Here, Jimmy Chang, a senior portfolio manager and a managing director of Rockefeller & Co, discusses some issues around investing in the current environment.

Here, Jimmy Chang, a senior portfolio manager and managing director of Rockefeller & Co, discusses some issues around investing in the current environment. The firm emphasizes that views are subject to change and that this should not be construed as investment advice.  

FWR: What do you see as the biggest challenge in managing clients’ investment portfolios at the moment? Is it a challenge of expectation?

JC: The low interest rate environment in developed markets is complicating what had once been some of the simpler aspects of portfolio management. Fixed income securities have traditionally served as portfolio stabilizers that also help to meet income needs. However, with interest rates having been depressed as a result of policy initiatives by the Federal Reserve and other major central banks, there is not much income to be found in fixed income today. In many cases, investors’ return expectations from the cash and fixed income asset classes portend to offer lower than historical return potentials in the years to come.

FWR: It could be argued that despite the difficult yield and growth environment, the markets are quite dislocated, providing opportunities for active managers. Do you think this is an opportune time to be an investor? Where are the opportunities?

JC: We believe the financial markets today are for the most part fairly priced, with pockets of over-valuation in some segments of the fixed income market as the low interest rate environment has induced some investors to climb up the risk ladder in search of higher yields. Even so, we believe that a number of undervalued investment opportunities remain to be found if one looks hard enough. For example, emerging market equities have significantly lagged the US stock markets year to date in 2013, and some companies’ valuations look attractive given the long-term growth potential of their home economies.

FWR: Do you have a view on the active management versus index-tracking debate? Do you think the markets today lend themselves more to one of these investment styles?

JC: One of the more significant drawbacks of index fund investing is that it is a relatively blunt instrument. Active management provides the ability to target specific opportunities or to strategically underweight specific segments of a market in order to minimize risk. For example, our "bottom-up fundamental" global equity investment process focuses on defining the intrinsic value of a stock, along with its three- to five-year growth potential, through the use of internally generated cash-flow models. This process seeks to identify securities selling at compelling discounts to their fair value, independent of region or style bias.

FWR: Rockefeller & Co has pioneered a theme-based approach to investing; what are some of the themes catching your interest at the moment? How do these tie in with your approach to ESG investing?

JC: We search for secular investment opportunities that could be characterized as “theme-based.” Some examples include the growing needs in global healthcare, the shale energy revolution, and the rise of the middle class in emerging markets worldwide.

Rockefeller & Co has a long history in sustainability and impact investing practices, and we have a dedicated team of analysts focused on environmental, social and governance issues across industries and geographies. This ESG research has also been helpful to our unconstrained portfolios, and more broadly has contributed to an enhanced process of risk assessment and identification of best industry practices. Our overall investment philosophy in this area emphasizes that sustainability and impact investing does not mean having to forego investment performance and competitive financial returns.

FWR: There has been a resurgence of interest in alternative asset classes in recent months, driven perhaps by behavior in the equity and fixed income markets that is difficult for investors to read, what is your view on this?

JC: “Alternative” asset class is a very broad term that often includes strategies that are quite distinct in risk/reward, liquidity, and other characteristics. In addition to assessing the basic risk/return characteristics of an alternative investment, one also needs to be cognizant of issues such as liquidity, tax efficiency, fee structure, and the alignment of the investment manager’s interests with client interests. Moreover, given the high degree of dispersion in performance among managers in some alternative asset classes, access to good managers can be an important factor in the investment decision.

FWR: Rockefeller & Co works both on the investment and client side. How does this influence the way you design your investment offering?

JC: Our investment offerings are designed with our clients’ interests and investment needs in mind. We have developed a focused array of investment offerings and we believe it is important to seek quality over quantity.

FWR: US clients are not known for being very internationally diversified. Is this changing and how fast? What kinds of conversations are you having with clients about regional diversification?

JC: We are an organization that has been globally focused throughout our history. We have been managing global equity portfolios for a few decades now, long before it was “hip” to be global. We believe investment opportunities should not be constrained by geographic boundaries. Our clients have long been receptive to our philosophy of seeking investment opportunities around the world, regardless of where companies are headquartered.