Why uncertainty is a feature, not a bug, for this income investor

If there’s one trait that defines Jay Sivapalan’s two decades at the helm of Janus Henderson’s Australian Fixed Interest strategy, it’s clarity. Clarity of philosophy, clarity of process, and above all, clarity of purpose.

That purpose – to provide dependable returns through changing cycles – has been tested repeatedly by crises such as the GFC, the European debt debacle, and the economic shock of COVID-19. And yet, through each episode, Sivapalan and his team have delivered. 

“It is during and after major crises,” he says, “that the Fund has been able to generate its largest outsized returns.”

Sivapalan’s approach, honed over 25 years and grounded in a simple but dynamic process, is built to adapt. He embraces market and technological evolution but remains anchored by disciplined, long-term thinking – a trait younger investors, he warns, often underestimate.

In this edition of the 20-Year Club, Sivapalan shares the lessons learned from managing risk through extremes, why humility remains vital, and what excites him most about the uncertain decade ahead.

Has your investment philosophy or process evolved over the past two decades?

We have maintained a stable and well-defined investment philosophy and process for over 25 years, which has served investors well through numerous market cycles and crises.

Over this time, market dynamics have evolved, including episodes of Quantitative Easing (QE), unconventional policy, high inflation and deterioration in credit markets. Markets have also grown in size and diversity and technology has advanced meaningfully.

Whilst our investment process and philosophy has demonstrated resilience through time, it has always been and will remain a dynamic one that embraces both market and technological advances.

What have been the most pivotal moments for your fund over the last 20 years?

Being a full-spectrum Fixed Interest manager with multiple active levers, the past 20-plus years have provided some great opportunities to add value for client portfolios.

This has been most evident during and the immediate aftermath of crises, where the team has showcased active management for the benefit of investors.

Major market corrections such as the Global Financial Crisis, European Sovereign Debt Crisis and COVID have been pivotal periods for fixed interest markets and the Fund. During periods of calm, the Fund has generated attractive risk-adjusted returns broadly in line with peers and ahead of the benchmark. 

It is during and after major crises, that the Fund has been able to generate its largest outsized returns. 

Historical observations would suggest Janus Henderson has earned the name of a dependable manager during crisis. Preceding market crises, investors can lose sight of the importance of liquidity and ensuring adequate compensation for risk - moving into riskier but higher returning segments of the market. 

Remaining disciplined and preferring investments with more defensive properties and greater liquidity has provided flexibility to pivot during market turmoil.

The single most important factor behind the fund’s longevity?

Keeping things simple is ultimately the biggest factor behind the Fund’s longevity. 

That is, a simple, clear, well-articulated philosophy backed by a simple, well-understood, tried and tested process is key.

Active management, which utilises all available levers, including rates management, sector and security selection, has served the Fund well. The Fund’s stewardship by a very stable, longstanding team has also been a key factor.

The biggest inefficiency that we seek to exploit is the market’s overemphasis on short-term factors when pricing long-term assets.

Our own observations of the behaviour of investment markets, and particularly the Australian interest rate market over the past 30 years, illustrate that the market generally places too great an emphasis on current economic and risk conditions.

Building longer-term valuation factors into our investment process has helped us maintain discipline and focus on capital preservation, in line with our investors’ goals. Investors in the Fund seek a steady hand, corresponding to the attributes sought out in the asset class. This is what we have delivered.

How do you maintain conviction in your approach through cycles of underperformance or market stress?

Our long record of success spans numerous investment cycles where we have utilised a rational and disciplined valuation framework.

Performing our own proprietary research, combined with time-tested experience and risk management, provides confidence in maintaining conviction. 

Developing an understanding of what the downside looks like is also an important part of maintaining conviction.

Conviction in portfolios is based on the following:

• Undertaking our own proprietary research
• Once complete, being prepared to back that research, even if it contrary to market consensus
• Positioning portfolios in a convicted manner

What is the most valuable lesson you've learned that today’s younger investors often overlook?

Despite undertaking thorough research, ensuring maximum effort and using best judgment to assess and develop strategies, the world’s investment markets can have different plans.

Being humble is thus important, as is having a plan B and C when managing portfolios through different market environments.

Remaining adaptable and willing to evolve your thought processes are integral to success.

What excites you most about the current market environment, and how are you positioning the portfolio for the next decade?

We believe world economies and markets are going to be fundamentally different over the coming decade compared to those of the recent past.

Uncertainty around the impacts of geopolitical realignment, changes to costs of capital and differential impacts of energy transition are likely to pose challenges and create opportunities.

Our experience reminds us that change and uncertainty drive market dislocations, which occur from time to time.

In the past, uncertainty and market dislocations have provided our investors with outsized return opportunities, and the prospect of further uncertainty excites us most.

As a full-spectrum manager with proven expertise across all areas of fixed interest markets, the investment team is well prepared to respond to and benefit from any market environment that the next decade presents.

Managed Fund

Janus Henderson Australian Fixed Interest Fund

Australian Fixed Income

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