There’s little hesitation from Frédérique Carrier when asked to identify the most influential event of her career. “The great financial crisis,” she states. “2008 and 2009 were really extraordinary times. These were incredibly formative years in my career.”
When the crisis hit, Carrier was an investment director looking after UK and European funds at London-based wealth management firm Kaupthing Singer & Friedlander. “It was a very stressful time for investment managers and clients alike,” she recalls.
“Some of our funds had exposure to small and mid -cap stocks which suffered from poor liquidity as many investors wanted to sell, but few were prepared to buy, hoping to get a better entry price later on – that meant that prices were in free fall,” Carrier explains.
“We couldn’t just increase our exposure to cash because the mandate was to invest in equities, so we reduced the allocation to small and mid-cap stocks and tried to place as much as possible in large cap defensive stocks or stocks that were being taken over at an established price to provide some stability.”
The crisis even directly hit the firm Carrier worked at. The Icelandic bank which owned Kaupthing Singer & Friedlander collapsed in October 2008, leading the firm to be taken over by private client investment manager Williams de Broë. Carrier remained in her position with an extended responsibility of managing both European and global funds.
“That meant that prices were in free fall"
The bounce back in equities that followed in 2009 was an equally big lesson. “It taught me to be effective and nimble in changing strategy very, very quickly.”
These events have taught Carrier the value of experience, something that can easily be forgotten at a time when we are caught in the rapture of an ever-maturing bull market. “It’s stunning to think that investment professionals who have been working in the industry for a decade can, rightly, claim to have a lot of experience yet haven’t really ever had to deal with a period of extreme volatility like those of my generation have,” she says.
It’s this experience that Carrier brings by the bucket load to her current role at RBC Wealth Management, the wealth management division of Canada’s largest financial institution, Royal Bank of Canada. Carrier joined eight years ago, after applying for a role as an equity specialist on the London desk. Despite having “very little conviction that anyone ever got a job by responding to a job advert,” Carrier, who also happens to be Canadian, was hired.
Since 2017, she has served as head of investment strategy and co-chair of RBC Wealth Management's global asset allocation committee, which establishes the asset allocation mix for the firm’s clients globally.
It’s no small undertaking. Carrier is responsible for steering the house investment view of a firm that is – with more than $400bn under management and a total of $800bn worth of assets under administration – the fifth largest wealth manager in the world. Based out of the company’s London office, she also sets the equity strategy for the UK and Europe while heading up the London equity desk.
Carrier says that both her and RBC’s investment strategy is based around three key pillars: fundamentals, valuation and sentiment.
“If I go back to my days as a stock analyst at [Spanish financial services giant] BBVA in the 1990s, I was very much trained to look at these three factors, and it’s these pillars that drive our investment decisions at RBC,” she explains.
Investing by committee
However, the responsibility for setting the investment strategy is not one that Carrier shoulders alone. Being a wealth management firm owned by one of the world’s largest banks, decisions are heavily tested, analysed and scrutinised.
The firm’s global asset allocation committee, which Carrier co-chairs, meets once a week in order to form and discuss the house investment view. The committee decides on the asset allocation of both equities and fixed income, and within that, the allocation across various regions. Sub-investment committees for each region are then charged with establishing how best to implement the house view within their discretionary remit.
The implementation is also heavily influenced by clients’ preferences and risk profiles. “In the UK, investment positions are mostly implemented through funds and ETFs. Clients are focused on ESG issues and our discretionary offering takes that into account. Meanwhile in Asia, for instance, clients have a higher preference for single line equities and tactical positioning plays a larger role than in other regions.”
For Carrier, it’s this close relationship with clients that most differentiates wealth management from running a hedge fund. “The relationship with a client, understanding their specific financial needs, and the client’s risk profile is very, very important in wealth management,” she explains.
This isn’t without its own challenges, however. Marrying the need to customize the offering to specific client needs – with the need of the business to scale up can be a juggling act. “That's where you see many different risk profile models emerge.”
“Meanwhile in Asia ... clients have a higher preference for single line equities and tactical positioning plays a larger role than in other regions."
