Hello, and welcome to Personally Invested. I’m your host, Dave Richardson. Today I am really excited to have Dagmara Fijalkowski, someone that I have worked with for over twenty years and I admire greatly, not just professionally, but personally. And you will see why through the discussion. Dagmara is the Head of Global Fixed Income and Currencies at RBC Global Asset Management, and she shares her move from Poland to Canada, her education, the way that fixed income investment management has evolved over the last twenty-five years—an area that she has been a leader in— and her passion for fixed income and doing everything well, including baking Portuguese tarts. I think you’ll love our conversation.
Dagmara, welcome. We have finally been able to arrange this. We have been trying for about two years to get you on Personally Invested, so it’s very, very nice to have you here.
Well, thank you.
And as you know, we’ve worked together for over twenty years now.
I was going to say a while.
So “a while,” if you prefer “a while.” I’ll have to contain myself because I have an enormous admiration for Dagmara – not just for what she does for investors in Canada, but just as a person as well. So, if I come across as a little bit too enthusiastic about our guest today, it is genuine because Dagmara is just a phenomenal human being, and you’ll see that as we go through the podcast today.
We should end now. (laughs)
We could. That’s quick. We’d probably get better viewership or listenership if they don’t have to listen to twenty or thirty…
Everything’s been said.
Everything has been said. So, I read out your title in the introduction, and you just kind of go, “Wow! That’s an incredible title.” And I imagine that when you were a five-year-old in Poland, a young girl, that is what you dreamt of being, coming to Canada and being the head of fixed income and currency management at Canada’s largest investment manager. That was your dream all along?
You got it!
Wow, this is going to be a quick podcast with answers like that. When did you know that this was the direction you wanted to go in for your career?
Well, it took me a while, which I don’t think is that unusual. As you said, I started my life in Poland. I moved to Canada at 22. And I had an economics degree from Poland, which I wasn’t able to really utilize in Canada if I wanted to stay here. So the natural step was to get a Canadian educational stamp of approval i.e. an MBA at Western University. And that helped me also to narrow down what fields I like in business. So, I looked at the two years of the MBA as a kind of massive buffet of options. And I was slowly eliminating the ones that I didn’t particularly like or I felt that were not playing to my strengths. And in the end, I ended up with finance and capital markets. So, when I started my job search, I was looking in that direction. But even then, I must say, I did not know about asset management as an area to build a career in. All my colleagues wanted to be either management consultants or investment bankers. And so, like most of them, I thought, “Well, that sounds pretty good.” And only when I joined RBC in the financial management training program and I had a chance to look around a bit more, I narrowed down my direction where I wanted to go. I always say, “You can’t say, ‘I want to be exactly this.’ ” Life may not agree with that choice. But I went in a direction, and my direction was towards capital markets, and I realized that really asset management, being an investment manager and thinking longer term, that’s the path I want to go for. And this took a while, but I spent the first two and half years of my RBC career in corporate treasury and then moved into RBC asset management. At that time, we were called RBIM.
RBIM, yes. Yes, many years ago. Well, not too many. A while ago. That’s what we’ve decided on.
We won’t be counting exactly the years.
So, you know my wife, Donna. And her and her family are going to be celebrating in April fifty years since they immigrated to Canada. We’re going to do a whole big celebration. Your decision to immigrate to Canada as opposed to somewhere else in Europe or the United States – what was that experience like for someone coming from Poland and the language? What was the experience like?
Well, please congratulate Donna. I myself celebrated thirty years in Canada last August. Had a big party. I must say that it wasn’t a specific decision to immigrate to Canada. I never woke up and said, “I’m moving” and packed my suitcases and left. It’s very much an opportunistic path. I was in my university in Poland and applied for an internship with an organization called AIESEC, which is the International Association of Students in Economics and Management whose main activity is organizing internships for students around the world. At that time, it was 78 countries. Internships give you the chance to get practical experience. The length was from three months to a year and a half. So, I was really lucky to get matched to a company in Toronto, one of the big accounting firms. And I came for an internship that was meant to last six months. That was 1989. And the internship was extended to the maximum amount it could be extended to, which was a year and a half. Sometime within that year and a half I met somebody who was studying MBA at the Richard Ivey School of Business. That sounded eye-opening, fantastic and almost unbelievably good. And that idea kind of made my mind turn and think, “Well, if they could maybe I could. But what would need to happen?” So, it’s kind of one thing led to another. And as I explored the possibility of doing my MBA, I also applied for landed immigrant status in Canada. And these things followed. Not as easy as I make it sound, but we could be here for a very long time if I went through all the details of this. But it was kind of this purposeful decision to further my education that led me to stay in Canada. And after graduation, while I contemplated going back to Poland, I also felt the opportunity to get practical experience in Canada and in one of the financial institutions here would be incredibly valuable. So, kind of one thing led to another, and here I am thirty years later.
