Posted inFSA Spy

The FSA Spy market buzz – 24 February 2017

Legg Mason hires; Change at Navigator; UBS is doing well; Discretionary thoughts from ICBC and BEA; Vontobel researches; Fidelity vs Blackrock; Contrarians at Schroders and much more.


“If you want to know whether confidence is returning, speak to the bartenders about what people are drinking not whether they are drinking” said the bartender sagely at one of Spy’s favourite watering holes in SoHo this week. “Full bars don’t tell you anything – people can always find money to buy beer, but when you start to see the 18-year old single malts and vintage champagne orders coming through, that is when you know that people are feeling confident.” Spy asked the natural follow on question, sipping his modest glass of Chateau new world plonk, and got the following reply: “Well, I sold three bottles of magnum Verve and 5 bottles of Johnnie Blue last night”. Sounds like things are looking up, thinks Spy.

News reaches Spy that Legg Mason has added to its Hong Kong sales team a few weeks back. Ronald Liu, formally of Fidelity, has joined Freeman Tsang’s team to focus on private bank sales. Ronald spent nearly five years at Fidelity and before that had roles at Standard Chartered Bank and Axa. No word yet from Fidelity if a replacement has been found.

A change is coming at Aviva’s Navigator in Singapore. Vinita Badlani, who is currently head of fund selection for the IFA-focussed platform, is stepping down from her role, hears Spy. She is understood to be staying within the industry and is likely to surface again. Vinita’s role is being taken over by Marisca Wong, who has been part of the investments and business development team.

Spy overhead conversations this week between fund representatives from UBS about how their year has started. 2017 appears to be going well for UBS and indeed almost every other wealth manager on the street, notes Spy. Clients are clearly executing trades and volumes are picking up nicely. And, yet, one clear drag is occurring: persuading clients to lower their fixed income allocations in favour of equities is proving notoriously difficult. Clients have refused to believe the UBS CIO’s allocation shift to greater equity exposure mid-2016 and have continued to buy high-yield in record amounts. Therefore, any equity rally gains have been missed by most participants. A lack of real belief and conviction persists; the dramatic 2015 equity scare in China is given as reason for the reticence. Or perhaps they know something we don’t?

Who wants to build a discretionary wealth management service in Asia? Well, it’s unlikely that Bank of East Asia or ICBC will, that’s for sure. Conversations overheard this week with both banks suggest the regulatory issues surrounding discretionary mandates are just too onerous and the cost of building a full team simply too high. BEA admitted to having tried in the past but given up on the enterprise. “It is hard enough getting clients to take advice, let alone give us a mandate”, quipped one advisory head.

The fretting and frothing continues to gather pace over whether the secular bond bull market we have been experiencing for 36 years is over. Vontobel Asset Management, in typical Swiss fashion, has gone back a solid 800 years to analyse previous bond bull markets. The analysis reveals that the current bond bull market is not the longest in history: it has been exceeded twice. Bonds ran bullishly between 1558 and 1654, a period of 97 years, and, between 1441 and 1482, for 42 years. The chart below shows the lengths of bull markets with the average annual basis points decline over the period.



Is it too early call the end of the bull? Much ink and beer will be spilled over this question before we have a definitive answer, muses Spy.

And…debate rages about the Fed’s move in rates. To see why this is getting people excited look at this 60-year history of Fed moves. The “low rates forever” camp may be sorely disappointed:


Have you ever had the feeling that you are being left out of the party? Spy thinks that Wisdom Tree, the ETF provider, must be a Trump supporter, or perhaps the product manager had a bad night on the tequila and is seeking some passive / aggressive revenge toward America’s southern neighbour. The asset manager has just launched The WisdomTree Global ex-Mexico Equity Fund. Yes, you read that correctly. This ETF invests in every developed and emerging market except Mexico. A bit like inviting every kid in the school class to a birthday party except Carlos — he needs to stay at home and play all by himself. Tough school!

While it is common industry knowledge that Blackrock is the world largest money manager (if we can use that term for passive assets), Fidelity seems to be giving Mr Fink and his band of brainboxes a run for their money in the AUM gathering stakes, and, indeed, in profitability too. Blackrock’s full year results for 2016, reported in January, gave a total AUM figure of $5.147tn and a net profit of $3.214bn. Meanwhile, Fidelity has just reported $5.7tn in total AUM across all its range of services and a Blackrock-beating profit of $3.5bn. Both businesses shared one thing in common, though: 2016 was a year of bleeding active assets while passive and other AUM sources, such as custody, grew.

A dozen high-end restauranteurs in Central may be in mourning when they discover that a large asset manager and very large legal firm are moving to Quarry Bay in the next seven-to-eight months. If Spy’s source is correct, and he is pretty sure it is, American asset manager AB (Alliance Bernstein) is relocating as is Freshfields the legal firm. It seems that Central’s eye-watering rents are too rich even for the bluest of blue chip firms. Will others follow suit? The same source told Spy that he has a few more financial services firms actively looking East. Will Quarry Bay become Hong Kong’s Canary Wharf?

Spy’s quote of the week comes from Nick Kirrage, of Schroders, writing on his Value Investor blog. “Some of the greatest investment gains have come from using bad headlines to buy good businesses at their darkest moments.” So very true. However, as easy as that sounds in theory Spy knows, only too well, that is damn hard in practice.

Until next week…





Part of the Mark Allen Group.