Why Schwab's Kathy Jones Finds Fixed Income Fascinating

Kathy A. Jones, senior vice president of fixed income strategy at Charles Schwab, began her financial services career when the industry wasn’t exactly rolling out the welcome mat for women. This was back in the 1980s. Jones’ way of bucking the system? “I chose to do my best to fight my way through but not take on fights I knew I couldn’t win,” she tells ThinkAdvisor in an interview.

Some may peg the fixed income arena as dull. Not Jones. She calls it “fascinating.” Indeed, she’s energized education for investors and FAs about bonds. They’re “a kind of mystery to a lot of people,” she says.

In the interview, the Chicago native, 64, offers her 2021 forecast for bonds and outlines a strategy for the best way to invest in them against a backdrop of the coronavirus pandemic, economic recession and a host of international gyrations.

She joined Schwab in 2011 in New York City as chief fixed income strategist. Heading a team of eight, her responsibilities include credit market and interest rate analysis; and for the Schwab Center for Financial Research, she runs the fixed income and currency strategy group.

For most of her career, she worked at Prudential Securities, where she rose to executive vice president of the debt capital markets division. Her path also embraced executive managerial posts at Morgan Stanley Smith Barney and a stint at PaineWebber. During much of this time, she was also raising a daughter and son.

Jones grew up the youngest of seven kids, the bookworm in a working-class family living in Evanston, adjacent to Chicago. She had no grand plan to work in finance while studying at Northwestern University, from which she received a B.A. in English literature. But once in the industry, she picked up an M.B.A in finance from the University’s Kellogg Graduate School of Management.

ThinkAdvisor recently interviewed Jones, who was speaking by phone from New York City. The fixed income investment strategist with a lighthearted sense of humor is nonetheless serious when, talking about her job, she says: “This is what I like to do. This is where I want to be.”

Here are highlights from our conversation:

THINKADVISOR: What prompted you to work in financial services?

KATHY JONES: I was looking for a job and my older brother said, “You’re probably not good for too much, but I have a friend who’ll hire anybody. So why don’t you give Wayne a call?” Wayne was working at the Chicago Board of Trade — and I got a job.

Doing what?

I was a runner on the trading floor. You’d take a paper ticket and run it into the trading pit and hand it to the broker, then run back out. You’d keep going back and forth. I immediately thought it was the most interesting place I’d ever been. And the cast of characters was phenomenal. You can’t make up some of the stuff I saw.

Did you advance from being a runner?

There weren’t a lot of places to go unless you had a lot of money to leverage into owning your own seat to trade. But I had taken a class in the futures markets, and the professor gave me a good recommendation to Smith Barney, who was looking for a research assistant. I got the job.

You’re Schwab’s senior vice president for fixed income strategy. Most people would say stocks are exciting, bonds not so much. What’s exciting about fixed income?

It’s a fascinating area because it’s more directly tied into the macro economy trends rather than the specific trends that stocks tend to follow. I also like the math part because with a bond, you can come to a reasonable conclusion about what your rate of return will be, whereas with stocks, it’s kind of guesswork.

What else do you like about working in the bond area?

I’ve always loved the teaching end. The fixed income world isn’t well understood by everyday investors or even some advisors. I saw an opportunity to be the person who could interpret what was going on and help people understand fixed income — how it fits into a portfolio, why you use it. That’s a kind of mystery to a lot of people. They understand stocks really well, but not bonds.

You’ve worked in the male-dominated financial services industry for a number of years now. Have you encountered obstacles or bias because you’re a woman?

I certainly had my share of experiences that were unique to being one of the few women in the industry at that time. But I don’t dwell on the hurdles. My attitude has always been: Get past it and keep moving.

Did you have any mentors?

Not in the formal sense. But early in my career, I benefited greatly from wonderful bosses who were really helpful and never held me back because I was a woman. They focused on my capabilities and competencies. Some other people were not so great [to me].

In what way?

[My] getting passed over even for consideration for some jobs because it was thought a woman couldn’t be tough enough or manage it. And I had children. So they thought, would I really be up for the travel? Once, I went on an interview at a big firm and the guy required me to do math on a whiteboard because he didn’t believe I could do it. I’d had 15 years’ experience in the business by then and was doing the same job I was interviewing for!

Were there any other issues because you’re female?

When I was young and new at a firm, a manager humiliated me [with a disparaging comment] in front of my co-workers and my boss. I knew that as long as he was in charge, it would be difficult for me to advance in my career. It’s hard for younger women today to understand that at the time, there was no complaint I could have filed — you just put your head down and kept going.

There really was little alternative but to simply ignore things like that, right?

At the Chicago Board of Trade, there were birthday parties in the office with strippers. So you closed the door. It was a different world in the ‘80s. I chose to do my best to fight my way through but not take on fights I knew I couldn’t win.

You proved the old saying, “talent will out,” didn’t you?

The one saving grace is that people really care about money first. So if you can help them make money, they’ll overlook a lot of things: “If she’s capable of helping me make money, I think I can deal with her being a woman.” At that point, you could be green with horns.

Inclusion is a big issue now, especially the argument that more women should be in senior leadership positions and setting policy. Your thoughts?

A lot of firms are missing out on top talent by not including more women and other minorities in upper-tier management. Progress is being made, but it’s kind of slow at the top end at [large firms].

What can the industry do to promote financial services to women to interest them more in entering the business?

You have to change the face of it. The RIA channel has changed a lot: There are more women in advisor roles now than there were years ago; there’s been a huge amount of progress there — but not in the big corporate structures. I’m disappointed that there aren’t more women, especially in fixed income.

What advice have you for other women who are working in financial services right now?

If you’re good at what you do, but don’t have a boss who you think is on your side or supporting you, move on and find someone who will. That would be true for men, too; but [it applies] particularly if you think it’s because you’re a woman. Take your talent and move on.

Turning now to bonds, what’s your forecast for 2021?

It looks like yields are going to move higher next year. If the COVID-19 vaccines start to roll out by midyear, that helps the economy recover; and bond yields moving up a bit reflects that stronger growth.

But some people in the industry are very bearish on bonds. What’s driving that?

We’re looking at yields to go up, which means prices will fall, particularly on long-term bonds. But that’s a good thing. If you’re sitting with very low yields, most clients and advisors want those yields to move up so they can capture income. You don’t invest in bonds for the price appreciation. You invest in bonds for the income.

What’s the right bond strategy?

Keep the average maturity, or the durations, low for now, then roll into more bonds as yields move up. I’m always annoyed when I hear someone say, “Interest rates are going to be terrible” — and they cite a 30-year bond. If you think rates are going up a lot, don’t buy a bunch of 30-year bonds! But I think they’re just exaggerating for effect.

Any other advice to advisors on what they should be telling clients about bonds now?

We’re not saying that bond yields will go sky-high, but we do think that if they start to move up, you should have a strategy to move to longer-term bonds so you can lock in some of the income. It really makes more sense than ever to be diversified because we have such a wide range of potential outcomes [due to] the pandemic, a new administration and so many issues in the rest of the world. Perhaps [even] more than in the last couple of years, it makes so much sense to have exposure to [a number of] different types of bonds.

Which ones?

Corporate, government, international, emerging markets — you name it. These sub-asset classes have room to improve. But we’ll see a lot of volatility. So having your portfolio widely diversified among all of them makes all the sense in the world.

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