1 00:00:04,080 --> 00:00:07,710 Shawn Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Shawn Aylmer, financial 2 00:00:07,710 --> 00:00:10,110 Shawn Aylmer: marketer having a pretty wild ride at the moment. There's 3 00:00:10,110 --> 00:00:12,960 Shawn Aylmer: a lot of fear, not just here, but globally, and 4 00:00:12,960 --> 00:00:15,600 Shawn Aylmer: even investors are concerned that rising rates to head off 5 00:00:15,600 --> 00:00:19,020 Shawn Aylmer: inflation will push major economies into recession. I wanted to 6 00:00:19,020 --> 00:00:22,140 Shawn Aylmer: talk broadly about what this volatility means to investors but 7 00:00:22,140 --> 00:00:24,660 Shawn Aylmer: also focus on those funds set up to make a 8 00:00:24,660 --> 00:00:27,960 Shawn Aylmer: difference. How are impact funds going to whither the storm? 9 00:00:28,260 --> 00:00:30,810 Shawn Aylmer: Remember this is general information only and you should seek 10 00:00:30,810 --> 00:00:34,740 Shawn Aylmer: professional advice before making any investment decisions. Karyn West is 11 00:00:34,740 --> 00:00:38,250 Shawn Aylmer: the founder and managing director of Apostle Funds Management. Karyn, 12 00:00:38,250 --> 00:00:39,240 Shawn Aylmer: welcome to Fear and Greed. 13 00:00:39,659 --> 00:00:40,830 Karyn West: Thank you for having me, Shawn. 14 00:00:41,340 --> 00:00:42,510 Shawn Aylmer: So what a wild week! 15 00:00:43,830 --> 00:00:46,320 Karyn West: It's been one of the wildest weeks we've really seen, 16 00:00:46,320 --> 00:00:49,559 Karyn West: although the people who've been around during the GFC and 17 00:00:49,560 --> 00:00:52,800 Karyn West: beyond that, we've seen this before. We really had nowhere 18 00:00:52,800 --> 00:00:56,520 Karyn West: to hang out. It's across the board from FX markets 19 00:00:56,520 --> 00:00:59,820 Karyn West: to fixed income, through to equities. There's really nowhere to 20 00:00:59,820 --> 00:01:02,220 Karyn West: hide. You can hide away in cash but then you're 21 00:01:02,220 --> 00:01:05,759 Karyn West: really missing the boat when markets turn again, so that's 22 00:01:05,760 --> 00:01:07,590 Karyn West: never really a great strategy. 23 00:01:08,190 --> 00:01:10,530 Shawn Aylmer: Okay, so what do you do? Do you stick to 24 00:01:10,530 --> 00:01:13,229 Shawn Aylmer: your original stategy? Is that the idea, is that people 25 00:01:13,230 --> 00:01:17,280 Shawn Aylmer: get in, and mostly we are talking to people who 26 00:01:17,280 --> 00:01:20,250 Shawn Aylmer: are longer- term investors rather than day traders. Is it 27 00:01:20,250 --> 00:01:21,959 Shawn Aylmer: about sticking to your strategy at this point? 28 00:01:23,160 --> 00:01:25,860 Karyn West: It involves two strategies. One of them is to do 29 00:01:25,860 --> 00:01:28,860 Karyn West: with how you do your asset allocation. We have a 30 00:01:28,860 --> 00:01:32,340 Karyn West: diversified product called The People and Planet Fund, which is 31 00:01:32,340 --> 00:01:35,970 Karyn West: an impactful, diversified fund. It's across most of the MH 32 00:01:35,970 --> 00:01:39,180 Karyn West: or SA classes and also includes venture capital and some 33 00:01:39,180 --> 00:01:42,869 Karyn West: other alternatives in there as well. We are able to 34 00:01:42,990 --> 00:01:46,920 Karyn West: dial up and down our asset allocation to reduce the 35 00:01:46,920 --> 00:01:52,110 Karyn West: exposures to growth investments in favor of defensive investments during 36 00:01:52,110 --> 00:01:55,380 