[GRTV] ANZ Investments' CIO Paul Huxford

GRTV speaks with Paul Huxford on the current fund management challenges being faced by ANZ Investments' KiwiSaver team.

Thursday, April 16th 2020, 2:42PM

Welcome to Good Returns TV. It's Covid-19 time and instead of being in the studio, we're doing our first interview over Zoom. With me is ANZ Investments' chief investment officer, Paul Huxford. Welcome, Paul. How's things?

Yeah, good thanks, Phil. Good to be here.

Yeah, it's great to have you on the show. Now tell me, how hard has it been for you as a fund manager to manage this massive KiwiSaver pool of money during such a volatile period of time?

I guess the thing that's added to the complexity is that we're all working from home now, but that piece has gone very, very smoothly for us.

I guess we were fortunate in that we were looking a fair way out on this. We had fully tested all of our technology and indeed, even a couple of weeks before the lockdown had begun, we'd done full day, out-of-the-office testing across the whole team of 38.

So when it came, we were really well equipped just to be able to walk away from the office, and keep operating. I think, one of the big advantages that we have, is being a large team and managing 30-odd billion dollars we do have an advantage in that we have many different teams.

And so, I guess the challenge, one of our key challenges is making sure that our foreign exchange desk is still talking to fixed income, that fixed income is still talking to the utilities guys, all of that. So we're not losing any of that advantage.

But rather than I guess the face to face, that's just happening in other ways now. We're spending a lot of time on the phone and exchanging a lot of emails as well. So thus far I think it's gone really well.

Good. Good. And from an investment management perspective, how difficult has that been?

Well, the complexity in terms of what we've seen and what is in front of us, I guess to state the obvious, has been pretty large.

The speed of the declines that we've seen in some markets is almost unprecedented. And I guess in terms of the bounce, if you think about the US equity market that's been pretty interesting.

We've kept very focused during this time in terms of directing our own research effort into the key issues that we think that we need to be thinking about. And also, taking research from the various research providers that we pay for and other sources as well.

So a big part of that is just making sure that we're looking sufficiently far out. That we're aware of the near-term issues. And then, I guess, filtering, I guess, trying to filter out all of the noise, and trying to stay really true to our investment philosophy, and what holds us in good stead.

So I think we're doing a great job of that. So, so far so good.

So far so good. Have you had to make any big changes in your portfolios?

Yes, at the end of Q3 we moved to an underweight position in terms of international equity. So we did that very, very swiftly.

We recognised what was happening globally in terms of Covid-19, but I guess, like a lot of people the speed of that has had an impact across portfolios. And we haven't lost sight of the long term, but we continue to also focus a reasonable amount of effort on our tactical asset allocation. So we have been quite busy from that perspective as well, but both in equities and in foreign exchange and fixed income as well.

So where we are now, we're relatively neutrally positioned in equities. We're slightly underweight fixed income and carrying good levels of cash, looking for opportunities as they may arise.

To give you a sense of performance just looking at draft numbers, our conservative fund, if I look at that from last year sort of 8, 9% for the quarter, that looks like being down about 1.5%, at the moment based on draft numbers.

Clearly, you're never happy any time to see negative numbers, but I think in the context of that 8, 9% return last year, given everything that's gone on, that's probably not a bad result to have delivered.

In terms of growth ... other end of the spectrum, we were sort of 23.5, 24% last year, that looks like being down about 15% over the last three months.

So I guess importantly, from our perspective, all of the funds have, by and large done what they said on the tin.

And I think, some of the benefits of our long-term perspective, our focus on quality, simplicity and transparency in terms of our investment style, particularly in the fixed income space, is coming through quite strongly. The way in which we view fixed income, it's the shock absorber and you don't want your fixed income assets being devalued significantly during these times of market dislocation.

And our focus on holding quality fixed income assets, I think, is really coming to the fore at the moment which we are pleased about.

Yeah. Was there ever a light bulb moment that this was suddenly going to hit the markets ... for you guys?

Well, I guess there's been lots of light bulb moments. It seems it's been absolutely fast forward over the last period of time.

