Karen Watkin
What does it really take to be a successful investor? And can anyone become one? Is it spotting the next big opportunity? Knowing when to take risk and when to step away? Or is it something harder to define? Judgement, curiosity, adaptability, and the ability to keep a clear head, when markets are anything but.
Julia Hilgers
Good investing is not about being right every day. This is not possible. It's really more about managing risks, staying diversified, and avoiding any emotional decisions. This always is a big mistake. It’s important to stay patient and do not overreact.
Karen Watkin
Welcome to the 3rd series of AB's Alpha Females, the Multi-Asset Investment Podcast from AllianceBernstein. I'm your host, Karen Watkin. Investing is changing fast. From AI and private credit to geopolitics and rapidly shifting markets, investors are having to navigate more complexity, more information, and more uncertainty than ever before. So this series, I want to get inside the minds of successful investors and find out what really sets them apart. Not just what they invest in, but how they think, how they make decisions, and how they adapt when the world changes around them. And this time we're widening the conversation. I'll be speaking to clients and industry peers, as well as investment experts from across AB, bringing together different perspectives from across the investment industry. We'll tackle some of the biggest opportunities and challenges facing investors today, hear the career stories behind the investment decisions and ultimately ask one question, “What does it take to be a successful investor today, and what will it take to remain one tomorrow?” My first guest is ideally placed to answer what it takes to be a winning investor, having built a successful 20-year career as portfolio manager. Julia Hilgers is a senior portfolio manager in multi-asset at DWS Group, and not only is she a fellow portfolio manager, but she's also a fellow podcaster who hosts the series My Financial Voice, aimed at increasing people's, and in particular women's, understanding of investing in capital markets
Karen Watkin
Julia, welcome to the podcast.
Julia Hilgers
Thank you so much for having me here.
Karen Watkin
So let me start by asking you where you look to find sources of diversification in your portfolios, Julia. We know as multi-asset investors, diversification is one of the critical things that we can do for our clients. How do you think about that when building your portfolios?
Julia Hilgers
If I make a portfolio for my clients, it's always the first thing is to understand the client's needs. So, what's the time horizon for the client? And of course, what's the risk preference? And if we know that and we've talked about constraints and everything, we always start with a strategic asset allocation. And for our strategic asset allocation we use our in-house long-term capital market assumptions. So, if we are looking for diversification, of course we start with fixed income and the different asset classes within fixed income. So of course, investment-grade credit, sovereigns, but also high yield, and of course, is with equity, with different regions. What's maybe more and more interesting now is maybe that we should not only look at regions, because it's a lot more important at the moment to look at the sectors. Because if you underweight US, for example, you in the end do not underweight US, you underweight tech. And there, of course, we are at the big theme AI. And there you have to think about if you would like to underweight AI or not. And this, of course, is always the starting point, this strategic asset allocation with fixed income and equities. But then we look in different asset classes. It's not only private credit, it's of course also real estate, it's infrastructure, it's about commodities.
Karen Watkin
So, I'm really interested to hear how you've been navigating some of the key themes driving markets and financial headlines in recent times. And private credit has, of course, been one of those. How have you been thinking about private credit within your portfolios?
Julia Hilgers
So, coming to private credit, or maybe alternative illiquid asset classes in general, it's a very, very interesting satellite we can use in our portfolios. I would say we built our portfolios always, of course, with a core portfolio of equities and fixed income. But then it really makes sense to get more diversification by adding up some alternatives or commodities. And there, of course, private credit is a very interesting topic. And you always have to compare if the risks you are taking with this illiquid asset class, and of course the liquidity, is really the advantage. But if we do so and if we talk with our institutional clients, we mostly come to the end that it makes sense, especially for diversification, to add some.
Karen Watkin
I think that's really interesting how you've touched on the big challenges of multi-asset investing, which is really understanding how all those different pieces of the markets interconnect and how they interplay with each other. And you obviously referenced AI, and of course that’s been one of the really big themes driving markets this year. But I'm interested to hear your view on how you've thought about that, not just in terms of, as you mentioned, with the equity exposure, but perhaps how it connects to those other parts of your portfolio. As you mentioned, things like infrastructure or commodities. And so, I guess my question is, you know, at what point does the AI theme shift from being a sector bet or a more kind of stock-specific idea to actually informing how you think about some of the bigger kind of macro or asset allocation views that you're reflecting in your portfolio?
Julia Hilgers
So if somebody would wake me up now and I would have been sleeping during the last year, and I see what's going on in the world at the moment with all the wars, the Iran attack, higher oil prices, recurring inflation fears, And somebody would ask me, where are equity markets at the moment? I would say they are down. But I mean, that's not the truth at all. Equity markets are really up. And the really main point for that is the AI investments and the AI trend. This is the tailwinds for macroeconomic growth as well. This really is like growth booster for the economy.