Karyn West: periods like this. We don't move dramatically, but it does 37 00:01:55,650 --> 00:01:58,830 Karyn West: just cushion the blow of some of this volatility that 38 00:01:58,830 --> 00:02:02,400 Karyn West: we're experiencing. And our second prong of attack is to 39 00:02:02,400 --> 00:02:06,540 Karyn West: focus on mega trends, the long- term drivers of returns, 40 00:02:07,020 --> 00:02:11,100 Karyn West: that are sometimes ethical in nature and sometimes just driven 41 00:02:11,100 --> 00:02:17,130 Karyn West: by other factors such as an aging population. Decarbonisation's another 42 00:02:17,190 --> 00:02:22,470 Karyn West: mega trend. Diversity investing, really harnessing the other 50% of 43 00:02:22,470 --> 00:02:26,370 Karyn West: the workforce as best as we can. Food, water, those 44 00:02:26,370 --> 00:02:29,790 Karyn West: longer term trends that are really going to drive returns, 45 00:02:29,790 --> 00:02:30,570 Karyn West: we focus there. 46 00:02:31,410 --> 00:02:34,530 Shawn Aylmer: Okay, unpacking that, let's take the latter part first. These 47 00:02:34,530 --> 00:02:37,320 Shawn Aylmer: kind of longer- term mega trends, is it just that 48 00:02:37,320 --> 00:02:39,870 Shawn Aylmer: you have to look through this (inaudible) at the 49 00:02:39,870 --> 00:02:42,630 Shawn Aylmer: moment, and if you're picking on demographics or you're picking 50 00:02:42,630 --> 00:02:46,320 Shawn Aylmer: on wood, or you're picking on environment, you basically stick 51 00:02:46,320 --> 00:02:47,220 Shawn Aylmer: to your guns? 52 00:02:47,550 --> 00:02:50,370 Karyn West: We do. So our focus is around things that we 53 00:02:50,370 --> 00:02:54,570 Karyn West: have both short and longer term targets around... I think 54 00:02:54,570 --> 00:02:57,389 Karyn West: if anybody's looking to go and buy a car now 55 00:02:57,389 --> 00:03:00,690 Karyn West: and is not including an electric vehicle on their list, it 56 00:03:00,690 --> 00:03:03,000 Karyn West: would be rather short- sighted. There's a very big trend 57 00:03:03,000 --> 00:03:07,829 Karyn West: there. Solar panels. We've got high energy expenses. I expect 58 00:03:07,830 --> 00:03:10,980 Karyn West: that solar panels are going to be very, very commonplace 59 00:03:10,980 --> 00:03:13,530 Karyn West: for your listeners to be looking at, trying to get 60 00:03:13,530 --> 00:03:16,950 Karyn West: away from the horrible gas prices that we've seen. So 61 00:03:16,950 --> 00:03:21,540 Karyn West: they're quite shorter term investments that we can focus on 62 00:03:21,540 --> 00:03:24,090 Karyn West: because there's real demand for those now, and it's only 63 00:03:24,090 --> 00:03:24,841 Karyn West: going to increase into the future. 64 00:03:24,841 --> 00:03:29,070 Shawn Aylmer: Okay, and then the other thing I just wanted from your previous 65 00:03:29,070 --> 00:03:32,370 Shawn Aylmer: answer, that People and Planet diversified fund, is it more 66 00:03:32,370 --> 00:03:38,160 Shawn Aylmer: difficult to re- allocate money in that fund when it 67 00:03:38,160 --> 00:03:41,370 Shawn Aylmer: is actually a full- purpose fund or an impact fund 68 00:03:41,640 --> 00:03:44,850 Shawn Aylmer: where you actually don't have as great a selection of assets? 69 00:03:46,080 --> 00:03:48,390 Karyn West: I wouldn't say we don't have as great a selection. 