Roger Bayston on the slopes in Switzerland.
In his professional life, Roger Bayston is a champion of an active approach to investing, but he’s also an active outdoorsman in his personal life, spending time away from the office catching waves on a surfboard or catching air on the ski slopes. Here, we get to know more about Roger Bayston—director of Franklin Templeton Fixed Income Group and portfolio manager, Franklin Liberty Short Duration U.S. Government Exchange-Traded Fund (ETF)—and his approach to investment management.
Roger Bayston, CFA
Senior Vice President, Director
Franklin Templeton Fixed Income Group®
Portfolio Manager, Franklin Liberty Short Duration U.S. Government ETF
What attracted you to a career in investment management?
Roger Bayston: I first gained exposure to investment management through my father, who started his career as a trust officer at a small trust company in central Illinois. He was one of the first people to take the certified financial analyst (CFA) exam, and he became involved in the organization and eventually went to work for and head the CFA organization. That gave me a lot of exposure to the asset management business. When I was in high school, I worked at the organization in the summer processing the CFA exams. I remember reading The Wall Street Journal in high school—which some of my peers found odd—but the issues impacting financial markets and how tied they were to the development of business models was interesting to me at a young age.
You manage the Franklin Liberty Short Duration U.S. Government ETF, which just turned three years old. In your view, how might this product fit into an investor’s portfolio, and what do you think makes it different from its competitors?
Roger Bayston: The goal of Franklin Liberty Short Duration U.S. Government ETF is income, focused specifically on investment opportunities at the very shortest part of the Treasury yield curve in the highest-quality investments. No corporate credit securities are used in the portfolio. We believe it’s a good complement for investors looking for alternatives to other types of vehicles within the fixed income space. We have extensive experience in managing across the various sectors of the US government marketplace and the investment approach we use for this actively managed ETF follows what we do across the Franklin Templeton fixed income product line. Our Fixed Income Policy Committee helps us set macro goals in terms of where we want to be positioned relative to events or scenarios such as interest-rate risk in a portfolio, as well as the various sectors of the markets we want to be in.
US Treasuries, agencies, agency mortgage-backed securities and even Treasury inflation-protected securities (TIPS) are part of the opportunity set that we actively manage across in this fund.1 We see this ETF as part of a broader portfolio strategy for our clients, but one that focuses on the part of the portfolio where investors are seeking to preserve capital for a specific reason or cause. Many investors have cash-like investments in their portfolios that seek extra income without achieving extra volatility. However, with the negative-yield dynamic we have seen playing out in many markets globally, we have seen increased demand for high-quality, short-duration investments to fill the objective of extra incremental income on the front part of the yield curve. We currently have relatively few direct competitors offering this type of product in this specific space today.
What developments do you see on the horizon that could impact fixed income broadly as an asset class—and how might investors prepare for challenges ahead?
Roger Bayston: Thinking long term, one of the big-picture macro themes that we have already seen starting to impact the investment landscape is changing demographics. Populations in developed countries of the world are aging, and that has brought with it an environment of slower economic growth. People tend to spend less as they get older and have fixed incomes, which in turn puts less inflationary pressures on the system. The natural outcome of this has been fixed income instruments with lower yields for a long period of time. Since the 2008-2009 global financial crisis, we’ve been in a period of easy monetary policy, which has brought a prolonged period of tremendous supply in different types of fixed income instruments; this dynamic has encouraged investors to take more risk in pursuit of income. In other words, people are incentivized to take more risk, and the easy-money environment has given more companies access to capital. An environment like that has greater potential to produce excesses. That just means we have to be more careful as to where we invest.
One of the benefits of the US economic system is that, after the global financial crisis, the United States was able to modify its banking system faster than other places in the world (e.g., Europe). Although there is centralized monetary policy in the form of the European Central Bank, each underlying country under its purview has its own regulatory body or bodies regulating the financial industry in that particular country, which makes wholesale reforms more challenging. Additionally, we see political challenges in Europe that continue to bear down on the health of the eurozone.