Karen Watkin
And so, we're seeing that impact, as you said, of AI kind of reaching through the wider economy. And of course, it's kind of influencing how we work ourselves as well. So, I'm interested to hear how that's shaping the way you think about running your portfolios.
Julia Hilgers
So, as you said in the introduction, I'm a portfolio manager now almost since 20 years. So, when I started my career, this was in 2008, and I started with a graduate program in New York. So, when I started, I— and I did a trade, I had to write it down in an order book, every single trade I did. And as you already said, I was able to trade my FX trades via phone. So, I would say this is unimaginable at the moment, because all the systems, really help us to be more efficient, to be quicker, also to do less mistakes. But of course it's also more controlled. And I think AI, of course, will help us to be even more efficient here, to give us more time for different perspectives. And what I also think is very important, what AI is not able to do, is to communicate with our clients, to really have this personal relationship. And with AI, this even becomes more important because as there are a lot of processes where we are maybe not needed anymore. It's even more important that the client is able to trust what is done for him. And this is only possible via a human being, understanding what the client needs.
Karen Watkin
That’s such an important point. And you’re right it’s that human element, that trust and that relationship that is so important, particularly when you're helping clients navigate more volatile environments. So, I'm interested to hear, what do you think goes into building that trust? What are the elements to building those longstanding relationships with your clients as an investor on their behalf?
Julia Hilgers
The starting point is always that we understand what the client needs, what is the goal of the investor, as I already said, what's the time horizon, what's the risk tolerance, what's the maximum drawdown, for example, the client can afford. It could be that the right investment from an objective view for the investor, but if he does not feel that it's right, it's not the right one. So therefore, really the most important part is knowing each other, understanding the needs, and reacting to it. After that, I think it's very important that you are always able to explain what's going on. And what I realised also over the years is if the client understands what you've done and why, and even if it maybe temporarily did not turn out positive, it's still, ok, usually if it’s a long-term strategy and if the long-term strategy turns out, it’s just, how we call it, an alpha pause. You will get on your path and you will get the overperformance later on if you are able to stick to your strategy. But you will be only able to stick to it if the client understands why you do it. And, yes, so that's maybe the second part. And this of course means that you need a very good communication.
Karen Watkin
So having that clear understanding of the needs, but being very transparent then in terms of how you've built that long-term investment strategy for them, but also how that's performing through time, and I guess helping bring them back to that kind of long-term plan to help them stay the course.
Julia Hilgers
Exactly.
Karen Watkin
And so, when you think about building those strategic asset allocations or those investment plans for your clients, what would you say are some of the key things that really underpin your investment approach and, you know, some of the traits that you think are important then in terms of kind of good investment decision-making?
Julia Hilgers
So, in terms of investment approach, maybe it's a little bit difficult to say because I do not have a general investment approach because the approach always depends on the client. And that means the portfolios I manage at the moment are very different. So, I have really equity-only buckets in a broader structure. I have clear multi-asset portfolios. Some are defensive, some are more risky, and I even have fixed income only portfolios. And in terms of selection, some are single stocks, others are fund-of-fund portfolios. And even if it comes to the strategy, I have total return portfolios, I have benchmark orientated ones. And as I'm working in the liability driven investment team. Of course, that's where we really try to connect with the liabilities of our clients. So therefore, to say in general, like, investment approach is not there, and it's again understanding what the client needs and then react to it.
Karen Watkin
And it sounds like you do a huge amount of different strategies for your clients. So, I'm really interested to hear how you think about what the right balance is of perhaps more quantitative approaches, which I'm sure are particularly important for things like your liability-driven investing, as well as then perhaps incorporating those more fundamental views and how you're thinking about the world and some of that more kind of macro perspective?
Julia Hilgers
Yes, that's a great question, and I love it because I love everything with quant. I think the right balance is a balance because I— so when I started like almost 20 years ago, I developed systematic quantitative indicators which should show me the risk-friendliness of markets and also the macroeconomic perspective. And it's really putting data into a model and giving you one number in the end telling you good or not good environment for risky assets. And this really works quite well. And with these indicators, I also developed quantitative strategies to help me guide a little bit between the risky asset quota, if I would increase it or if I decrease it. So, these indicators and these strategies I use even until today for my portfolios because it really worked out quite well. What I really like about it is that they are so neutral and you really give you a neutral picture of the market and they are not emotional at all. So, I would say every investor usually is searching for arguments in the market to underpin your own view for this moment. And this is what these indicators not do. These indicators just give you a neutral view, and that's very, very helpful. But at the same time, I would say looking at this quantitative signals only is not enough, because you need always to be able to question them or to, I mean, of course, to understand them, but also to adapt them if this is necessary.
