Why this Pendal fundie says now is the sweet spot to buy bonds

“From now until the first cut is the most fruitful time,” she adds.

Cambridge-educated Xie Patrick expects the US to fall into a recession in the second half of 2024, despite the general consensus that the world’s largest economy is headed for a soft landing.

“When I look at all of economic history, before recessions happen, most of the time people don’t call it, the markets definitely don’t call it. It’s definitely not priced,” she says.

It’s part of the reason why she is confident fixed income will perform better in 2024 after a “terrible” three years.

“Bond yields have risen to really attractive levels. This is probably the time to think about portfolio rotation.”

Global bonds last month surged at the fastest pace since the 2008 global financial crisis as traders ramped up bets that the Fed and other central banks will start cutting rates next year. A Bloomberg gauge of global sovereign and corporate debt, returned 4.9 per cent in November, the biggest monthly gain since the depths of the GFC.

“In times of market stress, and especially if it’s driven by economic stress, fixed income provides you a haven and a good diversify for the rest of the portfolio,” Xie Patrick adds.

While retail investors are naturally drawn to the sharemarket, the cool-headed 41-year-old says the narrative behind macro investing can be just as compelling as stock picking.

She also shrugs off the mantra that self-described bottom up stock pickers often preach about not paying too much attention to macroeconomic conditions.

“You can generate alpha from single stock selection, but the bulk of whether equity markets go up or down, whether it’s going to be a risk on or risk off year, whether it will be a good or bad year for bonds, and the direction of inflation – that’s all determined by what’s going on in the macro environment,” she says.

More outsiders the better

In Australia, she welcomes the external appointment of former Bank of England official Andrew Hauser as deputy governor of the Reserve Bank.

“Inviting more outsiders, you’re inviting a wider array of different perspectives. That’s got to be a good thing,” she says.

She’s an outsider herself having relocated down under in late 2016 from the UK after starting a family with her Australian husband. She worked for over a decade in London, where she began her career on the trading floor at Citi in 2004 and then as a fund manager at Thames River Capital, now BMO Capital Markets.

“The UK has had its own unique set of problems relating to inflation that has been no doubt worsened by Brexit, so [Hauser is] going to have valuable insights to share for the RBA,” she notes.

As for Hauser’s new boss, Michele Bullock, Xie Patrick disagrees with the view of many market pundits that the governor appears to be more hawkish than predecessor Philip Lowe.

“The way that market reacted to some of her recent speeches [shows the] thinking that there will be a more hawkish RBA going forward.”

Rather, Xie Patrick sees Bullock’s approach as being more “transparent” in communicating what’s driving the central bank’s decisions.

This proved prescient after the RBA this month left the cash rate on hold at 4.35 per cent, citing softer-than-expected monthly inflation data as an excuse to sit tight until February, when it is next due to meet.

“I don’t think the transparency means that the RBA now has different spots, but rather that they’re just going to be clearer about what those spots are,” she adds.

Xie Patrick’s also cautious about the market pricing of rate cuts by the central bank which is currently fully priced for a move lower towards the end of 2024.

“There’s wage pressure here in Australia, and the RBA is very sensitive about wages, especially because productivity has fallen through the floor.

‘Pretending to be a man’

“I also see from throughout the whole post pandemic period, the way our economic picture has unfolded, has been quite similar to what’s happened offshore, but with about six or nine months lag.”

In the US, bond traders as of last week ascribed a 67 per cent probability that the Fed will cut rates in March and are fully priced for a move by May.

Xie Patrick immigrated to the northern UK city of Leeds with her family from China when she was just seven. She describes her upbringing as “traditional” and typical of the immigrant experience where a strong work ethic was ingrained from an early age.

While studying economics at The University of Cambridge, she completed an internship at Merril Lynch (now Bank of America) before landing a job on the notoriously high-pressure environment that is the Citi trading desk.

“I’m sure the culture is different now but the culture in most trading posts back then were quite ego-driven, very loud and very brash. I did not fare well under those conditions,” Xie Patrick laments on her early years at the US investment giant.

“There were times in the first three years, I thought ‘have I done the wrong thing?’

“I felt like I had to fight. I had to show up to work and pretend to be brave and strong and masculine and aggressive and loud.”

A turning point for Xie Patrick was when she joined the buy side, after being headhunted by hedge fund Thames River Capital. It’s also where she discovered the favourite part of her job – debating ideas and investment positions with a team of investors.

“Learning and working with a team of analysts, who all had slightly different priorities when looking at companies in that environment was definitely much more up my alley. And I no longer had to show up to work pretending to be a man.”

She joined Pendal as portfolio manager in 2017 and was promoted to the head of income strategies in October 2021 prior to its merger with Perpetual. The income and fixed interest team oversees some $20 billion in assets.

The Pendal Monthly Income Plus Fund, which Xie Patrick oversees, has returned 2.8 per cent (before fees and tax) over five years per annum.
While it beat the benchmark (the RBA cash rate), the fund has underperformed on a one year and three-year basis. Since inception in 2009, its returned 4.8 per cent versus the benchmark’s 2.3 per cent.

Xie Patrick likes to tell those starting out in their career that “behaving true to yourself” is the best way to invest along with knowing your appetite for risk.

“When I tried to take risks beyond my natural tolerances, it usually ended badly,” she admits.

“When I couldn’t see the wood for the trees because I was too distracted by the noise around me … my trades went wrong.

“Not all investors need to have a high-risk appetite.”