70 00:03:48,390 --> 00:03:51,930 Karyn West: What we've done is we've removed a lot of what 71 00:03:51,930 --> 00:03:56,369 Karyn West: we consider to be unethical investing, including fossil fuels, alcohol, 72 00:03:56,370 --> 00:04:01,020 Karyn West: tobacco, the usual things that people have got concerns about. 73 00:04:01,020 --> 00:04:06,060 Karyn West: Animal cruelty. And we're replacing those types of investments with 74 00:04:06,150 --> 00:04:10,470 Karyn West: other things that either correlated or just better substitutes. And 75 00:04:10,470 --> 00:04:13,710 Karyn West: I'll give you a couple of examples. We've taken out 76 00:04:13,710 --> 00:04:18,001 Karyn West: all exposures to animal investing. So that would involve (inaudible) 77 00:04:18,001 --> 00:04:23,070 Karyn West: tests or anything that's got animal involvement. The huge 78 00:04:23,100 --> 00:04:29,550 Karyn West: increase in non- animal protein sources is a much greater 79 00:04:29,550 --> 00:04:34,980 Karyn West: trend than some of those older protein sources. So the 80 00:04:34,980 --> 00:04:38,880 Karyn West: other area is growing exponentially, while I think the older 81 00:04:38,880 --> 00:04:42,210 Karyn West: areas are actually shrinking anyway. So I think it's not 82 00:04:42,270 --> 00:04:44,460 Karyn West: that we have to exclude it. We just need to 83 00:04:44,460 --> 00:04:49,290 Karyn West: be a bit inventive in finding other ways to substitute 84 00:04:49,320 --> 00:04:52,500 Karyn West: some of those exposures. The other very important one that 85 00:04:52,500 --> 00:04:57,419 Karyn West: we're doing is looking at investing in carbon credits, sort 86 00:04:57,420 --> 00:05:01,500 Karyn West: of as a substitute for fossil fuels. Now our fund 87 00:05:01,500 --> 00:05:04,350 Karyn West: launched on the 10th of March of this year and you'll all 88 00:05:04,350 --> 00:05:07,500 Karyn West: have remembered the oil price that's gone through the roof. 89 00:05:08,040 --> 00:05:10,110 Karyn West: Well while that oil price was going through the roof, 90 00:05:10,260 --> 00:05:12,750 Karyn West: so was the price of carbon. And so we kept 91 00:05:12,870 --> 00:05:17,070 Karyn West: pace in our portfolio because we'd found a good correlating substitute. 92 00:05:17,550 --> 00:05:31,140 Shawn Aylmer: Stay with me, Karyn. We'll be back in a minute. I'm speaking to Karyn West, founder and managing director of Apostle Funds Management. Okay, 93 00:05:31,140 --> 00:05:33,480 Shawn Aylmer: now we tend to talk a lot about equities but 94 00:05:33,480 --> 00:05:37,680 Shawn Aylmer: you've also got an ethical high- yield credit fund, which 95 00:05:37,680 --> 00:05:41,220 Shawn Aylmer: in a sense, for investors, I suppose they're thinking about 96 00:05:41,220 --> 00:05:43,740 Shawn Aylmer: the underlying asset in the same way, it's just one's 97 00:05:43,740 --> 00:05:47,700 Shawn Aylmer: equity, one's credit. But can you take us through the 98 00:05:47,700 --> 00:05:49,530 Shawn Aylmer: thinking behind the high- yield credit fund? 99 00:05:50,550 --> 00:05:54,420 Karyn West: Sure. That was in collaboration with our (inaudible) investor. 100 00:05:54,420 --> 00:05:57,000 Karyn West: So we work very closely with our investors to find 101 00:05:57,000 --> 00:05:59,790 Karyn West: out what are they trying to achieve, what's their end 102 00:05:59,790 --> 00:06:03,900 Karyn West: objective? And then we go away and purpose- build something 103 00:06:03,930 --> 00:06:07,320 Karyn West: for the client base. So our clients were interested in 104 00:06:07,320 --> 00:06:12,510 Karyn West: a net 5 to 7 percent return hedged into Australian dollars. 