Carrier explains that in 2020, RBC Wealth Management will be “participating in markets, taking a few risks, but not too many." However, RBC Wealth Management has a policy of not revealing any stocks, funds or ETFs the firm invests in.
While the firm is “market weight” on global equities and it expects that gains will be made in 2020, these will likely be less than in 2019. There is a heightened need for caution, explains Carrier, as the late cycle we are currently in presents particular challenges for both the economy and the stock market.
“There are clearly reasons to be bullish, but there are also many reasons to be cautious,” she explains, adding that much of the continued global bull market is based on a healthy US consumer which, for now, remains in place.
“The US consumer is healthy, household finances are strong, the savings rate at 8% is elevated. House prices are back up to pre-crisis level, unemployment is at a 50-year low. So, households are feeling good.” Nevertheless, Carrier will be carefully watching the US consumer in 2020 for any sign of a negative turn that could trigger a move towards recession.
Reasons to be cautions
On the other side of this optimism, there are key reasons to be “a lot more cautious than we've been over the last 10 years”, according to Carrier. These include the inversion of the US yield curve which, despite de-inverting, is “a signal we won’t be ignoring”, and the fact that the current period of low growth has, like any other, the potential to turn into negative growth.
Things are further complicated by the possibility of the stock market peaking in 2020, Carrier notes. “The market starts to peak on average six months before a recession arrives, but this average is derived from a very wide range: markets can peak more than a year and a half in advance, or just a few months in advance, so this is also something to keep in mind”.
Looking at a regional level, the US is tightly aligned with the firm’s global outlook, while there is the potential for higher growth in both Europe and emerging markets, if the necessary circumstances arise. Japan is meanwhile rated overweight by RBC Wealth Management. (For more see section: “A region by region outlook for 2020”).
Large scale, close ties
The scale of RBC Wealth Management’s operations is huge. The firm employs close to 5,000 financial consultants, advisors, private bankers and trust officers worldwide. It’s working with these people, alongside with the various committee members, that Carrier finds among the most rewarding part of the job. “There’s a very collegial atmosphere, even in big investment discussions,” she explains.
“Throughout my career, from my early days as an analyst, I’ve had the opportunity to work with some of the best people in the industry that have offered so much wisdom and really mentored me in a way that has hugely benefited my career.
“Now I’m no longer the fresh one on the desk I’m surrounded by people who are younger than me, but that are no less inspirational, and I really appreciate the opportunity to be a mentor myself.” What’s Carriers key piece of advice? “Always stay curious.”
A region by region outlook for 2020
Frédérique Carrier’s regional macroeconomic outlook for 2020
“We expect higher grounds in 2020 for equities, but for these gains to be lower than last year. We're projecting gains of slightly more than mid-single digit on US investments. There is a risk of a pullback near term; institutional investor positioning seems to be extreme on the bullish side and there's a lot of good news already discounted, including the signing of the Phase One trade deal with China. Valuation levels are meanwhile above their long-term averages. But with a recession in the US believed to be at least a year away, investors, despite possible volatility, should still give equities the benefit of the doubt.
We recently updated Europe to market weight. We're now starting to see a stabilization of the European economy. It’s by no means a bounce, but we don't necessarily need to see a bounce for European stock markets to behave better. Rumblings concerning the use of fiscal policy are becoming more persistent. Valuations are clearly not very demanding for European companies across all sectors, particularly relative to the long-term averages of their US counterparts. A resumption of global growth would further bring the opportunity for stronger corporate earnings given Europe is such an open economy.
Japan is a market that has room to move. It's under-owned, cheap, and clearly could benefit from global PMI bouncing and an easing in trade uncertainty, particularly as it has recently signed three trade deals. Economic growth is likely to be hit by the recent implementation of a sales tax, but the economy will benefit from very low unemployment, and is gearing up for fiscal stimulus while monetary policy is loose.
Overall, growth should improve across emerging markets thanks to a fall in aggressive protectionism and lower global interest rates, while the US dollar not rallying any further could provide a further tailwind. This is clearly a very wide universe and we would be cautious on countries beset by domestic economic difficulties as in the case of South Africa, where fiscal concerns are elevated.”