Antares talks fixed income outlook and portfolio positioning

Funds Management

by Carolyn Herbert

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Transcription of Finance News Network Interview with Antares Fixed Income Investment Manager, Ken Hyman


Carolyn Herbert: Hello, I’m Carolyn Herbert from the Finance News Network. Joining me from Antares Capital is Investment Manager, Ken Hyman. Ken, welcome back.

Ken Hyman: Hi Carolyn, good to be here.

Carolyn Herbert: It’s well known we’re in a low growth, low rate environment at the moment. So what does this mean for fixed income investors?

Ken Hyman: Firstly, I think it’s a very challenging environment for all investors, including fixed interest. And a lot of the investors in fixed interest are retirees, who depend particularly on the income they earn from the investments to meet their monthly outgoings, their monthly expenses. No longer are they earning a salary, so the income is very important to them. And these low yields and low returns are quite devastating.

Now investors can respond in two ways to that. They can either accept that they will try and generate the best return they can, within their risk appetite. Or they can take a bit of a punt and they can say, well I’m actually going to go out on a risk. I’m going to take whatever risk is required to earn my targeted return. I think there’s a mixture of investors out there, who are somewhat pushing the boundaries and some are not.

But the risk of that strategy is that if you get it wrong, you may earn a better income in the short term, maybe three months or six months a year. But if you were to suffer a capital drawdown, a capital loss, it takes a long time and a long period of income to actually cover those losses. So the trick is just finding the balance. And I think at Antares, for our income Fund, we concentrate fully on just maintaining and finding that balance.

Carolyn Herbert: How are you responding to this environment in terms of your Antares Income Fund investment strategy?

Ken Hyman: So what we do is we focus in on portfolio construction. We want to make sure that the portfolio is diversified – that we’ve got different sources of earning the targeted returns. We’ve got quite a defensive flavour at the moment. We’re trying to earn as good an income as we can earn, but maintaining the bottom line on capital preservation.

Carolyn Herbert: So in saying that, Ken, what’s your outlook for Australian fixed income markets and the Fund as well?

Ken Hyman: I’ll kick off with say the economy. I think that’s where it starts and we’re quietly optimistic on the economy. We think the election is behind us and we’re hoping that it’ll flow through into a better confidence amongst consumers, and in business. Just aspects of the transition from resources to the services sector, are moving along pretty well. If we have a look at the growth in health, education and particularly tourism, they are bounding ahead.

The companies in those sectors are profitable; they’re employing a lot of people. We believe that that is a key driver of this relatively low unemployment rate we’ve got at the moment. And just as an example on tourism, the visitors from mainland China and Hong Kong, over the last 12 months, was 1.4 million tourists. This is having a massive impact in the tourism industry, which is a big employer of labour. So we think its good building blocks for the economy.

We also like the banks. We think the banks are soundly run, they’re profitable as we know, and we think they’re well capitalised. But they do need to raise quite a lot of debt funding; they’re still leaning a lot to the property market and a little bit to business. And they’re being forced to pay some pretty attractive prices, which we like. So they’re paying what we think are very attractive yields. They’re offering attractive yields at this stage of the cycle.

Carolyn Herbert: Finally Ken, you’ve had more than 40 years of investment experience. So what is the one lesson you’d give investors, when it comes to investing in this kind of environment?

Ken Hyman: I may actually give you two, because I think over the 40-odd years, I’ve most probably picked up even more than two. Firstly, income is very important. Maintaining capital value is even more important. It can take a long, long time and a lot of years of income to make up for bad drawdowns of capital. Secondly, the investment manager (at the investment bank I was working at in the 1970s) told me, never sell short the USA. Never go short on America.

And I just want to say at that time, America was down on the ropes. They’d been beaten up in Vietnam, hostages were taken in Tehran, the helicopter that went into rescue them crashed in the desert. It was bleak times and I never forgot that message. America’s got an uncanny way of coming back from adversity and I think it’s very, very appropriate. At the current point in time (where many people say the arrival of China, the weakness in American politics), let that one pass but they’ll be back and they’ll be back with a vengeance.

Carolyn Herbert: Ken Hyman, thanks for the update on the Antares Income Fund.

Ken Hyman: Carolyn, thanks for having me.


Ends
 

Carolyn Herbert

Finance News Network
Carolyn joined FNN in August 2015 as the Head of News and also presented the Market at Midday and the Market Wrap. With more than five years of broadcast journalism experience, Carolyn has worked as a finance anchor on the Sky News Business channel and as an anchor and reporter for ABC News. She is also a qualified corporate lawyer specialising in IPOs, takeovers and mergers and acquisitions.