Elaine Stokes did not have the most straightforward journey to get where she is now, in an all too literal sense.
Stokes is a bond investing veteran with almost three decades of experience – all of which have been spent at Boston-based Loomis Sayles, alongside one of the few managers who can make her look inexperienced, Dan Fuss.
But things almost turned out differently. Stokes very nearly missed her first job interview with Fuss back in 1987 thanks to a faulty car on a miserable day in Boston.
Earlier that year she had graduated from Saint Michael’s College, Vermont with an economics degree, and was six months into a job where she was ‘bored to death.’ She found herself driving into town for the all-important interview at Loomis Sayles when the muffler fell off her car on the middle of a gridlocked bridge on a wet New England morning. Hardly an ideal start.
‘I had to get out of my car, run across a bridge, find a phone and somehow I managed to get myself into the interview,’ she says.
‘During the interview I couldn’t have looked worse,’ she laughs. ‘It was horrible but I got the job.’
She joined the firm in 1988 and it’ s fair to say things have gotten better since then.
Over the past three decades Stokes has done pretty much everything at Loomis. She started out as an administrative assistant and then worked as a trading assistant, specializing in high yield and emerging market debt for about 10 years.
She was also able to learn the ropes from Fuss, whom she has worked alongside ever since.
Stokes has been a named portfolio manager since 2000 and is one of the most influential women in investing, running some $37 billion across 15 strategies, including the firm’s famous Loomis Sayles Strategic Income fund and Loomis Sayles Bond fund.
Rights and wrong
‘Dan was a great person to learn from,’ she says. ‘You learned by watching. He wasn’t someone who was going to sit down and teach you, but you picked up so much by watching what he did. Perhaps the biggest thing that I learned from Dan was that it’s OK to be wrong. That’s not something that was easy for me to deal with.
‘Now I’m very good at it,’ she chuckles.
This candor extends to things she has got right too – for example, the performance of high yield over the past year, excluding a few weeks of November.
The Strategic Income fund has historically run a large overweight to high yield and that has not changed. The sub-asset class represents 29% of the strategy – an entirely off-benchmark position.
Stokes acknowledges that this allocation has helped drive performance, but says the rally in below-investment grade credit since February 2016 means it can be difficult to distinguish luck from skill.
‘It didn’t seem to matter what you did in high yield this year, it did well,’ she says. ‘We did particularly well in some of the energy names we own, but it has really been across the board. It hasn’t mattered what we have owned. I think we did do some good bond-picking, but it has just been that the entire market has tightened so much.’
Recent events have altered the narrative around high yield. The second week of November saw more than $2 billion pulled from global exchange-traded funds (ETFs) in the junk bond category. The sell-off, which was largely concentrated in the telecommunications sector, sparked concern among investors that these withdrawals could be the first sign of a pull-back from the aging equity bull market.
The sell-off has put the fund down a couple of percentage points, but it remains up for the year and its longer-term performance is undented. Citywire A-rated Stokes is certainly undaunted.
‘I don’t think the recent sell-off is telegraphing anything other than [that] markets are nervous,’ she says. ‘Markets are always nervous when there’s something like a huge legislation out there that could be game-changing,’ she adds, in reference to the Republican tax reform proposals.
‘And with all the money that has flown into ETFs, I just think we have to expect that it’s going to be more volatile. So you have all this money [going] into ETFs, and it’s a lot of hot money. A little bit of nervousness creates trading there, and this is what we’ve had.’
As such, Stokes is keen to keep buying into junk bonds in the media and telecoms sectors.
‘Because it’s really about who’s buying who, who’s going to merge with who, who has the strongest assets, and making some bets on what’s going to win out for the consumer. We feel like you can bet on the strength of assets and play that volatility,’ she says.
Stokes says that her best call of 2017 has been a different volatility play: convertible bonds in healthcare.
‘With valuations as tight as they are, it’s really hard to get excited about a lot of the major sectors,’ she concedes. ‘But we’ve identified a spot within converts where we can pick up a decent amount of yield, and a decent amount of yield is really, really low right now. If you can get 2%, that’s great.
‘So we are taking advantage of the volatility and we’ve put together a kind of basket of healthcare and biotech companies that we think have upside of anywhere from maybe 7% up. We think that’s going to be a good call this year.’
Stokes is also candid about what the team might have done wrong this year – namely not taking as much risk as possible.
‘Everywhere I look, the economy is doing well and the technicals are incredibly strong. There is no yield anywhere else in the world and we knew that. We took risks but we didn’t take as much as I wish we had.’
Changing the game
While Stokes may have got her big break all those years ago when her car broke down, many women have not found the world of asset management so welcoming.
Citywire’s global database of 15,000 portfolio managers shows that fewer than 10% of managers in the US are women. This compares unfavorably with other markets: Spain is the leader with 27%. Further work by Morningstar has compared this with other professions in the States, such as medicine and law, where women make up around a third of the senior workforce.
Stokes is working to remedy this situation. She founded and co-heads the Loomis Sayles Women at Work Network and is on the executive board for the non-profit organization Strong Women, Strong Girls.
This issue is one of several that plague the industry, Stokes says. Not only does it suffer from a lack of women in leadership roles and a variety of unconscious gender biases, but it is still burdened with a bad reputation from the 2008 financial crisis.
However, the first issue that Stokes wants to tackle is getting women into the industry. She highlights the fact that there are now more women than men graduating from college, but that women seem not to be opting for careers in the financial sector.
Stokes has a compelling pitch for those who want to give it a try.
‘I cannot imagine why you wouldn’t want to get into the industry,’ she says. ‘It’s fun, it’s different every day, you get to use both sides of your brain and you are helping people make money and have security.
‘In the end, because of the industry we are in, it gives you freedom. It gives you freedom to do whatever you want to do, so I don’t know why you wouldn’t get involved if you could. I love it and I don’t think I’d be sitting here 30 years later if I didn’t love what I do.’
Head of investment research, Citywire
As I’ve written before, the recent success of this portfolio owes much to the sustained strong returns in the high yield market and more recently its allocation to emerging market debt.
Though this aggressive positioning is tempered by the portfolio’s large cash allocation of 23%, it may well be too rich for many investors’ appetites.
Nevertheless, it remains a strong performer within the debt market and it will be interesting to see when and how that cash allocation is deployed.