Welcome to the Fear and Greed Daily Interview. I'm Shawn Aylmer, financial marketer having a pretty wild ride at the moment. There's a lot of fear, not just here, but globally, and even investors are concerned that rising rates to head off inflation will push major economies into recession. I wanted to talk broadly about what this volatility means to investors but also focus on those funds set up to make a difference. How are impact funds going to whither the storm? Remember this is general information only and you should seek professional advice before making any investment decisions. Karyn West is the founder and managing director of Apostle Funds Management. Karyn, welcome to Fear and Greed.

Welcome to the Fear and Greed Daily Interview. I'm Shawn Aylmer, financial marketer having a pretty wild ride at the moment. There's a lot of fear, not just here, but globally, and even investors are concerned that rising rates to head off inflation will push major economies into recession. I wanted to talk broadly about what this volatility means to investors but also focus on those funds set up to make a difference. How are impact funds going to whither the storm? Remember this is general information only and you should seek professional advice before making any investment decisions. Karyn West is the founder and managing director of Apostle Funds Management. Karyn, welcome to Fear and Greed.

Thank you for having me, Shawn.

Thank you for having me, Shawn.

So what a wild week!

So what a wild week!

It's been one of the wildest weeks we've really seen, although the people who've been around during the GFC and beyond that, we've seen this before. We really had nowhere to hang out. It's across the board from FX markets to fixed income, through to equities. There's really nowhere to hide. You can hide away in cash but then you're really missing the boat when markets turn again, so that's never really a great strategy.

It's been one of the wildest weeks we've really seen, although the people who've been around during the GFC and beyond that, we've seen this before. We really had nowhere to hang out. It's across the board from FX markets to fixed income, through to equities. There's really nowhere to hide. You can hide away in cash but then you're really missing the boat when markets turn again, so that's never really a great strategy.

Okay, so what do you do? Do you stick to your original stategy? Is that the idea, is that people get in, and mostly we are talking to people who are longer- term investors rather than day traders. Is it about sticking to your strategy at this point?

Okay, so what do you do? Do you stick to your original stategy? Is that the idea, is that people get in, and mostly we are talking to people who are longer- term investors rather than day traders. Is it about sticking to your strategy at this point?

It involves two strategies. One of them is to do with how you do your asset allocation. We have a diversified product called The People and Planet Fund, which is an impactful, diversified fund. It's across most of the MH or SA classes and also includes venture capital and some other alternatives in there as well. We are able to dial up and down our asset allocation to reduce the exposures to growth investments in favor of defensive investments during periods like this. We don't move dramatically, but it does just cushion the blow of some of this volatility that we're experiencing. And our second prong of attack is to focus on mega trends, the long- term drivers of returns, that are sometimes ethical in nature and sometimes just driven by other factors such as an aging population. Decarbonisation's another mega trend. Diversity investing, really harnessing the other 50% of the workforce as best as we can. Food, water, those longer term trends that are really going to drive returns, we focus there.

It involves two strategies. One of them is to do with how you do your asset allocation. We have a diversified product called The People and Planet Fund, which is an impactful, diversified fund. It's across most of the MH or SA classes and also includes venture capital and some other alternatives in there as well. We are able to dial up and down our asset allocation to reduce the exposures to growth investments in favor of defensive investments during periods like this. We don't move dramatically, but it does just cushion the blow of some of this volatility that we're experiencing. And our second prong of attack is to focus on mega trends, the long- term drivers of returns, that are sometimes ethical in nature and sometimes just driven by other factors such as an aging population. Decarbonisation's another mega trend. Diversity investing, really harnessing the other 50% of the workforce as best as we can. Food, water, those longer term trends that are really going to drive returns, we focus there.

Okay, unpacking that, let's take the latter part first. These kind of longer- term mega trends, is it just that you have to look through this (inaudible) at the moment, and if you're picking on demographics or you're picking on wood, or you're picking on environment, you basically stick to your guns?

Okay, unpacking that, let's take the latter part first. These kind of longer- term mega trends, is it just that you have to look through this (inaudible) at the moment, and if you're picking on demographics or you're picking on wood, or you're picking on environment, you basically stick to your guns?

