In the latest in our regular series, Portfolio Adviser hears from T Rowe Price’s head of distribution, UK and Ireland Nataline Terry (pictured below right)
Which particular asset classes and strategies do you anticipate your intermediary clients focusing on in 2024?
Investors have displayed renewed optimism about the prospects for fixed income so far in 2024. As global economic uncertainties persist and governments look to accelerate sovereign debt issuance to combat elevated fiscal deficits, however, dynamic and flexible bond strategies should continue to appeal. Non‑core fixed income assets, such as high-yield or emerging market bonds, should also see demand, as investors look to take advantage of some of the highest yields on offer for many years.
On the equity side, we are noting accelerating interest in core strategies, as clients look to our investment specialists to allocate between growth and value. While global equity performance in 2023 was predominantly driven by the so-called ‘Magnificent Seven’, many of our active stock strategies were still able to deliver alpha without being reliant on these tech giants. In addition, we expect the equity opportunity set to broaden this year, as mega-cap tech leadership is likely to fade as investors increasingly focus on valuation.
Also within equities, clients are seeking ways to access alpha through active management, but via lower-cost solutions. As such, we have recently launched our US Structured Research strategy, which has consistently outperformed the S&P for more than two decades. Stock selection within this unique US equity strategy is based purely on the fundamental insights of 30 analysts from our equity research team. Holding about 300 positions, this highly diversified portfolio is designed to be neutral in terms of sector, industry and style – with stock selection the primary source of returns.
“We do believe some of the large money market allocations made in 2023 will return to markets as the year progresses.”
Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what?
One of the most interesting elements of 2023 was the ‘dash for cash’ in some parts of the world. While this was understandable as interest rates moved sharply higher, we all know about the power of compounding and ‘time in the market’ beating ‘timing the market’ – so we do believe some of the large money market allocations will return to markets as the year progresses.
While clients are continually allocating to alternative assets for diversification away from equities and fixed income, many investors are also changing the way they think about their usual stock and bond exposures. Just as we have seen a rise in sustainability preferences over the past five or so years, we are also noting an acceleration in demand for impact investing – which is also being driven by continued regulatory momentum. More clients want us to deliver environmental and social impact, as well as positive financial returns. This is across both equities and credit.
To what extent do private assets and markets fit into your thinking? What are the currents pros and cons for investors?
Private markets are increasingly appealing to clients, which is why we have continued to strengthen our expertise in the space over recent years – as evidenced by our acquisition of Oak Hill Advisors in 2021. That said, allocations to private markets continue to be dominated by institutional investors and it is only recently that regulatory developments have enabled wealth managers to enter this burgeoning market more easily.
While we have created a private credit investment solution for our advisory clients in the US, we have yet to do so for the UK. These are quite sophisticated and illiquid strategies, so it is imperative to work closely with our wealth clients to make sure any strategy can capture their specific needs in this space. We also need to ensure end investors know what they are buying, and it delivers the right outcome for their needs – in accordance with the new Consumer Duty.
Given client and regulatory pressure on charges, how is your business delivering value for money to intermediaries and end-clients?
Ensuring we deliver value for money for our clients remains our key priority and, while the majority of our investment strategies continue to achieve strong outcomes over a full market cycle, we understand industry-wide fee pressures and took the decision to reduce fees across our Oeic range in 2023.
It is also important to remember that value for money does not simply begin and end at delivering alpha or being the lowest cost. As one of the largest asset managers in the world, we are constantly engaging with our clients to ensure our service and interactions are of the highest quality. Part of the client experience is also ensuring we provide regular insights from our investment professionals, so our clients can arrive at even more informed discussions with their end-investors.
How much of your distribution is currently oriented towards climate change, net zero, biodiversity and other segments of sustainable investing? How do you see this approach to investing evolving?
We have invested heavily in our responsible and sustainable investment capabilities in recent years and now have 88 full-time employees dedicated to ESG. In addition to our Article 9 impact offerings, which remain among our highest priority strategies at T. Rowe Price, we have a range of sustainability-aligned (Article 8) solutions for investors to access. Following on from the recent SDR announcement in the UK, we expect momentum behind ESG again to accelerate over the coming years.
Demonstrating our commitment to sustainability, we recently announced plans to create a pioneering global ‘blue bond’ strategy with the International Finance Corporation, a member of the World Bank Group, to increase access to finance for blue projects in emerging markets. While this strategy is targeted at more institutional investors, it shows our desire to play a leading role in creating a more sustainable future.
How are you now balancing face-to-face and virtual distribution? In a similar vein, how are you balancing working from home and in the office?
With our headquarters in Baltimore, and investment professionals in many other parts of the world, utilising advances in communication technology to build relationships with our clients has been incredibly helpful. But all of us in our distribution team really enjoy interacting face-to-face, as it remains a great way of reinforcing relationships and establishing trust with new partners. Therefore, we are incredibly pleased to be back to normal in this regard. In fact, our UK investment conference in London in late September 2023 was our most attended client conference ever.
We also recently moved into new offices in London, and this space was specifically designed to increase collaboration and create an even more inclusive working environment, while also providing great formal and informal spaces to interact with our clients. In addition, while most of our London-based team is very pleased to return to the office, having the flexibility to work remotely is certainly advantageous.
What do you do outside of work?
With two young children, it comes as no surprise that my second job is that of a taxi driver! In all seriousness, though, we all work incredibly hard in this industry, which is why it is so important to ensure we have enough time to do whatever it is that makes us happy. For me, this is my family time. Otherwise, I enjoy exercising and staying fit.
“As consolidation continues within the wealth management space, firms are increasingly looking to work with a smaller group of asset managers.”
Finally, in what ways do you see the asset management sector evolving over the next few years?
As we continue to see consolidation within the wealth management space, firms are increasingly looking to work with a smaller group of asset managers. Deeper relationships and partnerships will be established as a result of this ongoing trend, which we believe will also bring the opportunity for further customisation of solutions and co-creation of mandates, as well as access to our existing capabilities and building blocks. Relationships in the advisory space are also becoming more consultation-led, working with firms to understand the challenges they may have in their business and how groups such as T. Rowe Price can assist.
Our partnership with Mattioli Woods is a prime example of the deepening relationships we are establishing in the UK market. Earlier this year, we were selected to develop and advise on an income-oriented model portfolio for Mattioli Woods’ clients, where our global investment experience will provide additional support to that firm’s investment team and advisers.