105 00:06:13,380 --> 00:06:15,840 Karyn West: When we looked across the range of where we could 106 00:06:15,960 --> 00:06:20,279 Karyn West: get consistently that type of return, without a lot of 107 00:06:20,279 --> 00:06:22,770 Karyn West: volatility around that, because no one wants to see a 108 00:06:22,770 --> 00:06:25,740 Karyn West: negative return... You don't have to get a 10 plus, 109 00:06:26,040 --> 00:06:27,870 Karyn West: you just want to try to hit a sweet spot, 110 00:06:28,470 --> 00:06:31,469 Karyn West: year in year out, as much as you can. We 111 00:06:31,650 --> 00:06:34,770 Karyn West: built that portfolio using a number of (inaudible) . It's 112 00:06:34,770 --> 00:06:37,740 Karyn West: all in the high- yield space, but we take quite 113 00:06:37,740 --> 00:06:43,049 Karyn West: a conservative approach to how we build it. All of the 114 00:06:43,050 --> 00:06:47,730 Karyn West: portfolios are with portfolio managers offshore. So we use Post 115 00:06:47,730 --> 00:06:51,390 Karyn West: Advisory and Kayne Anderson offshore. They look at very niche 116 00:06:51,480 --> 00:06:56,100 Karyn West: and specific portfolios, where they hand- pick the credits to 117 00:06:56,100 --> 00:06:58,529 Karyn West: make sure that they're ethical, to make sure that we're 118 00:06:58,529 --> 00:07:01,140 Karyn West: not going to experience (inaudible) default risk, if we're 119 00:07:01,140 --> 00:07:03,630 Karyn West: going through a period like we are now. And they 120 00:07:03,630 --> 00:07:07,440 Karyn West: can go up quality into the triple B area or 121 00:07:07,589 --> 00:07:10,530 Karyn West: double B area. Opportunistically, they can move up and down 122 00:07:10,530 --> 00:07:14,880 Karyn West: the credit quality to assist during periods like today. We 123 00:07:14,880 --> 00:07:19,380 Karyn West: are able to balance the portfolio between floating rate securities 124 00:07:19,380 --> 00:07:22,230 Karyn West: and fixed rate. And in a period like this, where 125 00:07:22,230 --> 00:07:25,980 Karyn West: we're seeing a lot of volatility, rising interest rates and 126 00:07:25,980 --> 00:07:29,160 Karyn West: inflation, it makes more sense to hold a much higher 127 00:07:29,160 --> 00:07:33,090 Karyn West: proportion of floating rate assets, such as bank loans, US 128 00:07:33,090 --> 00:07:36,900 Karyn West: bank loans, which are liquid, or private debt, which is 129 00:07:36,900 --> 00:07:40,830 Karyn West: also a floating rate but illiquid. So we hold quite 130 00:07:40,830 --> 00:07:44,280 Karyn West: a large portion there to cushion those blows. We just 131 00:07:44,280 --> 00:07:47,370 Karyn West: don't have to have the duration risk and the volatility 132 00:07:47,370 --> 00:07:50,070 Karyn West: that you have in your fixed rate during these periods. 133 00:07:50,400 --> 00:07:54,060 Karyn West: So we can move the assets around just so the environment 134 00:07:54,060 --> 00:07:56,640 Karyn West: that we're in to try to focus on that five 135 00:07:56,640 --> 00:07:57,510 Karyn West: to seven percent. 136 00:07:58,050 --> 00:08:00,330 Shawn Aylmer: Okay. So to move the assets around, you must have 137 00:08:00,330 --> 00:08:02,610 Shawn Aylmer: an underlying view of what's going to happen, which of 138 00:08:02,610 --> 00:08:04,200 Shawn Aylmer: course is the $ 64 question- 139 00:08:04,290 --> 00:08:04,620 Karyn West: Yes. 140 00:08:04,620 --> 00:08:06,750 Shawn Aylmer: For all of us. What's going to happen in Europe? 