Wow! And I think the only thing that would make that story better—it’s too bad you didn’t meet somebody from the University of Toronto. It’s a better school than Western. But that’s just my opinion.
Can you cut that out please!
We can’t cut that out. Now I know—and it comes through in your response, and with so many people who we have talked to on this podcast—is that passion for learning, continuous learning. How do you describe that to other people who are around you? Because I know when people sit and talk with you, they’re just always fascinated by the breadth of knowledge that you have, all the things you’re thinking about and reading about, and learning about, which is so critical to being effective in your job. What does learning mean to you?
Well, if I wanted to be very, very, very honest, and I wouldn’t be very honest in such a broad forum as we are, right? It’s really about keeping up with the world. And I feel like I always have something else to learn. And I feel that the people I am surrounded with know so much more. I’m just trying to keep up.
It’s hard to keep up with someone like a Dan Chornous, who we have had on the broadcast. What’s it like working with Dan for so many years? And again, that culture that he’s built in the investment management business? Of course, you have been such a big part of building that culture as well.
Well, Dan is actually a good example of somebody who likes to learn all the time. But I think what adds to our desire to learn is that we are a global firm and exposed to people from really different backgrounds, different educational systems. And these people stimulate us to learn more. I think that openness to different financial centres, as you know, part of our team is in London, and I work really closely with Soo Boo Cheah and our team there. Through that, we are exposed to our equity teams where there is always some new idea that gets your mind percolating and thinking, “oh!” Never mind the simple things like, “I just read this book, and have you seen it?” And perhaps it makes you think about something that you haven’t thought about before. But as I said, the environment that we work in makes us want to reciprocate and just keep up.
And so, let’s shift into your responsibilities and what you do every day now. Talk about the breadth of your responsibilities. Again, you touched on our offices in London and all around the world. So, the teams and the scope of what you are responsible for.
So, I am responsible now for the Global Fixed Income and Currencies Team of Global Asset Management, which means really all fixed income professionals except for PH&N and BlueBay. The team is now over forty people strong. We work in Toronto, Minneapolis and London. And we cover a really broad range of fixed income products starting from the simplest money markets and Canadian government debt through our sovereign debt investment grade securities through high-yield emerging markets and, of course, FX. FX is my special love. That team has grown considerably, as you know. Ironically, when I was first hired by RBC, the fixed income team was four people.
And I was the first ever analyst hired in fixed income because at that time, the model was very much fund managers are employed by asset management companies. They consume research provided by the sale side. So, the in-house analyst was a new thing. Ironically also, at that time, I think partially the reason why an analyst was needed was that we worried as a firm that interest rates cannot go any lower. So, ten-year Canada, I think, was about five percent. So, as a result, we better figure out some other ways to add value. And from that came, “okay, we should diversify outside of Canada. We should learn how to manage credit, high-yield emerging markets.” All these capabilities were built pretty much in the following five years. And then we built, of course, the depth of the teams. And even though we were terribly, terribly wrong in our assessment of how low interest rates can go, adding these capabilities only helped us be better and produce better results for the clients. So, while the premise of that decision was wrong, the outcome was very valuable because it gave us this breadth of capabilities, which helped tremendously.
And I know, watching different presentations that you have delivered over the years, that you compare and contrast the difference and how fixed income investment management has evolved since the late 1990s to today. It’s night and day.
Yes. So, when I was starting as an analyst, what I came to and what I was learning from people who were experienced fund managers at the time was that fixed income management is about calling the interest rate direction. And that’s a very limited tool, as we know now. You probably have seen me present this chart from the Wall Street Journal, when they surveyed Wall Street economists about the direction of interest rates on 10-year treasury six months out. And the accuracy on that has been dismal over the years, and actually, very consistently dismal—about one-third right, two-thirds wrong odds. So, that was the dominant tool for a fixed income fund manager at the time. If you’ve looked up the annual report of our flat sheet bond fund from 1997, that fund, which was top-of-the-line and along other fixed income funds at the time, I think the performance was very commendable. The performance was quite good.
