In conversation with Andrew Chorlton, CIO for Fixed Income

Andrew, you’ve recently joined as CIO for fixed income at M&G Investments. How are you finding life here so far and what are you most excited about?

My first impressions are that there’s lots of energy, talent and genuinely lovely people here. The performance is good and the quality of the people that we’ve got is exceptional, so the most exciting bit for me is focusing on growth, getting broader reach and sharing our products and the capabilities with more clients in more places. 

Tell us about the early days of your career – how you started in the investment industry, your first post and what motivated you to pursue fixed income as the asset class of choice? 

I was studying abroad in Spain and people around me were applying for summer internships. I had nothing else to do so I thought I’d apply for a summer internship. I was always broadly interested in finance but didn’t really understand ‘The City’, if I’m honest. Then after a summer internship at Citi that led to a job on the graduate programme, and my eyes were opened.

The reason for fixed income, like a lot of people, it was the opportunity. There was an opportunity to move off rotation and onto a ‘proper job’ on a global fixed income team. They had a model where every senior portfolio manager was partnered with an up-and-comer, so it felt like a really good opportunity to learn and I was given my own markets to focus on. My career has encompassed a bank-owned asset manager, an insurance asset manager, a boutique, and independent including over a decade in the US and I finally got to work at M&G, which I believe is the premier fixed income firm in Europe.

Which market episode has been the hardest challenge to navigate in your career – and what did it teach you?

I’ve managed through a few different crises but I’d say the global financial crisis – COVID to a lesser extent – when I was working for a very small firm. 

I left London and moved to California. I started there in July 2007 and the financial crisis was beginning to rumble. It was quite scary how quickly things were moving in the market but how slow the reaction was from governments and regulators. 

We had quite a clean, well-defined investment philosophy and process and we knew if stuck with it then we’d get through the crisis in one piece, with our client relationships solidified. When you’re at a small firm where every single dollar you manage is for external clients, it can be quite a vulnerable feeling if you don’t get it right. You’re being tested every single day to justify why you’re with those clients – and we were up against the biggest firms in the world. 

That discipline around investment philosophy held us in good stead, not necessarily every single quarter, but over the cycle. When COVID hit, the government response was a little bit quicker, but again – I was managing money in those days – sticking to the investment philosophy and the process that clients expected of you gives you an anchor in a difficult market. 

Ensuring that our clients understand the philosophy of the investment teams provides a strong foundation as the market ebbs and flows. There are always things going on but if you’ve got an investment philosophy that can look through different market scenarios and guide you through it, it’s a bit of a superpower. 

Strong fundamental research – whether that’s corporate credit, structured credit or sovereign analysis in both developed and emerging markets – is the common foundation that supports every team here. Portfolio managers are making relative value judgements all the time within their investment universe, but the thing they can all rely on is the quality of a strong research capability – because there’s an independent perspective giving them the confidence to invest.  

Why is fixed income interesting as an asset class right now – and how do you see demand for it evolving? 

I think the demand for fixed income will be driven by the underlying demand for income in retirement as demographics result in ageing populations. 

That’s why I believe it’s such an interesting time in the market – because income is back in fixed income. It’s there not because of short-term moves, but because the rise in yields that started with inflation fears has recently been driven by an increase in real yields. I believe that rise in real yields is driven partly by uncertainty but more fundamentally by the increase of the supply of government bonds around the world and the need to find the right price for investors to digest all those bonds.

I’m very fortunate to be head of fixed income at a firm that has such a heritage in the asset class at a time when structurally, the money should be coming in our direction. 

Amid elevated geopolitical risks, policy and economic volatility in recent years, what role can actively managed fixed income strategies play in modern portfolios and do you think we’ve seen the end of 60/40?

The role of fixed income is less of a risk diversifier and more a contributor to returns. The absence of quantitative easing results in normalised yields, where the price of bonds more truly reflects the balance between risk and reward. I expect bonds will be seen as more of a return diversifier, particularly as equity portfolios are seemingly getting more concentrated by the success of the US market.