141 00:08:06,750 --> 00:08:08,220 Shawn Aylmer: What's going to happen in the US? What's going to 142 00:08:08,220 --> 00:08:10,440 Shawn Aylmer: happen in China? What's going to happen in Australia? 143 00:08:11,460 --> 00:08:15,960 Karyn West: Our portfolio currently is a US portfolio. That is by 144 00:08:15,960 --> 00:08:20,790 Karyn West: design. We also could rotate into Europe in particular. We 145 00:08:20,790 --> 00:08:25,620 Karyn West: use external managers because we really believe that large teams 146 00:08:25,650 --> 00:08:29,550 Karyn West: of analysts that are hand picking the securities is better 147 00:08:29,550 --> 00:08:31,770 Karyn West: than sort of an index approach or (inaudible) everything 148 00:08:31,770 --> 00:08:34,079 Karyn West: approach. We want to be really selective in our opinion. 149 00:08:34,650 --> 00:08:37,860 Karyn West: Don't think it's the time to be buying European credits 150 00:08:37,860 --> 00:08:42,990 Karyn West: at the moment given the situation of Russia, energy crisis 151 00:08:43,050 --> 00:08:47,730 Karyn West: and spiking rates and inflation in all of Europe. But 152 00:08:48,240 --> 00:08:51,420 Karyn West: in a year or so, that might be very, very 153 00:08:51,420 --> 00:08:55,140 Karyn West: good fertile ground to find babies that have been thrown 154 00:08:55,140 --> 00:08:56,910 Karyn West: out with the bathwater, so we would look at that. 155 00:08:57,480 --> 00:09:00,030 Karyn West: The reason we focus on the US market in particular 156 00:09:00,030 --> 00:09:04,170 Karyn West: is because it's the most liquid market, it's got a 157 00:09:04,170 --> 00:09:08,490 Karyn West: long record, we really know managers there that can do 158 00:09:08,490 --> 00:09:11,130 Karyn West: an excellent job in the niche areas that they play 159 00:09:11,130 --> 00:09:14,340 Karyn West: in. So we have more surety around hitting our target 160 00:09:14,340 --> 00:09:17,970 Karyn West: than if we go into other areas such as China 161 00:09:18,059 --> 00:09:21,179 Karyn West: or Asia or other areas like there. We really want to 162 00:09:21,179 --> 00:09:26,040 Karyn West: focus on the target rather than branching out into areas 163 00:09:26,040 --> 00:09:27,660 Karyn West: that may cause more variability. 164 00:09:28,590 --> 00:09:32,040 Shawn Aylmer: Karyn, do you personally get more nervous doing your job 165 00:09:32,130 --> 00:09:34,980 Shawn Aylmer: in times like this? I'm sure investors get more nervous. 166 00:09:35,160 --> 00:09:37,620 Shawn Aylmer: I mean I worry about my superannuation more now than 167 00:09:37,620 --> 00:09:40,230 Shawn Aylmer: I would normally. But you're managing huge amounts of money 168 00:09:40,230 --> 00:09:42,180 Shawn Aylmer: here and your team are managing huge amounts of money. 169 00:09:42,240 --> 00:09:43,380 Shawn Aylmer: Do you get more nervous? 170 00:09:43,860 --> 00:09:45,990 Karyn West: We don't get nervous. We spend a lot of time 171 00:09:45,990 --> 00:09:50,100 Karyn West: just analyzing the risk, working out where we can reduce 172 00:09:50,100 --> 00:09:53,189 Karyn West: volatility as much as possible, because we're really about capital 173 00:09:53,190 --> 00:09:56,460 Karyn West: preservation. Who wants to be losing money? Nobody. So you 174 00:09:56,460 --> 00:09:59,670 Karyn West: don't really want to stick to indices too much. I 175 00:09:59,670 --> 00:10:03,209 Karyn West: think the index investing during times like this is