Very good performance, yes.
It had twenty bonds! It was over 2 billion in size. It had twenty bonds. And if I remember correctly, I think over fourteen of them were Government of Canada bonds, and the other ones were provincial bonds. If you bother to look at our annual report now, you know that complexity has grown significantly and that we have many, many, many more tools at our disposal. So, we like to say we follow a multi-strategy approach. We deemphasize a reliance on interest rate call because it’s a very low information ratio call. We don’t say that we never will make an interest rate call. We do. But it has to be at times during the cycle when we believe that the odds are in our favour. And we have to have very high conviction levels. At other times, we try to focus on areas where an ability to add value is higher with higher information ratios, and we always try to be able to find some opportunity in the market. I always refer to it as you want to have an airplane with many, many engines: just in case one of them fails, you have others to rely on. But you could also say, if I have more tools than just interest rate call or than just Canadian credit, I don’t feel obliged to squeeze an opportunity out of that area. I can go where the opportunity is. And that has been extremely important to our success, that ability to go and look for opportunities in other areas but also have the resources to look for these opportunities, which came, of course, with the growth of RBC Global Asset Management that we can have these opportunities.
It’s always amazing to me, and I have spent a lot of time right across Canada talking to different advisors and investors as well. And that investors very quickly on the equity side seem to gain an appreciation for the importance of diversification of the portfolio, particularly along geographic lines. In fixed income, it seemed to take investors a lot longer, and yet fixed income markets are broader, deeper, and it’s just as important to have that diversification in your fixed income portfolio.
Absolutely, and this week I was speaking to large investors, who asked the question about why they should invest in global bonds outside of Canadian bonds. To me it’s quite astonishing because these are very smart people. Under normal circumstances, everybody understands the benefits of diversification. You have to almost illustrate it for fixed income that the same rules apply, especially if you invest in global fixed income on a currency-hedged basis. So, as you know, we treat currencies as a separate asset class. We do not take passive currency risk. We very carefully measure active risk-taking in currencies. And that allows us—when we are invested in global portfolios—to not change the characteristics of what people expect of fixed income. So, our global bond fund, for example, even though we do take active currency risks, has a volatility that is fairly similar to fully hedged global bond funds and in line with the volatility of a Canadian bond universe. So, by going outside of Canada, investors are not taking more risks—they are actually exposing themselves to more alpha opportunities, which results in higher sharp ratios. But again, I want to go back to the team. The reason why we are able to do that is because we have been able to build a very broad and deep team, quite unique in the industry. I think that uniqueness really has to be highlighted. Within our team, we have probably the lowest turnover that I have seen in any team ever. There are fifteen people, fourteen people I have worked with longer than fifteen years. And there are twenty people who have worked for longer than ten years. And the people that are under that time limit is simply because they are too young to have worked with us longer. We have made a very conscious decision to build the depth of that team. To build in succession. A good example of that has been when, you know, last December Jane Leslie, our long-term emerging market bond manager retired, and I had actually people calling me from the outside and asking well, “are you looking for an EM bond manager?” “Why would I be looking for one? Oh! You mean you heard about Jane retiring? No, no, no. David Nava is taking over the lead.” The EM bond manager has been with us since 2004. In the first few years, we knew that he has what it takes to be a fund manager, and for the past ten years, he has been working as a fund manager alongside Jane. So, he is well prepared to take on the lead role. Not only that, we had hired Andrew, who is by now a senior analyst in EM and a very capable aid to David. And now, we are ready to add a younger generation, and Earl came along. So, we always try to plan the depth of succession in each area of the team, whether it applies to investment grade or high yield or EM or currencies. We are very lucky this way. I think that the size of the assets and their management allows us to have this foresight and to execute on it.
And I think, as always, you are a little bit too modest in terms of your description of it. It’s very unusual in this industry. This is an industry where people move around. They move from firm to firm. To have that kind of consistency on the team and the commitment to bring people along and to continually learn, which we talked about earlier, so that they are ready to make the next step when somebody does ultimately retire. But it’s building that culture and the ability for people to thrive and grow within the team that’s so critical and the hallmark of the way you have built the team around the world.
