Ben Edwards is manager of BlackRock Corporate Bond fund, worth £1.04bn. Edmund Greaves asks him about his investment highs and lows and what makes a stable, long-term portfolio
What is BlackRock Corporate Bond fund?
We lend money to and hold the debt of the largest and most stable companies in the world. We buy the bonds of big global companies that issue them into the sterling market and we do it for two reasons.
One is to generate a relatively stable income for investors.
The other is that people hold bond funds to be a ballast in a wider investment portfolio. An equity [shares] portfolio may go up and down; you build a balanced portfolio so that when your equities come under pressure, your bonds are doing better.
Why should people invest in your fund?
There’s been a long-standing argument that yields are low and bonds don’t offer value but we’ve seen that is not the case.
We have a large resource of analysts and investors whose job it is to find the companies that will improve – not just those that won’t go bust – to the point that bonds can perform and generate a return higher than their yield. We’ve got a long track record of being able to find those improving credits.
The companies whose debt outperforms the market are not always the ones with equities doing the same.
What gets you out of bed in the morning?
I can’t make intelligent investment decisions unless I’ve had a couple of cups of coffee and some scrambled eggs!
The reality is what gets me out of bed in the morning is finding the values in the market that don’t make sense.
Fixed income and corporate bond markets are very inefficient. Prices can at times bear no relevance to the credit quality.
For example, a large bank has one share price but up to 2,000 different types of bond and return to choose from – and that’s after you’ve decided whether it’s a good bank or not.
Finding the ones that are the most mispriced and have the best chance of generating returns is often as important as knowing which companies we like, or what the US Federal Reserve System is doing.
What’s the first thing you ever invested in?
I genuinely cannot remember the first thing I invested in! I’ll tell you the last instead.
It was a few weeks ago; I bought myself a $100 trillion Zimbabwean dollar note from eBay.
The note, having lost in multiples over its life, has actually gone up in value by about 100 times. They used to cost £1 a few years ago and now they’re around £100.
It’s not a realistic investment, but it’s an extreme and timely reminder of how far things can get out of whack if governments, central banks and policy-makers are not careful.
What’s the best investment decision you’ve made for the fund?
The best decision we’ve made was probably on day one of relaunching the fund when I took over in 2011.
We decided to structure it in a way that reduced volatility compared to how the market and a lot of our competitors operate.
It’s been nice to be able to say to clients that our underlying volatility is low. If you reduce drawdowns [market dips]over time, particularly in fixed income, it leads to strong long-term performance.
In fixed income, with downturns of 10% it can take two years to recover and start making money for investors again. If you can minimise volatility, that means your income is rolling in and you’re building a smooth track record of performance.
When I look at our fund, the long-term track record is more than the sum of any individual period. It’s all additive and there aren’t any years where we’ve gone completely wrong and had to recover.
And the worst?
In hindsight there are plenty of bad decisions. But I see my job as: if I make 10 decisions and get six right, three don’t hurt much and one is bad, then that’s a fantastic strike rate that’s going to work over time.
We see ourselves as value investors – which has been difficult when you consider we’re in a period where bond yields have been at their most expensive levels ever.
Thanks to quantitative easing, any amount of marginal risk was positive. We could have added more yield to the portfolio at pretty much any point over the last 10 years and ultimately it would have been good.
Knowing what we know now and where we’ve got to, I could have bet more of my investors’ money that central bankers would bail out financial markets.
At the time we didn’t know that was the right decision though, and it could have gone the other way. We’re focused on managing risk for client portfolios. I don’t feel bad for having put that first.
What one tip would you give a beginner investor?
Build balanced portfolios and be long term; the timeline is the most important thing to consider.
An individual investor can actually do this better than a professional. They can set out a good, long-term mixture of investments and stick with those until the facts change, without worrying about short-term market swings.
BlackRock Corporate Bond
Launched: 24 July 1995
Fund size: £1,044.003 million
Source: BlackRock, July 2019
The manager behind the fund
Ben Edwards, CFA, is the lead fund manager of the BlackRock Corporate Bond Fund and co-manager of the BlackRock Sterling Strategic Bond Fund.
Prior to joining BlackRock in 2010, Mr. Edwards worked at Legal and General Investment Management from 2003 to 2009 where he was a portfolio manager, responsible for both institutional and retail sterling corporate bond portfolios.
Mr Edwards earned a Business degree from the Queensland University of Technology (Aust.) in 2000 and post-graduate qualifications in Finance from the Financial Services Institute of Australia in 2002.
Five-year discrete performance of BlackRock Corporate Bond
|Year||0-12 months||12-24 months||24-36 months||36-48 months||48-60 months|
|BlackRock Corporate Bond total return (%)||6.15||1.54||7.77||7.1||4.65|
Source: BlackRock, 9 July 2019