We do. So our focus is around things that we have both short and longer term targets around... I think if anybody's looking to go and buy a car now and is not including an electric vehicle on their list, it would be rather short- sighted. There's a very big trend there. Solar panels. We've got high energy expenses. I expect that solar panels are going to be very, very commonplace for your listeners to be looking at, trying to get away from the horrible gas prices that we've seen. So they're quite shorter term investments that we can focus on because there's real demand for those now, and it's only going to increase into the future.

We do. So our focus is around things that we have both short and longer term targets around... I think if anybody's looking to go and buy a car now and is not including an electric vehicle on their list, it would be rather short- sighted. There's a very big trend there. Solar panels. We've got high energy expenses. I expect that solar panels are going to be very, very commonplace for your listeners to be looking at, trying to get away from the horrible gas prices that we've seen. So they're quite shorter term investments that we can focus on because there's real demand for those now, and it's only going to increase into the future.

Okay, and then the other thing I just wanted from your previous answer, that People and Planet diversified fund, is it more difficult to re- allocate money in that fund when it is actually a full- purpose fund or an impact fund where you actually don't have as great a selection of assets?

Okay, and then the other thing I just wanted from your previous answer, that People and Planet diversified fund, is it more difficult to re- allocate money in that fund when it is actually a full- purpose fund or an impact fund where you actually don't have as great a selection of assets?

I wouldn't say we don't have as great a selection. What we've done is we've removed a lot of what we consider to be unethical investing, including fossil fuels, alcohol, tobacco, the usual things that people have got concerns about. Animal cruelty. And we're replacing those types of investments with other things that either correlated or just better substitutes. And I'll give you a couple of examples. We've taken out all exposures to animal investing. So that would involve (inaudible) tests or anything that's got animal involvement. The huge increase in non- animal protein sources is a much greater trend than some of those older protein sources. So the other area is growing exponentially, while I think the older areas are actually shrinking anyway. So I think it's not that we have to exclude it. We just need to be a bit inventive in finding other ways to substitute some of those exposures. The other very important one that we're doing is looking at investing in carbon credits, sort of as a substitute for fossil fuels. Now our fund launched on the 10th of March of this year and you'll all have remembered the oil price that's gone through the roof. Well while that oil price was going through the roof, so was the price of carbon. And so we kept pace in our portfolio because we'd found a good correlating substitute.

I wouldn't say we don't have as great a selection. What we've done is we've removed a lot of what we consider to be unethical investing, including fossil fuels, alcohol, tobacco, the usual things that people have got concerns about. Animal cruelty. And we're replacing those types of investments with other things that either correlated or just better substitutes. And I'll give you a couple of examples. We've taken out all exposures to animal investing. So that would involve (inaudible) tests or anything that's got animal involvement. The huge increase in non- animal protein sources is a much greater trend than some of those older protein sources. So the other area is growing exponentially, while I think the older areas are actually shrinking anyway. So I think it's not that we have to exclude it. We just need to be a bit inventive in finding other ways to substitute some of those exposures. The other very important one that we're doing is looking at investing in carbon credits, sort of as a substitute for fossil fuels. Now our fund launched on the 10th of March of this year and you'll all have remembered the oil price that's gone through the roof. Well while that oil price was going through the roof, so was the price of carbon. And so we kept pace in our portfolio because we'd found a good correlating substitute.

Stay with me, Karyn. We'll be back in a minute. I'm speaking to Karyn West, founder and managing director of Apostle Funds Management. Okay, now we tend to talk a lot about equities but you've also got an ethical high- yield credit fund, which in a sense, for investors, I suppose they're thinking about the underlying asset in the same way, it's just one's equity, one's credit. But can you take us through the thinking behind the high- yield credit fund?

Stay with me, Karyn. We'll be back in a minute. I'm speaking to Karyn West, founder and managing director of Apostle Funds Management. Okay, now we tend to talk a lot about equities but you've also got an ethical high- yield credit fund, which in a sense, for investors, I suppose they're thinking about the underlying asset in the same way, it's just one's equity, one's credit. But can you take us through the thinking behind the high- yield credit fund?