I think it is about the trust that our interest is the same. When I say “our,” I mean GAM’s interest and individuals’ interests. We want you to have a successful career and try to find a way to enable you having a successful career. That means coaching from the most senior members of the team but also figuring out where do you feel best? Where can you thrive? And we have moved some members of the team around, and we have found a place where they thrive and can contribute best. And I’m really pleased about that. This team also is very diverse, and it’s not by design. But I was looking recently at the names of the team, and as I counted it, I realized that half of us are Canadians who were born outside of Canada. So, it is very aligned with Toronto statistics where you hear that a lot of people living in Toronto were born outside of Canada. But it’s very unique in this industry. And again, it’s not that we built it by design. It happened like this because always when we are hiring, we are looking for people that bring something else to the table, who are complementary in some ways or know something that I don’t know or we don’t know collectively. And I think that has been extremely beneficial to that global fixed income aspect of it. Yes, we manage a lot of Canadian assets. But as the world has become more global and interconnected, capital markets are more interconnected. You can’t even manage Canadian bonds without that recognition. So, having that team that has cultural and educational diversity, I think, is very valuable.
And that’s been a theme that has been consistent as we have interviewed different people on this podcast: is the value of diversity, the commitment to diversity and the value that it brings in managing money, as you say, in a global economy. And you, I know, are very strongly committed to diversity and the value it brings.
Yeah, not diversity for diversity’s sake, but diversity for the sake of filling in the gaps.
So, let’s finish off on what you referenced already as your passion, currency FX, and if people, if investors tend to discount the importance of diversification in their fixed income portfolio, they probably discount even more the impact that currency has and don’t think enough about currency impact in the way they think about their portfolio. Why do you think people should…? Well, first of all, why do you spend so much time with your team thinking about currency? Why do you think investors need to pay more attention to it?
Well, I think if you ignore it, it’s a source of volatility that will bite you. If you pay attention to it, it’s a source of volatility that can add value. So, we choose to pay attention to it. I started, as I mentioned, as a global fixed income analyst, and it wasn’t long before I realized—at that time we were managing global bond portfolios on an unhedged basis—it wasn’t long that I realized that the vast majority of the volatility of the returns comes from the FX side. Yet as fixed income managers, we want to talk about our interest-rate calls and evaluation of monetary policy and what did central banks say and what were the growth numbers and is inflation going to surprise on the upside or downside? So, then we read some academic studies and we confirmed them ourselves that historically it doesn’t matter what investors you are, whether you are Canadian, British, American, European investor in an unhedged global bond portfolio, seventy percent, eighty percent of returns, the volatility of returns comes from FX. So, it’s effectively an FX dog that wags the fixed income tail which led us to a decision a long time ago in 1999 to switch our portfolios to be managed on a fully currency-hedged basis. That doesn’t mean that we don’t pay attention to currency and that we hedge and forget. As I said, currencies have been my first love in active management. I think they are often kind of dismissed because over the long-term people believe that they wash out and are too frustrating to call and as a result are often kind of left alone. But it has created an opportunity for us. We have chosen to, as I mentioned earlier, we have spent considerable amount of research on currencies, and we believe that when treated seriously and with caution and measured carefully, they have been a really good source of additional value added for us and provide diversification because of negative correlation with credit, especially in the case of the US dollar. So, we spent a considerable amount of time on active currency management as a team and added in a very measured way as another tool to our fixed income portfolio. These are still fixed income portfolios but with a judicious addition of FX.
And it adds tons of value over time, which is ultimately what you want to do for investors. So, I’ll just finish off with one last question that’s a little more personal. You say, “carefully measured.” I know the last time that we spent any time together, we were in London, England. My wife was along, and you were doing a baking course.
And you shared a recipe for pastel de nata. My wife is Portuguese, and she always wanted to bake them. And sure enough, she saw the picture of your results, and then we compared it to our results at home. We didn’t do that well, Dagmara. So, what are you currently mastering on the side?
I was under the supervision of a baker when I took that picture. So, it’s a bit of cheating, and I haven’t baked them since. But that was almost two years ago. No, a year ago. Well, I’ll disappoint you. I am not baking.
I’m not even cooking anymore. That’s a part of, you know, we haven’t really talked today about it, but you have to make choices in your life. And when, say, twenty years ago, I would say I spent time in the kitchen, and I was quite a good cook. These choices led me to pretty much abandon the kitchen other than during vacation as it happened to be in Portugal taking a course on how to make pastel de nata. And yeah, so none since unfortunately.
Well, maybe we’ll see what we stumble across the next time we’re in London because there’s always interesting things to eat there. But Dagmara, thank you again so much for your time today. It was just a real pleasure having the chance to sit down and talk with you today.
Well, thank you.