Noora Lakkonen and Juhamatti Pukka are our Fund Managers of the Month for the month of December.
Noora is a Responsible Investment Analyst at Evli Fund Management Company, where she specializes in ESG and green bond analysis. Evli itself is an industry pioneer and leader when it comes to ESG investments such as Green Bonds. Prior to joining Evli’s Responsible Investment team in 2019, Noora worked as a lawyer in a Finnish business law firm. Noora earned her Masters in Environmental Law from the University of Helsinki, and also holds an M.Sc. in Economics from the Hanken School of Economics. Specializing in ESG and green bond analysis.
Juhamatti is the Head of Fixed Income, as well as a Portfolio Manager at Evli Fund Management Company, where he specializes in corporate bond portfolio management. Prior to joining Evli’s fixed income team Juhamatti worked as FX/Fixed Income dealer at Evli and he has over 10 years of experience in capital markets. Juhamitti holds an M.Sc. in Economics from the Helsinki School of Economics.
Below we asked Noora and Juhamatti about their career as investment professionals, and the challenges that comes with being a pioneer in ESG investing.
What led you to dedicate yourself to the financial sector? What would you be doing if you did not find a path in Business?
Actually, there were a few coincidences involved. I did my first degree in law, but after working for a while as a lawyer I decided to continue my studies and ended up studying strategic sustainability. As a part of my studies I took courses in sustainable finance and got really interested in the subject. Around that time, the EU started to develop its Sustainable Finance Initiative and I figured that maybe a legal background could be beneficial also in the finance sector. If I had not chosen finance, I would do something related to human rights – either on legal or business side.
I was interested in the finance sector already as a student, maintaining actively my own equity portfolio. Economics and financial markets have always been a great interest of mine, so the decision to pursue a career in this sector was a natural step for me – no other option has thrilled me the same way.
Taking a brief look at your trajectory, what would you highlight about your professional career? Any advice for young people trying to be successful in the industry?
The most straightforward way isn’t always the best. Be brave to take initiative and go for opportunities. The responsibility sector is so broad that a variety of backgrounds are valued, for example social sciences, environmental sciences, law and technology. Having a basic knowledge of finance is useful, but the main point is to have a genuine interest in sustainability and finance.
A newcomer to the financial business should be open-minded and willing to learn new things every day. In general, this field is continuous learning. I also agree with Noora – be brave and use opportunities to explore different career paths.
Taking into consideration the current market situation, which assets do you think will perform better in 2021? Any safe-haven assets?
Our vision for the development of 2021 is based on the fact that the pandemic will sooner or later be contained, global activity will continue regardless of the pandemic, and for-profit companies will be able to provide returns to their investors.
Our main scenario is that the pandemic will remain under control or calm down, global conditions will become more favorable and economies will recover. We prefer riskier asset classes such as corporate bonds, equities and alternatives.
What is your advice to investors, how should they position themselves with the current environment?
The continuation of the current monetary policy measures will lead to a hunt for yield in the riskier fixed income categories in the market. With the European Central Bank’s purchase programs combined, up to a fifth of the euro area corporate bond market (excluding banks) has a significant market impact. The total size of the programs is now € 833 billion annually and is expected to increase by a further € 500 billion. By comparison, the net issuance of euro area countries (new issues minus maturities) will be around € 508 billion in 2021.
In the corporate bond market, risk premiums are tightening when demand exceeds supply. Sector-specific difficulties still weigh on some sectors and the economic environment remains challenging. Companies are focusing on securing their cash flows and results, as well as maintaining the balance sheets. Financing needs focus on refinancing with less new investment. The most significant downgrades in credit ratings are probably already seen this year. To date, the number of defaults and bankruptcies has also been lower than feared.
We would advice long-term investors to remain invested in corporate credits, minding duration risk. Short-midterm investors can take advantage of certain opportunities to harvest higher corporate yields from issuers in countries with less pronounced central bank activity, such as the Nordic countries.
What is the greatest challenge as a Responsible Investment specialist at Evli Fund Management?
ESG (Environmental, Social, Governance) is such a broad topic to analyse because its sub-areas cover a variety of themes and topics. The concept of Responsible Investing is also continuously developing and growing its popularity among investors and customers. Combined with changing regulation on the behalf of the EU, increasing market surveillance and higher expectations from the customers, one has to run in order not to fall behind. This makes strong prioritization skills and ability to find essential matters crucial, but also highlights the need to find one’s own niche within this very broad field; you cannot be an expert in everything.
Could you share a few details about your role within the Green Bond Fund?
As a Responsible Investment Analyst my focus is on analysing the green bond frameworks published by the issuers as well as the ESG performance of the issuers themselves. In addition, we also review any external certifications (e.g. second party opinions) the issuer has obtained for the bond.
In practice, my job is to ensure that each investment meets our green/ESG criteria and to discuss all relevant findings with the portfolio manager to build a big picture of the investment from both sustainability and credit perspective. I am also responsible for the fund’s ESG reporting together with the rest of the Responsible Investment team.
My role as Portfolio Manager is to build and manage a portfolio that is most suitable for the current market environment. That includes company analysis, credit selection and continuous portfolio analysis. From the selection perspective it is important to pay attention to the ESG matters, since ESG issues can potentially have a significant negative effect to the credit quality of the issuer.