Meet Urvi Guglani.
She works on growth & strategy for Singapore-based Silverdale Capital (AUM $1.4B) and will be taking us on a ride through her fixed income universe.
Today in 10 minutes or less, you’ll learn:
- 🙋♀️ Why everybody is a fixed income investor by default
- 🔎 How to analyze fixed income investments
- 🛒 What bonds retail investors should invest in
- 😨 Why it’s a mistake to write off bonds as “boring”
- Surprising advice from a $1.4B fund operator
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🏦 Fixed income investing 101 | Urvi Guglani
Urvi Guglani works on Growth and Strategy at Silverdale Capital, Singapore’s leading fixed income fund management company (AUM: $1.4B). She is the Founder of The Female Bond Fellowship, a community for mentorship and education for women in Fixed Income. She is also the co-founder of the Singapore Chapter of Diversity in Blockchain.
Previously, Urvi worked at PIMCO (Portfolio Management), and at BlackRock (Quantitative Research). Urvi holds a B.A. in Computer Science, a B.A. in Economics (with Honors) from the University of California, Berkeley.
🛣️ Tell us about your career journey from working in fixed income to starting The Female Bond Fellowship.
The genesis of the fellowship is closely tied to my background.
At BlackRock, PIMCO and now at Silverdale, I’ve been lucky to have had inspiring female mentors. However, women participation in fund management has typically been less than one-fourth of men. This is despite numerous research papers highlighting the relatively superior performance of funds having higher gender equality.
It is early-on in our careers that we make the most transformative and foundational decisions. As a young professional, I wanted a community of young women with whom I could discuss/bounce ideas off.
As I researched more, I found that there was a deep gap in gender parity in the investment management industry. In Citywire’s study of 17,500+ portfolio managers worldwide, 12% of their fund managers are women – barely above last year’s 11.8%. Based on recent evidence, it will take 200 years to reach gender parity for those managing money.
The Female Bond Fellowship was created to challenge these statistics.
🤔 Tell us about fixed income as an asset class. Who should consider fixed income as part of their portfolios? For what investment goals?
Everybody is a fixed income investor by default. When we keep money in the bank and earn interest, that is fixed income! If we are smart about it, we keep at least some money in term deposits, which earn higher interest; that is, fixed income investing.
A savvy investor understands that buying the bonds of (say) a bank would provide higher return than the term deposit with the same bank; that is, fixed income investing. Hence, since everybody is a fixed income investor, understanding the nature of fixed income investing is imperative!
Since 2008, 90% of the time, the interest rate was below 2%. Hence, people were forced to take higher risks and invest into equities.
Today, quality (investment grade) bond yields are higher than the dividend yield of S&P 500 companies. Hence, fixed income should be a core part of all investments. Currently, we’re experiencing a paradigm shift in the markets: from equity focus to bonds focus.
For those with higher risk appetite, they can earn low double digit returns by using leverage, as cost of borrowing for (say) 3-years is lower than that for 1-year.
🔎 How do you analyze fixed income investments? What makes a good vs great investment? What are the differences in how institutional and retail investors approach fixed income?
Professionally, we create a proprietary Fungible Cash Flow model for each company whose bonds are purchased by us. This enables us to know the real cash being generated by the company; hence, having a firm grip on an issuer's ability to pay back the bonds on maturity. This is a key driver for our funds to be ranked among the top decile funds.
Good fixed income investments become great when we get returns beyond expected yield-to-maturity. This happens when we are able to accurately predict an increase in cash-flow using our Silverdale Fungible Cash Flow Models, and the company buys back its bonds before maturity, which is at premium to market price.
🧠 What is Yield-to-Maturity (YTM)?
YTM = total return you expect from your investment in bonds/debt mutual funds if they are held till maturity.
Yield = annual return simply based on coupon payments and market price, not factoring in maturity. If YTM > Yield, the bond is selling at a discount, or a price less than par value.
