March 2022 / INVESTMENT INSIGHTS
Meet Matthew Lawton
Portfolio Manager, Global Impact Credit Strategy
With more than a decade of experience analyzing investment‑grade bond credit quality and managing fixed income portfolios coupled with a passion for addressing climate change, Matt Lawton sees managing the Global Impact Credit Strategy as a way to combine the professional and personal. Matt uses the strategy’s flexibility to go beyond “green” bonds to research debt from a range of issuers that can help address environmental and social problems. The strategy’s dual objectives are environmental and social impact and investment return.
Tell us about your background and what informed your decision to pursue a career in asset management.
After finishing my bachelor’s degree, I knew that I wanted to work in finance but wasn’t sure which segment of the industry I would enjoy the most. I spent four years in investment banking in New York City before deciding that it wasn’t for me and applying to business school.
During my time pursuing an M.B.A. at Georgetown University, I completed a summer internship with T. Rowe Price in fixed income research. As an intern, I worked on the emerging market credit team, focusing on Latin American utilities. I was fortunate enough to travel to Brazil to meet several management teams, regulators, and development bank officials, which was an exceptional opportunity for an intern. That summer experience applying my analytical skills to examine issuer credit quality sold me on the asset management business in general and on T. Rowe Price in particular.
How did you determine your area of specialization, and what makes your experience well suited to pursue the core objectives of the strategy?
Climate change issues are near and dear to me, so managing the Global Impact Credit Strategy is an ideal way to combine a professional pursuit with my personal interests. I see this as a sort of parallel with the strategy’s dual core objectives of environmental and social impact as well as financial return.
I was a corporate credit analyst for six years, which provided a foundational understanding in analyzing issuer credit quality and value relative to that quality. I then transitioned into a sector portfolio manager role, which built upon that fundamental foundation with added perspectives on macroeconomics, cross‑sector relative value, and risk management. The key to success in both roles was effective collaboration—with other credit analysts, portfolio managers, and equity analysts. Deep collaboration is a necessary component of being a successful debt investor; collaboration in general is an important part of the culture at T. Rowe Price. As the Global Impact Credit Strategy portfolio manager, I’ve been fortunate to further broaden my network to include responsible investing analysts and impact portfolio managers across asset classes.
Discuss your approach and how you aim to generate value on behalf of clients. Explain how you’ll tap in to T. Rowe Price’s research platform and other resources to pursue results.
In‑depth fundamental research is a cornerstone of T. Rowe Price’s investment process across all asset classes, and it is particularly important in an impact strategy. Credit research is one of the four pillars that anchor our management of the strategy. An issuer that could experience a precipitous decline in credit quality would compromise our ability to advance either of the strategy’s core objectives.
Materiality and measurability of positive impact is another pillar. We strive to quantify social and environmental impact outcomes and to account for positive future change. This is achieved through in‑depth impact research.
We also believe that sustainability matters—what we mean by this is that companies driving positive environmental or social impact have an advantage from the perspectives of capital markets, competitive position, and, ultimately, economic returns. This pillar pulls together the perspectives brought forth by both the fundamental and impact research teams.
The fourth pillar is additionality, where we can apply T. Rowe Price’s scale and resources to help advance and promote an issuer’s impact. One of the ways that we can do this is through direct engagement with management teams.
How does this strategy compare and contrast with others in market?
With significant media attention on “greenwashing,” or environmental, social, and governance (ESG) investing strategies that are green in name only, investors naturally have questions about the substance of a strategy’s investment process. In our view, most other ESG strategies—particularly in fixed income—take a lighter‑touch approach, relying on exclusions or third‑party ESG ratings. In the Global Impact Credit Strategy, every company in our portfolio is subject to rigorous and inclusionary screening as well as a comprehensive analysis of the environmental or social impact it is delivering. We believe this positively differentiates our approach relative to other products in the marketplace.
Unlike green bond strategies, which only invest in bonds that the issuer labels as “green,” we flexibly look to a broader opportunity set spanning the credit universe, identifying issuers that are delivering material and measurable positive environmental or social impact—whether or not the bonds are “green.”
Describe how the portfolio is positioned as well as your outlook.
Our strategy’s current positioning focuses on three themes. First, we see opportunities in the health care sector; broadly noncyclical and defensive, the sector is compelling from an investment point of view as we enter an uncertain macroeconomic regime. Moreover, we are attracted to companies helping in the fight against COVID‑19 with therapeutics, vaccines, and diagnostics, not only from a standpoint of investment value but also from a social impact perspective. We also favor select health insurance companies, specifically those providing Medicare Advantage plans because of their positive societal impact for an aging population.
Second, we favor select emerging market banks that are driving financial inclusion and enabling social equity. Many emerging market countries have large underbanked or unbanked populations; in order to help relieve this societal pressure point, we are investing in banks that are mobilizing capital to these populations and driving positive impact through credit access, job creation, and economic growth. Specifically, we have identified select Asian banks possessing defensive fundamental attributes, which is appealing from both a potential investment return and an impact perspective.
Third, we are finding value in bonds issued by utilities that we believe will be winners in the secular shift toward renewable energy. In our view, not only are these companies delivering material positive environmental impact in driving the transition to a low‑carbon economy, but also their credit fundamental characteristics should continue to improve as the earnings profile becomes increasingly resilient.
Our outlook for credit in general is somewhat cautious. We are in the early phases of global central banks reducing massive levels of accommodation, and the level of fiscal support is much lower than in 2020 and 2021. Both of these factors could put pressure on many credit segments. Accordingly, we are remaining focused on investing in companies that have sustainable competitive advantages and durable balance sheets.
Share with us your personal interests and how they might (or might not) intersect with your professional work.
I strongly believe in the importance of having balance outside of your job to succeed and to have rewarding experiences both at and outside of work. I have a seven‑year‑old daughter with a range of interests, and I find grounding in supporting her pursuit of those interests. I also seek balance through exercise, which I find rewarding for the mental health benefits as much as the physical.
I also enjoy traveling and am looking forward to the ability to travel more as COVID-19 hopefully transitions from pandemic to endemic. Traveling is a great way to build a global mindset and sense of perspective, so in that sense, it provides benefits from both a personal and professional point of view.
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.