Blue Chip Issue 79

FUND MANAGER
The game
is bond
Londa Nxumalo joined Allan Gray as a credit analyst in 2017 and
was appointed as a portfolio manager in 2019. She manages the
bond portfolio, as well as a portion of the Africa ex-SA and balanced
fixed interest portfolios. Blue Chip sat down with Nxumalo.
To the average client, bonds are boring and equities are
exciting. What is the appeal to you of managing bonds?
Bonds suit my personality. I am generally risk-averse and tend to worry
about the downside; bond investors care less about upside (which is
capped) but spend a lot of time considering the risk of default.
The enemy for the average client is inflation. What role do
bonds play in helping client portfolios beat inflation?
Including nominal bonds offering positive real yields provides a
balanced client portfolio with a different source of real returns
that is less volatile than equities. Inflation-linked bonds are also
structured to give inflation-adjusted returns.
Allan Gray has a noticeably clear philosophy for investing
in equities. How would you describe your (or Allan Gray’s)
philosophy for investing in bonds?
The bond investing philosophy is not too dissimilar to that of
equities. I determine a fair value for bonds and buy those that are
cheap on a risk-adjusted basis.
[The Allan Gray investment philosophy favours long-term, contrarian
opportunities and relies on detailed fundamental analysis of
potential investments.]
What investment process do you follow in deciding whether
to include an instrument in your bond fund?
Again, the investment process for bonds is like that of equities. An
analyst writes a research report, after which the investment team
debates the investment case and votes on an internal risk rating.
This rating determines the maximum limit for the bond fund.
Well-behaved inflation
bodes well for nominal
bonds, and the real yields
that investors can get are
currently remarkably high.
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