Learn how the Wells Fargo Asset Management (WFAM) Global Fixed Income team puts their research to work for you—come with us behind the scenes.
Andy Hunt: The forum is a living, breathing thing. We keep it more honest, raw, more real—to achieve greater collective insights.
Lyle Fitterer: We’ve got all this expertise, talking to each other on a regular basis, it should help from a long-term perspective.
Laurie King: That’s Andy Hunt and Lyle Fitterer, co-heads of Global Fixed Income at Wells Fargo Asset Management. I’m Laurie King, and you are listening to On the Trading Desk®.
Noah Wise: (Forum meeting audio) Welcome to the February 6 Fixed-Income Investment Forum for WFAM. The topic is Brexit, which is obviously getting a lot of headlines these days and may be coming to a critical juncture.
Laurie: In this episode, we’re taking you behind the scenes to learn how WFAM helps elevate and improve its Global Fixed Income team with its Fixed-Income Investment Forum. It isn’t open to the public, but the thoughts and ideas shared at the forum reach you. They do that by way of our investment teams putting that knowledge to work for you—whatever type of investor you are. Here’s Noah Wise, senior portfolio manager. Noah coordinates the forum.
Noah: The Fixed-Income Investment Forum is really a tool to improve collaboration. We crowdsource the ideas because we want to talk about topics that are most relevant on an issue that’s impacting fixed-income investors. Then we look around at all the human capital that we have, and we figure out who are the experts in this particular area. And so we tap different people on the shoulder across different teams, which may have different perspective. It is global, so it’s portfolio managers, traders, analysts from San Francisco to London and all parts in between.
Laurie: Andy had more.
Andy: We actually prefer it to most hour-long meetings. It’s a very vibrant way of having a meeting, where people come pre-armed. They’ve done the work up-front, and we have this discussion and debate. It is actually free from kind of the monotony of a regular presentation. And that is conducive, I feel, to making this thing a success.
Laurie: And every forum is an opportunity to debate research.
Andy: So, one of the areas that we’ve had an interesting debate was the idea of high-yield versus bank loans—here in the United States and internationally in Europe, where you’re drawing different conclusions. And it was through the forum that we got to the bottom of this, where two views that seemingly oppose each other can be rationalized and understood. And that was, I think, an enlightening moment for us because [the teams] could understand the seeming market dichotomy. And then by understanding, it gave both sides greater conviction in their opinion, they came to understand the market can be wrong, and investors can get an edge.
Laurie: And oftentimes, one team’s research will positively influence other fixed-income approaches.
Lyle: Yes. I think there are a lot of different examples. One example I’ve used a lot is the tax-exempt team—because that’s where I focus a lot of my time. Listening to our corporate guys talk about what’s going on in the corporate market, what they are seeing, identifying trends, helps us in our muni portfolios to reposition ahead of those events taking place in the muni markets. So, we have issuers in the muni market that are actually guaranteed by corporate obligors—if we can identify a trend that’s going on in the corporate market, that may directly impact those credits in the muni market, but yet the muni market hasn’t reacted to that, we can take advantage of that.
Noah: Yes. Absolutely. I think it’s pretty well understood that rating agencies—and this isn’t a knock, not a bug, but a feature of how they operate—they are more backward-looking. And what is helpful is for us is to be able to look at this on a forward-looking basis and be able to say, “In the different types of scenarios, what do we think would happen?”
Lyle: Last year was a great example. Corporate credit spreads were moving wider, high-yield credit spreads were moving wider, emerging market credit spreads were moving wider—but yet muni credit actually was performing exceptionally well, driven by technicals. Well, in the fourth quarter, those technicals reversed, and so you actually saw credit finally underperform in the fourth quarter. But we were able to get out ahead of that because we had been doing an up-in-quality trade based upon what we were seeing in other markets.
Noah: (Forum meeting audio) On slide 7, Allister put together this decision tree that I think is really a great tool for thinking through difficult situations. And this one [Brexit] being more complex than most, to say the least.
Noah: One of the most interesting things about the investment management business is that are as many tools as there are problems that are out there. And depending on what the problem is, you need different types of tools to handle them. And a decision tree is really just a simplified model to, kind of, understand a very complex situation.
And you mention Brexit—the early February forum. And to get an understanding of this incredibly complex situation, one of the analysts and portfolio managers in Credit Europe, Allister Thomas, had put together a decision tree. And looking at the different nodes and different decisions along the path—and what those decisions, depending on how they break—what different types of outcomes would be. And so what’s really nice about that tool is that it allows people from the outside, coming in and looking at it, to say, “Okay, what are the important decisions that drive the different types of outcomes?” And then implement that in the best way for client portfolios across all the different teams.
But, just because that information is shared, doesn’t mean the way that it’s interpreted is always the same.
Andy: You don’t want to have people automatically agree, or have to agree. Equally, you don’t want to have people forced to a position where disagreement is okay without justification, without reason. So we like it to be a healthy discussion and debate, which, if after the result of that debate and discussion people do agree—and there is a collective wisdom that is formed—great! But equally, we don’t force it that way, because our minds don’t have to meet on a particular topic. If there is disagreement and dissonance around a point, that tells us something—that it isn’t obvious there is a right answer. And that means, collectively, we understand that the two sides of that discussion are valid; hence, it might not be something we have a strong view or insight that we wish to impart upon our portfolios. So, I think by arriving at agreement, or arriving at disagreement, you learn something. And secondly, by structuring the discussion in the form of a debate, you free people from a prior conviction and they are able to, sort of, try and think from one side of the argument which I think is very powerful and liberating.
Laurie: While this forum informs, it keeps the final decision-making at the strategy or approach level. And while the forum helps elevate the entire global fixed-income team—at the center is the investor.
Lyle: Right. Effectively, that is what we are trying to do. Look, we’ve got all this expertise, let’s make sure they are talking to each other on a regular basis, because it’s going to make each and every product better. It’s also going to allow us to introduce different products into the marketplace that can really bring together all those areas of expertise. We’re also working on a way to communicate to our clients, and to potential clients, about what comes out of these meetings. To, again, really promote that transparency that we talk about in our process and philosophy—that we want to be very transparent in terms of the risks we’re taking, how we’re coming up with strategies within our portfolios, and then, ultimately, what that means for you as a client.
Laurie: We’re taking you behind the scenes, because, over time, we’ll share highlights from these forums with you—when it can help you. So, look for more from the Global Fixed Income team. I’ll thank Noah Wise, Lyle Fitterer, and Andy Hunt for their time. As always, there’s much more insight for you at wellsfargoassetmanagement.com, on our blog AdvantageVoice®, and right here on this podcast. Until next time; I’m Laurie King, take care.