Episode 74: Janus Henderson’s David Elms

Diversified Alts and the Role of Bonds

In Episode 74 of the [i3] Podcast, we speak with David Elms, Head of Diversified Alternatives and Portfolio Manager, Janus Henderson Investors. David, an Australian based in London, discusses the changing nature of bonds and their correlation to equities, how trend-following made a comeback this year and tackles the idea that illiquidity stabilises portfolios. “You can paint illiquidity as a feature instead of a bug, but I don’t believe in that,” he says.

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2:50 I got into investing by trying to fend off Robert Holmes à Court’s attempt to take over BHP in the 1980s
5:00 Helping establish Portfolio Partners. “If you are thinking about starting your own firm, then do it.”
5:30 It is good to experience the energy and common purpose of a start-up, because it is great if you can bring some of that to the teams you are leading later in your career.
7:30 In the current environment of high inflation and changing monetary policy you have to be careful with backtests.
8:00 You have to be careful saying ‘this time is different’, but what has changed is the role of bonds in a portfolio
9:45 You can look back in history, but you need to be aware that the 1970s was a different place. The market participants was different, the role of retail was different and the scale of hedge funds was very much smaller
12:30 Trend-following strategies have paid off this year. Is this a vindication of Crisis Risk Offset strategies? Trend-following has a place in a crisis alpha portfolio, but there is no one silver bullet.
14:30 In the event of something like 9/11 or the Fukushima nuclear disaster, where markets react instantly, trend-following doesn’t work. There you need to rely on options for protection.
16:00 Two per cent inflation seems to be the point where the bond/equity correlation flips from negative to positive and becomes amplifying.
20:00 The way the pandemic played out is not the only way it could have played out.
21:00 During the pandemic, private market investors could pretty much close their eyes and stick their fingers in their ears and ride out the volatility. But I think that will be harder in the years to come.
21:30 You can paint illiquidity as a feature instead of a bug, but I don’t quite believe in that. I don’t think you stabilise a portfolio just by not marking to market.
26:00 The reason why correlations go to one in crises is often behavioural.
28:00 Protection strategies can be expensive at times and cause drag on the portfolio. How do you think about the implementation of such strategies?
33:00 CPI plus investment targets, where they stand today with high inflation, are heroic.
36:00 I think investing will get harder, not easier.
37:50 SPACs will go back to being one of those weird things that happened in the post-COVID era.


[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe. The [i3] podcast is available on iTunesGoogle PodcastSpotifyAmazon MusicStitcher or your favourite podcast platform.