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Our views 22 April 2024

JP’s Journal: Time and tides

5 min read

Time and tide wait for no man. A few weeks ago, I started my fortieth year at Royal London. It has been an exciting time, covering economic and market ups and downs, and massive shifts in society and culture.

When I joined on 1 April 1985, PCs were in their infancy – the investment team had one between us – and there were no mobile phones. Gilt prices were quoted in 1/32s, bond coupons were in double digits, and credit spread movements communicated via daily paper sheets sent from brokers. Dealing was done via telephone, sometimes juggling more than one at a time. Lunches were quite long, and Friday afternoons in summer saw a premature end to the working week. I remember spending two days on the floor of the Stock Exchange, when there was still a distinction between stockbrokers and stockjobbers. Electronic trading just isn’t the same.

Royal London, then as now, had a reputation for offering great training for recruits. It was primarily a hands-on learning experience although I do remember studying for my Society of Investment Analysts certificate. The contrasts with now are stark, and not just because of more gruelling CFA exams. Our investment teams are much more diverse, and educational qualifications have mushroomed. Information flow is lightening fast, dealing is centralised through specialist teams, and price transparency is high. The fixed income team I headed in the early 1990s consisted of two people, of which I was one. Team meetings were shorter and appraisals quicker. Today, the Fixed Income team covers a broad range of strategies: as well as our core of sterling investment grade credit and cash / government bonds, we manage global investment grade credit, specialist asset backed strategies, absolute return, ethical & sustainable credit, high yield, loans, and emerging market credit.

At the end of last year, Royal London hired Will Nicoll to spearhead our entry into Private Assets, with a particular focus on credit. Will and I have similar outlooks on markets, optimal team structures and the importance of establishing areas of competitive advantage.

When somethings gets into your blood, it is hard to let go. This has been the case with me and Royal London. But, as announced last week, I have decided it is time to recognise that leadership within the Fixed Income team should transition. We have great people within the Fixed Income team and the business areas will continue to move forward. But this will be under new leadership from the end of the year and I will work closely with Will Nicoll to ensure a smooth transfer.

Royal London is fortunate to have someone of Will’s calibre to take our business to a higher level. But it would be remiss not to acknowledge the debt of gratitude I owe to past and present colleagues; the success that has been achieved is their success.

On the market front, inflation concerns were the main focus last week. First, the chairman of the Federal Reserve (Fed) signalled that more time was needed to assess price trends before cutting rates. This was really confirmation of what markets had already concluded, with investors now pricing only two cuts by Q1 2025. Stronger-than-expected US retail sales for March reinforced the message that the US economy is performing better than expected and that consumers and businesses have adjusted to higher rates. Then UK inflation data came in a touch higher than expected. Whilst the headline Consumer Price Index (CPI) fell to 3.2%, this was against an expectation of 3.1%; meanwhile core was also higher than forecast at 4.2%. Good news on food and clothing was offset by housing services, transport, and communication – which all surprised on the upside. Perhaps the most disappointing reading was services inflation at 6.0%; this will give the Bank of England cause for concern. Next month’s data will be important and should see a more substantial fall in CPI as energy price base effects shift lower. Our economist Melanie Baker thinks headline inflation around 2% mark is realistic but with the Fed hesitating we may see some more caution from the Bank of England. Last week’s UK jobs data did not help clarify either: higher unemployment but strong annual pay growth. The UK labour market is confusing; there are signs of weakness but employees are achieving good real pay increases and there is a growing pool of non-actives due to long-term health issues.

Bond markets took their cue from the Fed. Yields on 10-year US treasuries closed above 4.6%, a 10bps rise during the week, and Treasury Inflation Protected Securities (TIPS) nudged towards 2.5%. In the UK, 10-year nominal rates moved up by a similar amount, ending at 4.2% whilst the German equivalent saw a 15bps increase to 2.5%. Credit spreads gave back some of their recent gains but remain towards the lower end of their one-year range. In sterling markets, developments at Thames Water remained the main focus, with some signs of concerns about the regulatory regime spreading to other utilities.

Finally, whilst recognising it is invidious to call out individuals when our focus has been on teamworking, I would like to end this journal with a mention for Eric and Martin – two people I have worked with for well over two decades. Their judgment and support have been brilliant and I am sure this will continue as we transition to new leadership.


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.