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Meet the Manager: Orla Garvey

1 August 2023 |
In our latest manager profile, Orla Garvey, Senior Portfolio Manager, reflects upon her career beginnings, explains why a healthy amount of humility goes a long way in her role, and offers her take on the macroeconomic outlook for the remainder of the year.

What’s your role at Federated Hermes?

I’m a portfolio manager in our credit team, and joined Federated Hermes in June of 2022. I co-manage our Sustainable Investment Grade product with a particular focus on rates and inflation-linked markets.

How did you get started in your career?

In truth, I wasn’t exactly sure what I wanted to do after university and figured a degree in financial and actuarial maths would be aligned with my interests and keep a sufficient number of doors open while I figured it out!

My first role out of university was as an equity analyst in NCB Stockbrokers in Dublin, where I provided back-up coverage on Irish construction stocks. Ultimately this wasn’t the right asset class for me, but nonetheless, it was an incredibly formative time in my career as we went through the global financial crisis of 2008-09. Soon after, I joined Scottish Widows (SWIP) as an assistant portfolio manager on the gilt and UK inflation-linked desk, and I haven’t looked back since!

What do you most enjoy about your current role?

There are so many things I enjoy about my role. For example, the variety – markets and market drivers are constantly evolving and, as such, no two days are ever the same.

Being a portfolio manager is very intellectually stimulating. I’m naturally a very curious person, and I like to understand how and why things happen. In this role we are constantly gathering and interpreting information about the world around us from a very wide variety of sources ­– be it economic releases, company reporting, geopolitical events, or central bank releases to name a few. The challenge, then, is to understand what a signal is and what is noise, or put another way, what changes truly matter to our portfolios.

How would you characterise your style as an investor?

I learned early on in my career that a healthy amount of humility and pragmatism are important characteristics for any investor. We are constantly assimilating huge amounts of information in what is a very fasting-moving environment, and the ability to quickly learn from mistakes and take action is an essential skill.

When you’re considering making an investment, what key metrics or attributes do you look for the most?

There are many things to consider when making an investment and having a clear and consistent framework is important. Examples of the factors I consider include:

  • Why is this opportunity available right now? In other words, what part of the valuation is driven by the general market environment, and what part is idiosyncratic to the bond itself?
  • What is the expected return under our central, upside and downside macroeconomic scenario?
  • What are the positive and negative catalysts?

2023 is a waiting game – we are yet to see a meaningful impact on the economy from higher rates and tighter lending conditions.

Same question as above but for exits from the portfolio: What would trigger a sale or an exit of a holding?

We might look to exit a position for a variety of reasons. One might be that the investment rationale has played out and we have hit our desired target, meaning valuations no longer look attractive for holding the risk, and so we take profits. Or perhaps something has fundamentally changed, meaning the investment case or market environment is no longer supportive.

Having clarity on the downside scenario for an investment before it is implemented is just as important as the upside scenario. This has the benefit of prompting us to take action if our investment rationale has proved flawed or indeed provide a basis to add if a position has moved outside [our rational] for reasons that we believe are not fundamental to our thesis.

What are the strengths of the credit team?

The environment on the credit desk is very collaborative. Our decisions on top-down and bottom-up portfolio allocations are made via committee. Strategies and companies are discussed and debated in a rigorous and robust fashion, which means every voice on the team is heard.

What's your outlook for the remainder of the year?

The macroeconomic environment right now is fascinating – we are in the process of unwinding decade-long loose monetary policy via higher bank rates and quantitative tightening (QT) in response to elevated inflation. At the same time, we are still moving through some of the Covid-19 and Russia/Ukraine war-related shocks to supply, and so there remains a lot of uncertainty over the economic outlook.

As we came into the year, a moderate recession in most developed economies seemed a likely outcome. The reality has been that economic growth has been much more resilient to tighter policy than expected, and while inflation has been moderating slowly due to base effects, activity in the service sector has remained robust as well as the labour market.

So, 2023 is a waiting game – we are yet to see a meaningful impact on the economy from higher rates and tighter lending conditions. However, clear cracks are appearing in the system, and we believe this, along with tighter policy, will weigh on growth going forward. We think it is very unlikely that developed market central banks will ease policy this year with inflation still well above target.

Geopolitical risks are ever present, and we expect this cycle to become more politicised as we approach crucial election years in the US and UK, with higher rates and high inflation starting to bite and populations demanding better pay deals. It is as important as it has ever been for monetary policy authorities to retain credibility and for fiscal policy to play its part in cooling inflation. In the UK we have had a preview twice already this year of the consequences of failing to note this.

So, risks abound, but the income is now back in fixed income thanks to one of the steepest hiking cycles in recent memory and all-in yields are looking very attractive for investors. Corporate fundamentals have so far remained solid following a period of deleveraging and improving liquidity positions, and we like to own higher rate companies with solid fundamentals that will most likely be best able to weather the coming slowdown.

What are your interests outside of work?

Living away from where I grew up in Ireland, I spend a lot of time travelling to see friends and family. Outside of that, I like to do yoga when I can. But right now, with young children at home, I am spending most of my weekends at toddler birthday parties!

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