And the way in which we've talked about it to some of our younger team members is that the GFC was very, very different. It was quite slow moving. It was financial ... started with a financial leverage problem. This was a direct hit to consumption, but really the speed has meant there has been many, many light bulb moments, I guess, as we've gone along.

So I guess for a lot of the younger investment team members, they would have never seen anything like this, so it would be a reasonable fright to them?

Yeah, we're fortunate in that we have good diversity of thought. We've got a lot of older heads around. I think if you add it up, there's the better part of 400 years of experience. So we have got tons of people that have seen this cycle before.

So that's ... I feel good, feel really good about that. And then a good mix of people across all age levels, but look it's a fast forward learning experience for our younger grads and staff.

So you mentioned before this is different from the GFC in the fact that it came down really fast, the GFC was more gradual. Do you see this reversing quickly? Or what sort of speed do think it'll take on recovery.

Look, I'd say bear markets don't end in a month, so we've seen a good bounce in recent days. And I think that may reflect the really positive news around cases peaking around the world.

So that's going on. So I think people will take heart from that. And I guess the big question is how do we get ourselves out of this, and what does the recovery look like? Will there be second wave issues, all of that, all of that complexity?

Do we see this nasty relationship between labour and demand spiral in the future or have central banks and central governments done enough. So there's plenty ... there's a whole heap questions around that.

Lots of people are looking at China, yeah production is coming back, but we have yet to see the consumer comeback there. And there's a really catch-22 here as well because as the consumer gets out and about, that may well coincide with a second wave.

So there are many, many issues that we are devoting a lot of time to really trying to understand how this pans out, both in the short term, but longer term as well. Because depending on your longer term view, you may think that there's a heap of value there already.

But one of the key things for us is that you should always ... make sure that you size your positioning to the level of conviction that you have.

I think it's fair to say that there's a pretty decent amount of complexity out there at the moment. And that's how we see it at the moment and why we're carrying a bit more cash.

So it's got to be an environment which really benefits the value approach to investing, has it?

Well, I would more say quality, I think. If you're talking about value it has under-performed growth, internationally, quite significantly over the last little while.

Maybe that's become a little extreme, and you can see that in the performance of our international managers. And there's quite a divergence there between Franklin Templeton who's more sort-of growthy and LSV who's more the value manager. So I'm sure at some point that may reverse out, but we're happy with that diversified style of those managers at the moment. That suits us well over a long period of time.

So in your investment career, how does this sit in terms of difficulty?

I guess they're all difficult ... I've been around for a while, for too long. I'm in my early 50s, so I've seen a lot. I would say that it's up there with the GFC. We learned a lot, people learned a lot out of it.

But I think the key thing is that it's always different, and it's a matter of taking what you think is appropriate in terms of lessons or what's likely to happen. But continuing to challenge yourself, that it will be different this time, and have we thought about it the right way?

So there is no, I guess, there's no absolute playbook because it's always different. And like you said, it's what keeps it interesting.

Yeah, definitely. So have you had any sleepless nights?

Yeah, quite a few. Yeah, quite a few. There's a number of us up at all hours. That's just what we do.

We take the responsibility and the privilege of managing a large amount of money for many New Zealanders very, very seriously, so the teams and myself don't mind. That sacrifice is just part of what we do.

Oh, absolutely. And you know, there's been a really good run for what ... 10 years now? So something had to happen soon. Tell me, for KiwiSaver members, is there any sort of tips or things you'd like to say to them about how they should be thinking about it at the moment?

Look, I think the key thing is people being comfortable that they're in the right fund, and looking at that.

We tend to look long term in terms of what we do. And you're always trying to look sufficiently down the track because there are points in time where the market doesn't price things properly, and that can lead to good opportunities.

Yeah, yeah. And I guess it's a time where good advice is so important?

Yes, yes. Absolutely. As always speak to your financial adviser ... yeah, that's a good reminder.

I imagine the ANZ call centre has been very busy.

Yes they have been.

Look, thank you very much for your time, Paul. It's been really interesting. And keep up the good work.

Okay. Thanks. Thanks very much for having me, Phil. And I will catch you later on.