You can typically find these as fields when researching the security/funds’s characteristics.
From my experience, retail investors typically lack resources to do in-depth analysis of bond issuers. Hence, they should invest in:
- Bond funds. These have many bonds and hence the benefit of diversification across geographies and sectors
- High-quality (Investment Grade) bonds. Preferably of multi-billion dollar companies they are familiar with
- Investment Grade = historically show lower default rates (~rating prior to investing!
You can invest in these options directly with the fund houses like Silverdale or through brokerage platforms.
😨 What mistakes did you make investing in fixed income? What would you have done differently?
Mistake #1: Buying and holding to maturity
Earlier, I thought that the best way to make money was to buy bonds and hold to maturity. However, working professionally, I realised that trading the bonds can provide significantly higher returns.
Mistake #2: Buying below par value
Many naive investors buy bonds because they are quoting below par value, as they love to earn capital gains when they get par value on maturity. This may not be a good strategy. What is important is the yield-to-maturity (YTM) and not the market value of the bond.
- Bond A may quote at 95 while Bond B may quote at 105
- However, let’s say the YTM of Bond A is 8% while YTM of Bond B is 10%
- In this case, buying Bond B will provide total income (capital gains/loss + interest coupon) higher than that provided by Bond A
Mistake #3: Neglecting fixed income as “boring”
In high school, I was taught that fixed income is a ‘safe’ and ‘low return’ asset class. My course curriculum taught me that Fixed Income should constitute 40% of my 60-40 portfolio, forced upon me due to diversification.
When I initially invested in fixed income in 2016, I thought that they were very ‘boring’ investments. I expected a 2-3% return, and sure I got that return, but I certainly neglected the potential to get much more.
Now that I am a more experienced investor, looking back, I would urge investors to re-evaluate their current investments to add more fixed income. Consider this:
- Fixed Income as a universe is roughly 3 times the size of equities. The US equity market is approximately USD $44 trillion vs US Fixed Income market is approximately USD $133 trillion
- You can pretty much predict your returns in fixed income (unlike equities), using a bond’s yield! Want a portfolio with 8% return? You can construct one with decent reliability. Want a portfolio with 25% return? It’s possible! (of course, the relationship between risk vs reward should be considered) → It’s been many years since I entered the industry, but I still find that SO. SO. COOL!!!
What counterintuitive or lesser-known advice would you give for someone looking to invest in fixed income?
- Don’t worry about the Fed interest rate hikes, almost 100% of rate hikes are baked into bond prices. Lock-in the prevailing high interest but stay away from low quality (non-Investment Grade) bonds.
- Unless you really understand, keep away from anything that carries the word “Private”, including private credit. This is because these types of investments are usually black-box, and as an investor you aren’t privy to what’s happening behind the scenes.
- If you are comfortable putting a term deposit with a bank, buy that bank’s bonds and you will make more returns.
🙋♀️ The Female Bond Fellowship focuses on mentorship for women in finance. What are the pros and cons for seeking out a mentor in the investing world?
Let me present you with two facts:
- Mentoring programs dramatically improved promotion/retention rates for minorities and women — 15% to 38%, as compared to non-mentored employees!
- 25% of employees in a test group who took part in a mentoring program had a salary grade change, compared with 5% of employees in a control group who did not participate.
For me, my mentors have been life-transforming. They have helped me navigate changing companies, geographies, projects, and so much more. I would urge everyone to seek mentorship.
Some benefits of mentorship: professional development opportunities, greater awareness of other approaches to work, build a network of colleagues and expanded knowledge areas, and having a confidential sounding board for ideas and challenges.
Finding a mentor you trust and are inspired by is often the most challenging part. You can check out my blog post to learn more or reach out to me and I’d be more than happy to help you in any way I can!
🏡 Where can we go to learn more about you?
Feel free to reach out to me on LinkedIn if you want to chat! I love meeting new people! 😀
Also, if you’re interested in The Female Bond Fellowship, check out our website.
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