As fixed income allocations have grown – we think they’re growing across all client segments because of the rise in real yields – people will need to consider diversification in their fixed income in the same way they used to in their equity portfolio. 

So, whilst perhaps your fixed income allocation is much smaller, you might just have a domestic allocation to US, or Euro or UK bonds, I think people will increasingly look at emerging markets, which has been an unloved asset class in recent years and say: ‘If I’m going back to a 60/40 – I don’t think many people have been at 40 – but if I’m going to go back to those levels, I don’t want it all in the UK corporate bond market. Maybe I should have a mix of domestic government bond risk, corporate credit risk and international or emerging market risk’ – in the same way you have a diversified equity portfolio.

Do you have a favourite economic indicator or market signal? 

My ‘favourite’ indicator is US payrolls because there’s such focus on a single number that is nearly always forgotten within 24 hours. I find it amazing that every single month without fail there’s a build-up to it, an almost always instant reaction – and quite a violent one – and then within a couple of days it’s forgotten about, or there’ll be another data point that’s completely contradictory. It’s like the reality TV version of an economic indicator – instant gratification because everyone’s talking about it, but a single number that in itself is meaningless. 

Your career has taken you to London, New York and California. What are some of your favourite food spots, and dare I ask, which city takes the food gong? 

It depends. California for Mexican food, New York for Korean and London for home comforts. I had six years in Santa Barbara and six years in New York. Everyone expects you to say: ‘Oh, I miss California’, but if you work in markets you have to be in the office before 5:00am and go to bed at the same time as the kids!

New York’s an extremely cosmopolitan city, you meet people from all over who have been all over. I lived in Brooklyn and worked in Midtown Manhattan and it was great. I was introduced to Korean food and Korean fried chicken coupled with karaoke is hard to get. But home is home, and hard to beat.

Where did you go to school and what did you study at university?

I went to Hymers College in Hull, then went to Birmingham for university and studied economics and Spanish. I always wanted to do economics because of the finance angle, but I also realised there would be lots of people with economics degrees so the combination with a language would improve my chances of finding a job. The year in Spain remains the best year of my life and I was very lucky from there to get an internship then got a graduate job after. Once you get your foot in the door, it’s up to you. 

Tell us something that most people don’t know about you. 

I used to be a DJ – not a real one – during my year abroad. I was a DJ on a Thursday night in a bar in Valladolid, but don’t ask me about music now! 

What’s your favourite town, city or country?

Beverley in East Yorkshire’s my favourite because it’s home. A lot of my friends are still in Beverley and we are still very close even though I haven’t lived there since I was 18. 

In the last year I’ve been to both Vietnam and China for the first time. I find that every time I discover somewhere new, it instantly becomes my favourite place, until I discover the next place! There are so many places I want to go that I almost never want to go back to the same place twice.

I guess my dream destination is wherever I’m going to next, which is Oman!

What do you like to do when you’re out of the office?

I’ve got two daughters so I spend a lot of time ferrying them around for their activities. Aside from the girls, I spend time and money on rugby, travel and food, ideally combining them all together. When we came back from New York I moved to Hertfordshire and Saracens are the nearest team. Some of the players live locally and it always makes me smile to be in the queue at the coffee shop behind an England player.

What piece of advice has helped you – and do you have any for those in the early days of their career?

Once you’re in a role, there are three stakeholders involved in your career development: you, your manager and the wider company. It has to start with you as an individual because only you really know what you enjoy doing, what you’re good at and how hard you are willing to commit to your ambition. It has to start with you. 

Your manager has to be the catalyst for making sure they’re alert to opportunities that allow you to further your career and be willing to let you grow and even move to a different area. 

The third one is the company or more specifically, the leadership, because it’s the growth of the firm that will create those opportunities.

However, it always comes back to the individual. A lot of people look to delegate their career development to their manager but they can only do so much – you have to define your career development and other people can help you on your journey.