Sure. That was in collaboration with our (inaudible) investor. So we work very closely with our investors to find out what are they trying to achieve, what's their end objective? And then we go away and purpose- build something for the client base. So our clients were interested in a net 5 to 7 percent return hedged into Australian dollars. When we looked across the range of where we could get consistently that type of return, without a lot of volatility around that, because no one wants to see a negative return... You don't have to get a 10 plus, you just want to try to hit a sweet spot, year in year out, as much as you can. We built that portfolio using a number of (inaudible) . It's all in the high- yield space, but we take quite a conservative approach to how we build it. All of the portfolios are with portfolio managers offshore. So we use Post Advisory and Kayne Anderson offshore. They look at very niche and specific portfolios, where they hand- pick the credits to make sure that they're ethical, to make sure that we're not going to experience (inaudible) default risk, if we're going through a period like we are now. And they can go up quality into the triple B area or double B area. Opportunistically, they can move up and down the credit quality to assist during periods like today. We are able to balance the portfolio between floating rate securities and fixed rate. And in a period like this, where we're seeing a lot of volatility, rising interest rates and inflation, it makes more sense to hold a much higher proportion of floating rate assets, such as bank loans, US bank loans, which are liquid, or private debt, which is also a floating rate but illiquid. So we hold quite a large portion there to cushion those blows. We just don't have to have the duration risk and the volatility that you have in your fixed rate during these periods. So we can move the assets around just so the environment that we're in to try to focus on that five to seven percent.

Sure. That was in collaboration with our (inaudible) investor. So we work very closely with our investors to find out what are they trying to achieve, what's their end objective? And then we go away and purpose- build something for the client base. So our clients were interested in a net 5 to 7 percent return hedged into Australian dollars. When we looked across the range of where we could get consistently that type of return, without a lot of volatility around that, because no one wants to see a negative return... You don't have to get a 10 plus, you just want to try to hit a sweet spot, year in year out, as much as you can. We built that portfolio using a number of (inaudible) . It's all in the high- yield space, but we take quite a conservative approach to how we build it. All of the portfolios are with portfolio managers offshore. So we use Post Advisory and Kayne Anderson offshore. They look at very niche and specific portfolios, where they hand- pick the credits to make sure that they're ethical, to make sure that we're not going to experience (inaudible) default risk, if we're going through a period like we are now. And they can go up quality into the triple B area or double B area. Opportunistically, they can move up and down the credit quality to assist during periods like today. We are able to balance the portfolio between floating rate securities and fixed rate. And in a period like this, where we're seeing a lot of volatility, rising interest rates and inflation, it makes more sense to hold a much higher proportion of floating rate assets, such as bank loans, US bank loans, which are liquid, or private debt, which is also a floating rate but illiquid. So we hold quite a large portion there to cushion those blows. We just don't have to have the duration risk and the volatility that you have in your fixed rate during these periods. So we can move the assets around just so the environment that we're in to try to focus on that five to seven percent.

Okay. So to move the assets around, you must have an underlying view of what's going to happen, which of course is the $ 64 question-

Okay. So to move the assets around, you must have an underlying view of what's going to happen, which of course is the $ 64 question-

Yes.

Yes.

For all of us. What's going to happen in Europe? What's going to happen in the US? What's going to happen in China? What's going to happen in Australia?

For all of us. What's going to happen in Europe? What's going to happen in the US? What's going to happen in China? What's going to happen in Australia?

Our portfolio currently is a US portfolio. That is by design. We also could rotate into Europe in particular. We use external managers because we really believe that large teams of analysts that are hand picking the securities is better than sort of an index approach or (inaudible) everything approach. We want to be really selective in our opinion. Don't think it's the time to be buying European credits at the moment given the situation of Russia, energy crisis and spiking rates and inflation in all of Europe. But in a year or so, that might be very, very good fertile ground to find babies that have been thrown out with the bathwater, so we would look at that. The reason we focus on the US market in particular is because it's the most liquid market, it's got a long record, we really know managers there that can do an excellent job in the niche areas that they play in. So we have more surety around hitting our target than if we go into other areas such as China or Asia or other areas like there. We really want to focus on the target rather than branching out into areas that may cause more variability.

