Adam Kramer is a portfolio manager in the high income and alternatives division at Fidelity, where he is responsible for more than US$30-billion in assets.Supplied
Growing up in Montreal, Adam Kramer was an avid hockey fan, following the careers of his favourite Montreal Canadiens through their hockey cards.
“Being able to find a player when he was a rookie, and then tracking the story and researching it, was something that interested me,” he recalls. “Then eventually, when I was a late teenager and I started to buy stocks, I realized that it’s a very similar passion, following the stories, finding that undiscovered value and just tracking it.”
After joining Fidelity Investments in 1999 and going on to become a portfolio manager focused on tactical high-income funds, Mr. Kramer’s knack for seeking out those undiscovered stories paid off.
“That’s really what investing is all about,” he says, recalling his searches for players’ minor-league cards. “If you translate that to the income-oriented asset classes, if you look in high-yield bonds and in loans, you can find companies before they go public, for example.”
Mr. Kramer continues to apply those principles today as a portfolio manager in the high income and alternatives division at Fidelity, where he is responsible for more than US$30-billion in assets.
In this role, he manages or co-manages several multi-asset income funds, opportunistic high-yield bond strategies for institutional investors, as well as the Fidelity Tactical High Income Fund available to Canadian investors, which is a Lipper Award recipient for 2021 in the Tactical Balanced category over five years.
The $1.1-billion fund has returned 12.4 per cent over the past year, as of Oct. 31, with an annualized rate of 14.6 per cent over the past three years and 9.2 per cent over the past five years, after fees of 1 per cent.
For investors seeking income, it “has a flexible mandate to invest across the full spectrum of income-oriented asset classes,” Mr. Kramer explains, from treasury bonds to high-yield bonds, floating-rate debt, preferred stock, convertible bonds and dividend-paying equities.
“If you have the flexibility to invest in more than a few asset classes, that really helps you preserve capital in down markets and capture upside.”
Now based in Boston, where he continues to collect hockey cards with his youngest son, Mr. Kramer talks about how investing across a wide variety of asset classes — indeed well beyond traditional bond categories — can help meet needs for income, while balancing risk and return.
Why does this strategy work?
When you look at all the major U.S. income-oriented asset classes, they all take turns as the best- and worst-performing asset class in any given year. And that’s because the market has a tendency of pricing in good and bad news, rightly or wrongly, only to get adjusted the following year when the actual events occur.
What asset class are you excited about these days?
One of the things we’ve had in the fund for the last year and a half has been real estate investment trusts, or REITs. I like them because you’re getting a low-to-mid-single-digit dividend yield. Unlike the rest of the market, which is trading at a premium multiple, the equities in the REITs are trading at 20- to 25-year averages. That’s because there are still people working from home, like myself. That’s the bad news that’s priced in.
Any particular bond to mention?
I’m piloting the ESG [environmental, social and governance] process in our high-yield group, so I try to have some good clean-energy names in the portfolio. One company that has a clean-energy aspect, that actually is a preferred stock and offers a very attractive yield, is Babcock and Wilcox Enterprises. Its old business was parts and maintenance for fossil-fuel plants. There’s a lot of bad news priced in because of that history. But it has transitioned to waste-to-energy, methane-capture, carbon-capture. That’s the future of the company.
What asset mix has led to your current success?
A lot of it comes down to topping our treasury exposure, but also taking advantage of opportunities in the convertible market. The convertible market has been a secret sauce in this fund because after episodic sell-offs in the markets, most of the opportunities that have been the most attractive come in the convertible-bond market.
Why is it important for managers like you to have such flexibility?
The key is the proper matching of income to the amount of risk we’re taking on in the bond market. Every year, the major income-oriented asset classes, whether it’s in the U.S. or Canada, take turns as the best and worst performers, because the market has a tendency to misprice risk. So, we’re trying to find those opportunities.
What’s the result?
By having that flexibility, you can both preserve capital – because it’s a natural volatility-dampener if you’re invested in areas where there’s too much bad news priced in – but if the bad news doesn’t take place the following year, you collect the coupon and you get upside. That’s really the essence of multi-asset income investing. So, it’s basically having more tools. It’s the example of looking for hockey cards in the minor leagues.
This interview has been edited and condensed.
For the full list of 2021 Lipper Awards individual winners click here and for the group winners click here