations on your impending arrival.
Tiffanie Wong: Hi, Karen. Thank you so much. I'm very happy to be here.
Karen Watkin: Thank you. I mentioned in the introduction, the bumpy ride that the bond markets have faced over the last few years. Let's start with a bit of that historical context. Can you talk us through what's been happening in the bond markets in the past few years and where we are today?
Tiffanie Wong: I think the fixed income market in general has been challenged. You think about the large macro events that have happened over the past couple of years. We had Covid, the Fed policy. We had very low yields for a while. Over the past two years, especially, I think we're starting to see an end in sight, and we're seeing bonds are back. Yields have actually, they look fairly attractive at this point in time. But if you look under the hood, the fundamentals of corporate bonds have actually improved quite a bit. Let's start with Covid. Covid was a really challenging time for a lot of companies. We didn't really know what shutdowns would mean for the health of company balance sheets. As we saw, a lot of these companies actually did the right thing. They sold assets, they clean up their balance sheets, they reduce leverage. Coming out of Covid and heading into potential time of slowing growth at this point in time, company balance sheets are actually entering this period of downturn with much better corporate fundamentals than heading into a normal downturn in the credit cycle. We think that from a fundamental standpoint, these companies are actually in quite good of a shape. When you combine that with valuation, where really we haven't seen these levels of yields in many, many years, this is a great time to be investing in fixed income.
Karen Watkin: We've spoken about the volatility that we've seen in the bond markets over the last few years. While that clearly can present challenges, it also brings with it some opportunity. In your role as a fixed income credit portfolio manager, can you talk through a little bit more about what that involves, and particularly perhaps what some of these changes have meant in terms of your approach to credit investing?
Tiffanie Wong: I think it really started with the global financial crisis where because of what happened, you saw liquidity dry up fairly significantly in the bond markets. Whereas previously dealers held a lot of bonds and inventory on their balance sheets, they now no longer warehouse this type of risk. As portfolio managers, when we have to source these bonds or when we have to sell these bonds, we can no longer rely on these dealers to be able to buy or sell to. What that means is liquidity has been extremely fragmented since the global financial crisis, and it's more difficult as a bond manager to, one, understand where bonds should trade, and two, to buy or sell bonds. I think because of the different liquidity environment, it has been really critical for us to build out tools to gather as much data as we can so that when we're constructing portfolios, we have a much better picture of where liquidity is, where bonds should trade, and whether or not we can even source or sell these bonds. One of the tools that we built is Alpha, which is essentially a data aggregator. We found that that has been extremely helpful in us to manage or construct our client portfolios because we can do it faster. We feel like we have an edge on information versus the market.
Karen Watkin: That seems like a really big structural change that the bond markets have faced since the global financial crisis. As you say, building tools that really help in terms of that execution and finding the liquidity in the markets is really important. As a fixed income investor, obviously, the other key risk that you're managing is that credit risk of the issuer and how you think about that. Can you talk about perhaps how technology has evolved since you started your career about how you think about doing that research into different credit issuers?
Tiffanie Wong: At AllianceBernstein, we utilise both fundamental and quantitative research. If you think about the fixed income bond market, it is huge, it is gigantic. It's thousands of issuers. It's nearly impossible for a team of credit analysts to be able to deeply cover every single credit in the credit universe. We think that quantitative research gives us that breadth of research. Fundamental research comes in and is really critical to provide us that depth of research and is also really important when we find ourselves in highly idiosyncratic situations like Covid. During that period, we couldn't rely on historical data. That's why we think the blend of the two is really critical. But even within fundamental research, historically, when I started my career, credit analysts would produce a book report of their investment thesis and of their views and the company analysis. You can hand that book report to five different portfolio managers, and you would have five different opinions on how to apply that research. What we did at AllianceBernstein, we decided to digitise our fundamental research. We came up with a framework that allows for a consistent comparison of different credits across investment grade and high yields and emerging markets. We score every single credit on certain risk factors, on business profile, on governance and structure. We have underlying scores that we can then map to portfolio holdings. These scores also help inform what our portfolio positioning should be. What that means is we no longer have to read book reports. Everything is a lot more transparent and consistent, and we can leverage these scores in combination with our quantitative research to be able to make decisions a lot more quickly in this environment with lower liquidity.
Karen Watkin: As you think about some of those risks, how do you think about some of those ESG risks more broadly? We've spoken in some other episodes about environmental, social, and governance as a broad spectrum of risks that we think is important as investors to assess when you're looking at the risk of a particular company. Can you talk about how you approach that as a bond investor?
Tiffanie Wong: We think that ESG risks are credit risks. We would be not doing our job if we were to ignore the potential material impact that environmental, social, or governance issues have on our credits. We have always included ESG scoring as a part of our credit underwriting process. But the key here is we care about material risks and opportunities. We want to understand and identify those factors that have an impact to financial materiality or the willingness and ability of a company to pay us back. One of the new developments that we rolled out late last year was our next-generation ESG scoring model, which we call Prysm 3.0. We're pulling in a lot of data. We're also doing web scraping and doing natural language processing websites from NGOs, data from NGOs, and then we're using our proprietary credit research as well. We're coming up with a much more robust data-driven ESG scoring model.
Karen Watkin: I'm interested to hear as well as you think about how that data has evolved and your process has evolved, what are some of the lessons you've learned, perhaps along the way? We spoke some of those fairly seismic changes through the cycle, whether it was the global financial crisis or Covid. From your personal experience, how did you navigate those very turbulent volatile markets? And what are some of the lessons that you learned along the way?