Our portfolio currently is a US portfolio. That is by design. We also could rotate into Europe in particular. We use external managers because we really believe that large teams of analysts that are hand picking the securities is better than sort of an index approach or (inaudible) everything approach. We want to be really selective in our opinion. Don't think it's the time to be buying European credits at the moment given the situation of Russia, energy crisis and spiking rates and inflation in all of Europe. But in a year or so, that might be very, very good fertile ground to find babies that have been thrown out with the bathwater, so we would look at that. The reason we focus on the US market in particular is because it's the most liquid market, it's got a long record, we really know managers there that can do an excellent job in the niche areas that they play in. So we have more surety around hitting our target than if we go into other areas such as China or Asia or other areas like there. We really want to focus on the target rather than branching out into areas that may cause more variability.

Karyn, do you personally get more nervous doing your job in times like this? I'm sure investors get more nervous. I mean I worry about my superannuation more now than I would normally. But you're managing huge amounts of money here and your team are managing huge amounts of money. Do you get more nervous?

Karyn, do you personally get more nervous doing your job in times like this? I'm sure investors get more nervous. I mean I worry about my superannuation more now than I would normally. But you're managing huge amounts of money here and your team are managing huge amounts of money. Do you get more nervous?

We don't get nervous. We spend a lot of time just analyzing the risk, working out where we can reduce volatility as much as possible, because we're really about capital preservation. Who wants to be losing money? Nobody. So you don't really want to stick to indices too much. I think the index investing during times like this is probably not particularly prudent. I think you want to be quite nimble. I think you want to be able to work in an environment where you can find other areas to place your money that are not going to have the volatility as much as other areas. And to be honest with you, when we see really good assets that have become very cheap, our focus is around, they're probably very good buying, when do we want to jump back in? So that's an example.

We don't get nervous. We spend a lot of time just analyzing the risk, working out where we can reduce volatility as much as possible, because we're really about capital preservation. Who wants to be losing money? Nobody. So you don't really want to stick to indices too much. I think the index investing during times like this is probably not particularly prudent. I think you want to be quite nimble. I think you want to be able to work in an environment where you can find other areas to place your money that are not going to have the volatility as much as other areas. And to be honest with you, when we see really good assets that have become very cheap, our focus is around, they're probably very good buying, when do we want to jump back in? So that's an example.

Yeah.

Yeah.

We're hanging out in bank loans (inaudible) bank loans at the moment. And we'll continue to do that for quite some time. The returns in bank loans for (inaudible) in a day has been negative. It's been about five percent negative. But compared to something like... Well we can compare it to two things. One of them is just the high- yield bond market that's down 14 percent yield a day. So by just hanging out in the loans, we've made a significant reduction in that volatility. It might be interesting to your viewers to know that if they were investing in things that are typically considered to be safer, such as US Treasuries or investment grade, those markets are down 18 percent and 13 percent. They're quite negative returns so putting your money in treasuries or investment grade is actually being much worse than putting it into something like US bank loans, where even though five percent is not a good return, it's significantly better than the alternatives.

We're hanging out in bank loans (inaudible) bank loans at the moment. And we'll continue to do that for quite some time. The returns in bank loans for (inaudible) in a day has been negative. It's been about five percent negative. But compared to something like... Well we can compare it to two things. One of them is just the high- yield bond market that's down 14 percent yield a day. So by just hanging out in the loans, we've made a significant reduction in that volatility. It might be interesting to your viewers to know that if they were investing in things that are typically considered to be safer, such as US Treasuries or investment grade, those markets are down 18 percent and 13 percent. They're quite negative returns so putting your money in treasuries or investment grade is actually being much worse than putting it into something like US bank loans, where even though five percent is not a good return, it's significantly better than the alternatives.

Karyn, thank you for talking to Fear and Greed.

Karyn, thank you for talking to Fear and Greed.

Oh, my pleasure. Thank you.

Oh, my pleasure. Thank you.

That was Karyn West, founder and managing director of Apostle Funds and Management. This is the Fear and Greed Daily Interview. Remember, this information is general in nature and you should seek professional advice before making any investment decisions. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Shawn Aylmer, enjoy your day.

That was Karyn West, founder and managing director of Apostle Funds and Management. This is the Fear and Greed Daily Interview. Remember, this information is general in nature and you should seek professional advice before making any investment decisions. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Shawn Aylmer, enjoy your day.