It’s not just the health of the US economy that’s driving what happens in the US markets or even US monetary policy. Faster or slower economic growth in China may be a greater influence on the global economy and markets than growth in the United States or Europe. The Federal Reserve seems likely to raise short-term interest rates further, but continued slow global economic growth and generally low inflationary pressures mean we probably won’t see a rapid change or adjustment in US monetary policy in the year ahead. That means we will likely continue to see investors searching for yield and income through credit-related instruments.
What is the most challenging part of your job—and the most rewarding?
Roger Bayston: The most rewarding part of my job is the people I get to work with. When building a team, my philosophy is to find people smarter and more interesting than I am, and I find it very enjoyable to be in such an intellectually stimulating environment and profession.
I’ve been part of Franklin Templeton since 1991, and being based on the West Coast of the United States, our business hours start early. I think I’ve earned some of my gray hair from challenging market environments! However, our culture is more long-term oriented, so when we see challenging markets, we have the wisdom to be able to be patient and not shun risk, while at the same time, take advantage of opportunities when they present themselves. That’s what I impress upon the younger members on our team—the next generation of investment managers.
Catching some waves in Costa Rica with family.
What advice would you give to young people interested in following in your footsteps?
Roger Bayston: I think there are tremendous opportunities ahead, but I think to be successful in investment management not only will require analytical and technological skills, but also a strong understanding of what drives market behavior. Humans fall into patterns of behavior and are reluctant to change, and this impacts how they make investment decisions. I also think strong people skills and a long-term vision will be rewarded. While analyzing the markets can be a sophisticated exercise with all the technology available to us, at the end of the day, I’m really in the people business. Our customers are people—people looking for solutions. As a result, I think good people skills will be rewarded as well, particularly when dealing with people and cultures around the world. One cannot underestimate how much our industry is built on trust when you are dealing with financial matters. It’s crucial to develop trust over a long-term relationship, but remember that trust can be fleeting, so you have to be careful to protect it.
Is there anything people would be surprised to know about you?
Roger Bayston: I’m a very adventurous person. I’ve actually slept in my van on more than one occasion—not for financial reasons, but for the adventure of it. I also hate to stand in line and avoid activities that require it.
What do you enjoy doing outside of work? Any hobbies?
Roger Bayston: I am active in a number of charities, but I have a motto: Always share and never brag. I also enjoy traveling and exploring new things, and when I travel, I like to settle in and live as the locals do. I also enjoy physically challenging myself, because your entire mind is emptied except for the task at hand. I favor winter sports and enjoy skiing. In skiing, the focus is on the task of getting down the hill and avoiding any perils along the way. I enjoy not only the challenge itself, but also preparing and training for it. While I like cold and snowy weather, I also like paddle boarding and surfing in warmer climates. While the hours may be early, one of the great benefits of living in California is the ability to be out in the elements doing different activities year round. And—living out of your van really isn’t seen as strange.
1Securities owned by the fund, but not shares of the fund, are guaranteed by the U.S. government, its agencies or instrumentalities as to timely payment of principal and interest.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
Roger Bayston’s comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The information provided in this material is rendered as at publication date and may change without notice, and it is not intended as a complete analysis of every material fact regarding any country, region, market or investment.
This information is intended for US residents only.
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What Are the Risks?
Franklin Liberty Short Duration U.S. Government ETF
All investments involve risks, including possible loss of principal. Interest rate movements, unscheduled mortgage prepayments and other risk factors will affect the fund’s share price and yield. Bond prices, and thus a fund’s share price, generally move in the opposite direction of interest rates. Therefore, as the prices of bonds in the fund adjust to a rise in interest rates, the fund’s share price may decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired resultsThese and other risks are discussed in the fund’s prospectus.
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage commissions and ETF expenses will reduce returns.
ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will develop or be maintained, or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.
The trading prices of the Fund’s shares in the secondary market generally differ from the Fund’s daily NAV and are affected by market forces.
Investors should carefully consider a fund's investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.