That book, subtitled “New Rules of Engagement for a Complex World,” describes a decision-making process among geographically and functionally distributed teams, which seeks to keep the process separate but ultimately coherent.

“You have to have teams work together to react to, in McChrystal’s case, a hostile enemy environment or situation,” said Walsh. “He took an otherwise stagnant military hierarchy structure and broke it down to create levels of autonomy and leadership that were collaboratively able to meet the demands of the battlefield along a timeline set by a nimble adversary. That’s a good way to describe what we do – we’re actually quite agile. We’re actively engaged in real time and we are in constant fluidity.”

Every two weeks Guggenheim has a strategy review meeting—a formal meeting encompassing all of its teams that often has hundreds of participants chiming  in from dozens off different locations. These large, formal meetings are intended to free information and opinions from “silos” that can limit decision-makers’ access to data.

Smaller, more focused – and more team oriented—meetings fill the interim. While it may seem like a “star system” led by a single portfolio manager might be more efficient, Walsh says that one manager is likely more prone to behavioral biases, and may miss or overreact to information in the market.

“System-one thinking leads to more trading, and in our world, trading should be an outcome, not a function,” she said. “You may have a team of people who trades for you and believe that their trading is adding a lot of value to what you do. In our world, the act of buying and selling a security is an outcome of our research and selection process. The way we look at it, trading is not a value-add activity. Investors tend to trade too much. The outcome of many investment processes is just more trading, not necessarily better performance. Dr. Kahneman famously said that we’d all have better investment outcomes if we just made fewer decisions.”

Despite her success as a portfolio manager, as 2020 begins to wind down, Walsh acknowledges that it has been a difficult year to run a bond fund. “We came into the year with our macroeconomic outlook being one of caution, expecting risk, not knowing the catalyst, and then, as that developed and we saw all the volatility in late March and into April, we were able to have our sector teams engage very rapidly to source great securities that had gotten unnecessarily cheap,” she said. “We were able to buy those very quickly.”

As the market turned, GIBIX moved out of Treasurys and agency securities and into “cheap” investment grade and high yield corporate bonds, said Walsh.

Walsh also warns that monetary easing combined with fiscal stimulus has created a dangerous scenario for investors.

“I think we made a bad situation worse,” she said. “We’ve issued $2 trillion of new corporate debt year to date, with $1.5 trillion of that issued in the U.S. alone. Year-to-date, approximately $310 billion in securities have been downgraded to non-investment grade ratings, so-called fallen angels. S&P put out a piece estimating that another $330 billion will be downgraded before year end. We know that the default rate is now 7%. Our expectation is that the default rate will go to the low double-digits.”

The influx of stimulus and cheap debt  has led to a growing number of “zombie companies” that wouldn’t otherwise be able to remain in business, said Walsh.

“Whether it’s Neiman Marcus, Hertz or various energy companies, retailers, etc., a wide-ranging set of issuers is only just now filing for bankruptcy, and there’s more to come as a wider set of issuers are downgraded,” she said. “That will lead to even more zombie companies, and even with all of this money in the system, some of them won’t work it out, they’ve deteriorated beyond their ability to borrow cheaply.”

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