Keep it simple and don’t forget about capital preservation

Janus Henderson’s co-head of Australian fixed interest, Jay Sivapalan has always had an eye for investments and started when he was a university student by investing in a handful stocks with money earnt from his part-time jobs.

Even then, Sivapalan understood the power of compounding, starting early, and diversification. 

Sivapalan has been named one of FE fundinfo’s Alpha Managers after demonstrating consistent returns over the course of his career.

The fund manager started his career in life insurance, then moved into defined benefits and superannuation consulting, and then got into investment management at what was then Perennial Investment Partners. Now, 19 years later and numerous ownership changes to the firm, Sivapalan is at the forefront of the fixed interest team. 

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“It is important to keep things simple, especially in fixed interest, as you have to take into account complicated instruments, central bank activity, and economic fundamentals but then simplify down to what the most important three or four key drivers of the markets are,” he said on his investment philosophy.

“Capital preservation is another lesson that is important as a lot of people tend to focus purely on returns but not enough focus on getting capital back. It’s about ‘winning by not losing’.

“And sometimes going against the tide of the market is helpful. Investors tend to latch onto certain market themes and as a result securities become incorrectly priced with indiscriminate selling.”

Sivapalan noted that one crucial lesson he had learnt over his career was that there could be long periods, and in many cases years, where the chase for returns could often go unchecked when the fundamentals did not support it.

He said managers could either be part of the chase or stand back. If they stood back they needed to be disciplined and could face scrutiny about why they had not been performing well or keeping up with the market. 

“It takes time for fundamentals to play out and but eventually it does. So, the lesson is cycles have the tendency to rhyme so we should not forget the basic fundamentals,” he said.

“As an investor you can’t always have the base case for your  forecast or prediction that a recession is around the corner. From a portfolio perspective one of the big lessons in my career is that you’ve got to manage money to cycles and different parts of the cycle and can’t just sit out of the game.”

When looking for a fixed income manager Sivapalan said advisers needed to look for a fund that had an appropriate balance of risk in the pursuit of returns. He noted that there tended to be a desperate search for yield and return but when it came to fixed income investors needed to understand that actual returns would not be that great for the risk they took.

“Maybe now is the time to preserve capital and accept a fractionally lower return for a much safer portfolio,” he said.