Elida Rhenals is currently a Fixed Income Portfolio Manager at AXA Investment Managers. She joined the management company in 2014 and since then has held various positions in the area of Fixed Income Portfolio Management and Inflation-Linked Bond Funds. Previously, he worked at firms such as Amundi AM and KPMG. In addition to her CFA certification, Elida holds other degrees in Applied Economics and Financial Engineering, as well as a Master’s degree in Strategic Management and International Consulting.
When and how did you start your career in the financial industry? Was a role in the investment funds industry always attractive to you?
I started back in 2010 just before the Euro Area debt crisis as an assistant portfolio manager in Fixed income. Headlines about sovereign debt were everywhere and it was thrilling to see how your work was directly linked to the news. Despite the (very) stressful times, it just confirmed my will to pursue a career in the investment funds industry.
From what I can recall, I wanted to join the industry since I finished high school. I was draw by the fast-paced environment and the fact that the decision-making process was closely tied to the world’s evolving environment. Of course, it wasn’t easy to get a job in the post-Lehman world but fast forward, I’m happy I didn’t give up.
What key principles drive your investment process and why?
If I had to summarize, I’d say base your strategies on fundamental analysis, diversify your sources of alpha and think long term.
Having solid arguments gives you the confidence to take investment decisions and navigate through periods of market turbulence. But having all the eggs in the same basket is counterproductive. By that, I don’t mean to put on strategies in every sense: your portfolio must be in line with your market scenario. However, it is important to diversify the implementation of your trades as it is impossible to have the same level of conviction for all of them.
Given our current environment where short-term volatility has dramatically increased, it is tempting to switch off when the strategies are not going the way you thought. It is important to step back, see the full picture and keep in mind that (unless you’re a high frequency trader) this is a marathon, not a sprint. I am convinced this is the only way you can consistently protect your client’s capital and generate returns over different market environments.
How are you adapting your portfolio to the current situation of the markets?
I manage inflation-linked bond portfolios and by far it has been the most interesting year of my career. Inflation hasn’t stopped to surprise to the upside, and we believe there are still risks of further increases.
In this sense, Central Banks in advanced economies will not have any relief unless inflation peaks, so we could expect further tightening in monetary policy. Our portfolios remain positioned in short term linkers which benefit from high inflation indexation and limited interest rate exposure. Looking forward, we are aware that recession fears are increasing and that the tightening cycle can’t last forever. We believe that when inflation rolls over is the right time to add duration in the portfolio.
What geographical areas do you believe are more interesting at the moment in terms of Fixed income?
We see Euro Area inflation hovering 10% yoy between September and October which will push the ECB to remain on the hawkish side. With these eye-catching levels of inflation indexation, short term linkers are attractive from a carry perspective while limiting the exposure to interest rates swings.
In the US, the story is a bit different. Inflation is likely to peak in the summer and recession fears have continued to rise after Chairman Powell affirmed that a soft landing was “very challenging”. We believe that rising fears of recession are a supportive for long term real rates. The case for US real yields is increasing, as now most of the real yield curve is at positive territory. In a nutshell, we prefer short term linkers in the Euro Area and the long end in the US.
What fixed income instruments are you including at the moment in your portfolio?
Without any doubt, inflation linked bonds are our most favoured asset class. We are experiencing historically high levels of inflation and linkers are the simplest way to capture it, since their principal is linked to the consumers price index.
For example, 4-year linkers in the Euro Area could provide between 4% and 5% of income for the next 12 months. This is something you want to have in your portfolio as the indexation also provides a cushion for performance. Despite the vertiginous rise in interest rates, short term linkers are one of the few fixed instruments which have delivered positive returns since the beginning of the year.
But also, inflation linked bonds remain attractive because the market still thinks that inflation is transitory. Current valuations show that the market is pricing that inflation will be close to the 2% target as soon as next year and we believe that this is too soon. We see inflation remaining high over the medium term as there are structural factors (green transition, deglobalisation) that can support above-target levels of realized inflation.
Finally, as real yields have risen, we have better entry points in the asset class. Take for instance
s long maturity linkers. Their real yield (the rate before inflation indexation) is now positive for many of the bonds. This means that on top of inflation you are locking a positive rate, something we haven’t seen in the past 5 years. We expect this segment to perform in a stagflation environment.
How would you describe yourself in 3 words?
Hard question! I would say passionate, energetic, and caring. I bet everyone who knows me would say I have too much energy. For my defence, I think it is what it takes to work in this industry.
Would you give any advice to anyone wanting to start a career in the asset management industry?
You have to be curious and never take anything for granted. I think that the interesting part of our industry is that market drivers are moving stones so you need to be able to question yourself, assess and adapt. Don’t be afraid to ask questions, it is easy to be overwhelmed when you start but hang on, this is how you will learn.