probably 176 00:10:03,210 --> 00:10:06,059 Karyn West: not particularly prudent. I think you want to be quite 177 00:10:06,059 --> 00:10:09,000 Karyn West: nimble. I think you want to be able to work 178 00:10:09,000 --> 00:10:12,150 Karyn West: in an environment where you can find other areas to 179 00:10:12,270 --> 00:10:14,490 Karyn West: place your money that are not going to have the volatility as 180 00:10:14,490 --> 00:10:17,220 Karyn West: much as other areas. And to be honest with you, 181 00:10:17,220 --> 00:10:20,790 Karyn West: when we see really good assets that have become very 182 00:10:20,790 --> 00:10:25,080 Karyn West: cheap, our focus is around, they're probably very good buying, 183 00:10:25,110 --> 00:10:27,179 Karyn West: when do we want to jump back in? So that's 184 00:10:27,179 --> 00:10:27,960 Karyn West: an example. 185 00:10:28,410 --> 00:10:28,559 Shawn Aylmer: Yeah. 186 00:10:28,920 --> 00:10:31,980 Karyn West: We're hanging out in bank loans (inaudible) bank loans at the moment. 187 00:10:31,980 --> 00:10:34,440 Karyn West: And we'll continue to do that for quite some time. 188 00:10:34,770 --> 00:10:37,350 Karyn West: The returns in bank loans for (inaudible) in a day 189 00:10:37,530 --> 00:10:40,890 Karyn West: has been negative. It's been about five percent negative. But 190 00:10:40,890 --> 00:10:44,010 Karyn West: compared to something like... Well we can compare it to 191 00:10:44,010 --> 00:10:45,690 Karyn West: two things. One of them is just the high- yield 192 00:10:45,690 --> 00:10:49,500 Karyn West: bond market that's down 14 percent yield a day. So 193 00:10:49,500 --> 00:10:52,109 Karyn West: by just hanging out in the loans, we've made a 194 00:10:52,170 --> 00:10:56,280 Karyn West: significant reduction in that volatility. It might be interesting to 195 00:10:56,280 --> 00:10:59,640 Karyn West: your viewers to know that if they were investing in 196 00:10:59,760 --> 00:11:03,959 Karyn West: things that are typically considered to be safer, such as 197 00:11:03,960 --> 00:11:08,490 Karyn West: US Treasuries or investment grade, those markets are down 18 198 00:11:08,490 --> 00:11:13,200 Karyn West: percent and 13 percent. They're quite negative returns so putting 199 00:11:13,200 --> 00:11:15,870 Karyn West: your money in treasuries or investment grade is actually being 200 00:11:15,870 --> 00:11:19,590 Karyn West: much worse than putting it into something like US bank 201 00:11:19,590 --> 00:11:22,079 Karyn West: loans, where even though five percent is not a good 202 00:11:22,080 --> 00:11:24,870 Karyn West: return, it's significantly better than the alternatives. 203 00:11:25,050 --> 00:11:26,939 Shawn Aylmer: Karyn, thank you for talking to Fear and Greed. 204 00:11:27,300 --> 00:11:28,260 Karyn West: Oh, my pleasure. Thank you. 205 00:11:28,920 --> 00:11:31,710 Shawn Aylmer: That was Karyn West, founder and managing director of Apostle 206 00:11:31,710 --> 00:11:35,130 Shawn Aylmer: Funds and Management. This is the Fear and Greed Daily Interview. Remember, this 207 00:11:35,130 --> 00:11:37,770 Shawn Aylmer: information is general in nature and you should seek professional 208 00:11:37,770 --> 00:11:41,069 Shawn Aylmer: advice before making any investment decisions. Join us every morning 209 00:11:41,070 --> 00:11:43,050 Shawn Aylmer: for the full episode of Fear and Greed, Australia's most 210 00:11:43,050 --> 00:11:46,410 Shawn Aylmer: popular business podcast. I'm Shawn Aylmer, enjoy your day.