Tiffanie Wong: One of the key things that I've learned is that data is highly useful, but sometimes you have to go back to the key tenets of investing and understand when data is reliable and when data is not. It talks about Covid and how we basically had extremely poor liquidity during that period, and we could not rely on any of the pricing of bonds. We couldn't rely on a lot of our quantitative data, and so we had to lean more heavily to our fundamental analysts to be able to adapt to very rapidly changing data and projections. And so understanding that there are going to be periods in time where you're going to be tilting certain ways between fundamental and quantitative data is really critical. And there's no formulaic approach that works through all market cycles. Karen, you know as well as I do, the markets are constantly changing, and history doesn't repeat, but sometimes it runs. It's a constant evolution. We're not going to get it right all the time, but I think building out a very repeatable, consistent, data-driven and disciplined process can really bring you a lot of success.
Karen Watkin: Tiffanie, I'd like to turn a little bit now to your own personal career journey. We've talked a little bit on this podcast, particularly for women in asset management, the importance of role models. I think particularly early in any of our careers, it's been important to see those role models and the potential career path that we may be able to take. Who have been some of the key role models in your career?
Tiffanie Wong: I've been very lucky in that at every single company I've worked at, there have been senior women in investing roles that I've been able to look up to. When I joined AllianceBernstein 12 years ago, I was pleasantly surprised that there were actually more women at AllianceBernstein in the portfolio management trading research roles than there were at my previous two firms. I think it's been extremely helpful to have senior women be mentors and sponsors. But ultimately, our industry is still very dominated by men. It's also very important to find those male colleagues who can mentor and sponsor you as well.
Karen Watkin: We mentioned in the introduction that you're just about to go off on maternity leave. That can often be seen as a potentially difficult time. Again, I think perhaps for younger women in the industry, that may be something that they worry. How can you balance being a fund manager while also having a family? What advice would you give to women out there that may think they're not compatible?
Tiffanie Wong: It's really helpful to have a great support system, that's first and foremost, both at home and at work. At home, I've been very lucky. My partner is a true partner in every sense of the word. I think he might actually do more of the parenting than I do. But then at work is having a strong support system of other working parents, not just working mothers, but working fathers as well, because I think we need to encourage working fathers to view themselves as needing to contribute equally at home. I think having a supportive manager is extremely important as well. I've been very lucky that I've had all of that that has helped me retain my sanity during, I will say, I had my first child in 2018, so he was a little over a year old when Covid hit. We were working at home and we were trying to take care of him while daycares had shut down. Having that support system is really critical. I don't view it as a balance. I think some people say you can balance work and home life. I think we just need to reset expectations that there are going to be times that you need to lean more into work or you need to lean more into your family life. It's okay. You can't give 100% to both. It's finding that right way to toggle your time and your effort.
Karen Watkin: I also think as working mothers, fund management offers fantastic opportunities in so much as our performance is objectively measurable. It's very clear what you're delivering. It is very output-driven. Whether you have a family or not doesn't have to have any bearing on that. I think having that objectivity can be very helpful, actually, as working moms returning to work.
Tiffanie Wong: Absolutely. The performance numbers are the performance numbers. Go back to the data. It's like, how did your portfolios perform or what were the measurable deliverables that you were supposed to hit, and that makes things more transparent. That's definitely one of the perks or benefits of being a fund manager.
Karen Watkin: Is there any advice you would give to your younger self or the other women out there?
Tiffanie Wong: I would say this is advice that I got from some of my role models. Don't be afraid to say yes to things, to new projects, new roles, and opportunities that you may not think that you're ready for. I think If an opportunity is offered to you, that person sees something in you, and I think you have to say yes and go for it and take that risk. I also learned that it's okay to say no. No sometimes is harder than saying yes to things. The more you work and the more you progress in your career, sometimes it's difficult to say no when you've been so used to saying yes for years. It's important to say no when you're at your bandwidth and you're trying to shift more towards family life, for example. I think just understanding when to say yes and when to say no is really important for your career.
Karen Watkin: I think that's invaluable advice, and I think you are a fantastic role model for the women, both the AB and across the asset management industry. Thank you so much for joining me on the podcast today, Tiffanie, and I wish you all the very best with your upcoming maternity leave.
Tiffanie Wong: Thank you so much, Karen.
Karen Watkin: I think there was a lot to unpack in that conversation with Tiffanie. I think she certainly showed the bond markets are anything but boring. There's a lot to navigate as a fixed income investor. In particular, I think this use of technology to navigate what can be complicated market environments to bring together huge amounts of data to both be able to trade effectively in the bond markets and also do your credit research of issuers more effectively has been hugely important. But she also showed quite clearly that not only do you need that technology and ability to navigate and manage large amounts of quantitative data, is that you still need those fundamental insights to navigate these markets. I think looking at Tiffanie's career journey, and in particular, how she's been able to balance being a fund manager as well as being a working mother, she's shown that it's very much compatible. In part, I think that's because she recognises that you can find the right times to say yes to career opportunities, as well as balancing that with the right times to say no. And as we talked about, what we do investors is very measurable. You can be very effective and productive as an investor and manage the time that you need to balance your family commitments. I think actually it goes to show why it can be a great career for women.
That brings to a close this episode of AB Alpha Females: The Investment Podcast from AllianceBernstein with me, Karen Watkin. If you've enjoyed this episode, don't forget to tell your colleagues and friends about it. This episode was produced by Richard Miron from Earshot Strategies.