Julia Hilgers
And I would say a very good example for this is 2012 when Mario Draghi said whatever it takes because he said this in a very bad macroeconomic environment to really help and boost the economy. This was like financial crisis 2.0 with Greece. And what then happened was that every bad macroeconomic data was very good for markets because the markets anticipated with bad macroeconomic data more quantitative easing. And this was good for equity markets. So, for example, in like this phase, A quantitative indicator which tells you if the macroeconomic environment is good and this is good for equities is not working at all. So therefore, it's very good to have them and to use them, to understand them, and it's good if you have developed them by your own because then you understand them. But you have to understand when it's working and when it's not working. And it's really important that you are able to react properly if you see that the world has changed and that you are able to adapt them. And therefore, multi-asset in general, it's always the mix. So, combining quantitative and qualitative structures.
Karen Watkin
And also, that mix, as you were talking, I was thinking it's also that mix of time horizon, as you spoke about. So, understanding perhaps what a long-term drivers that remain intact and ignoring perhaps some of those shorter-term kind of fluctuations or noise in the market, but equally being able to understand where there may be longer-term changes in the macro regime. So I’m interesting in how you think about bridging those gaps, between long-term versus shorter-term time horizons in your portfolios.
Julia Hilgers
So, the strategic asset allocation should be the basis for the needs the clients have. Then depending a little bit on the mandate, it's possible to have a tactical asset allocation as well. This also gives you opportunities, but it does not mean that you have to react like on every noise on the market. Sometimes you just see great opportunities, and these opportunities you can tackle with tactical asset allocation. So I, for example, really like it to use futures for the duration in my portfolios. And if I see a big opportunity, I use them. And sometimes this is then a tactical trade for, let's say, 1 or 2 weeks. But you never should ignore your strategic goal. Also, this depends on clients, but I would say every half a year or at least once a year. We also adapt this sometimes only a little bit, sometimes a little bit more, because sometimes also the goals for the investors are changing a little bit. So therefore, of course, it does not mean that we make a strategic asset allocation and then we go to sleep for the next 10 years.
Karen Watkin
And so, Julia, I'm really interested, you know, the question I'm really looking to answer through this series of the podcast is what does it take to be a successful investor today and what will it take to remain one tomorrow. And I think you have such a depth of experience through your long career in the industry, but also, as you've talked about, you know, the breadth of the types of portfolios that you look after for your clients, I think really gives you a unique perspective into thinking about those characteristics or traits that really go into making a successful investor.
Julia Hilgers
Yeah, so I cannot emphasise this too much, is really to understand the client's needs because there is not one best portfolio which fits to all clients. This is the key question. What's really the goal? I think one can say that investing really is a marathon and not a sprint, and that means that you always have to look at your strategic goals and have your strategic asset allocation in mind. And that also means that you should build your portfolio around these strategic goals, and not around the next headline or some noise in the market. You always need a clear objective, a clear strategy, and then the discipline to stay with this strategy. So, markets will always be volatile and there will always be moments when you do not feel comfortable. But when your objective has not changed and you analyse the market and you feel that the strategic themes have not changed, that means that you should not change your strategy even if it feels uncomfortable for the smaller time period. Good investing is not about being right every day. This is not possible. It's really more about managing risks. Of course, as a multi-asset investor, I will say staying diversified. And what's also important is avoiding any emotional decisions. This always is a big mistake somebody can make. It's important to stay patient and do not overreact.
Karen Watkin
They're great lessons to take on board, Julia. And I'm so interested to understand as well what your motivation was for launching your podcast. It sounds like you have great advice for investors out there and lots of really important lessons that you’ve learnt over the course of your career, but what was the big driver behind you launching your podcast? To kind of share that, that knowledge and expertise with others?
Julia Hilgers
What I feel is that there are a lot of people around who do not invest, and I feel that they do not invest because they think they do not know enough about investing. And they fear even finance or capital markets at all. And I really love finance and I really love investing and capital markets. So, I really would like to share my love with the others so that they start to invest. So, Katharina Seiler and I, we are doing this together. What we want to change with our podcast, My Financial Voice, we would like to give people, maybe especially women, but as said, it's also true for men, we would like to give them a voice. Like a financial voice. And that means giving them really like basic information and basic understanding of investing so that they have enough confidence to just get started.
Karen Watkin
I think that's so important. It’s one of those topics, it feels like people just don’t discuss enough, you know, and it’s so important. And particularly, I think perhaps for women to have the confidence, like you say, to start asking those questions, start investing on their own behalf. And like you say, really building that financial voice. I think it's such a great initiative. And to help get more people started with investing, what do you think is one of the key things the industry could perhaps do differently to make it more accessible to a wider audience?
Julia Hilgers
I think it's still most of the information which is out there always sounds complicated. That's, for example, what we should do differently. We should Explain the basics in a manner that somebody who is not everyday familiar with markets, that they are able to understand this. So I hope that we are able to do this in our podcast, My Financial Voice.
Karen Watkin
I think it's so great to widen that debate though, and like you say, trying to step away perhaps from some of the jargon and the language that we use across the industry to make it simpler and more accessible for people to get started with investing.
Julia Hilgers
It's also, I think it's, it's always this, you do not talk about money. So in German, über Geld spricht man nicht. You learn when you've been a small kid so that you do not talk about money. But, I think we need a different mindset here now. We should talk about money and we should talk about investment. So, my dream would be a little bit, if you go to party, that you do not talk with your friends not only about your latest holiday or some beauty hacks or things like that, that it's just getting a very normal question. So, what's your portfolio as of today? What was your last investment? What are you doing to diversify a little bit, so that these conversations just are getting normal. You should talk about investment. So really, investment is for everybody.
Karen Watkin
What was it that prompted you to pursue a career in investing and finance?
Julia Hilgers
This really happened more by chance than by a big plan. When I was young, I always loved numbers, analytical thinking, but I was a little bit shy to study mathematics. Because I always had this picture in mind that if I study mathematics, I will end up in a basement calculating bridges, and then after all, these bridges will collapse. So, and one very important point, I will be in a basement alone without any other people. This was not what I wanted to do for all of my life. So therefore, I started with business administration. Ended with a degree there as well. But more or less from the beginning on, I felt that I'm more interested in economics. Therefore, after my first studies, I did a second one, which was economics. And then this was more by a very happy coincidence. I started an internship with DWS in the FX portfolio management team, and I was really fascinated because there I saw that everything what I want to do is there. I see a lot of graphs, I have macroeconomics, I have mathematics, I have numbers, numbers, numbers, and I have a lot of people around me. So I really loved it from the beginning on, and they asked me if I would like to start my career there, and I said yes. And that's now like almost 20 years ago.
Karen Watkin
It sounds like you found your perfect home. And I think you demonstrate perfectly that important combination that I think investors need of not just having that quantitative and technical understanding of the markets and finance and investing, but really the personal and human side as well. And I think you just embody that perfectly. So, thank you so much for joining me today, Julia. I've thoroughly enjoyed our conversation and really appreciate you coming onto the podcast to talk to me today.
Julia Hilgers
Thank you so much. It was so great.
Karen Watkin
Thank you, Julia. I took so much away from my conversation with Julia. She's clearly such a deeply experienced investor, finding balance not just across different asset classes and parts of the market, But also how she finds balance in using both quantitative signals and fundamental insights and views, as well as balancing time horizons. So having that long-term perspective, but balancing it with what she sees as more tactical or shorter-term opportunities within the markets. So balance, I think, is really critical for any multi-asset investor. She kept coming back to this idea that you have to start with understanding what the client need is, what their goal is, and the outcome that you're trying to deliver for them. And then she spoke about, you know, always making sure you've got the discipline to stick to that plan and not, get swayed by taking more emotional decisions or being distracted by noise in the markets. And so I think she shared some really important lessons with what it takes to be a successful investor in terms of a clear view and goals, having a long-term plan, and making sure you've got discipline. That brings to a close this episode of AB's Alpha Females, the multi-asset investment podcast from AllianceBernstein, with me, Karen Watkin.
Karen Watkin
Join me for future episodes where I'm going to be hearing from other amazing women who are at the forefront of multi-asset investment. And if you've enjoyed this episode, don't forget to subscribe and tell friends and colleagues about it. It only remains for me to thank Julia Hilgers. This episode was produced by Richard Myron from Earshot Strategies.
Disclaimer
Listeners are reminded that the value of an investment can go down as well as up, and investors may not get back the full amount they invested. Past performance does not guarantee future results, and invested capital is at risk. The views expressed in this podcast do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB Portfolio Management teams and are subject to revision over time. The views expressed in this podcast may change at any time after the date of this publication. AllianceBernstein does not provide tax, legal, or accounting advice. It does not take an investor's personal investment objectives or financial situation into account. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information does not constitute investment advice and should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product, or service sponsored by AB or its affiliates. Finally, references to specific securities are provided solely in the context of the analysis presented and are not to be considered recommendations in the markets, industry sectors, and companies described in this podcast. An investor cannot invest directly in an index, and index results are not indicative of the performance for any specific investment, including an AB fund.
