Posted inFSA Spy

The FSA Spy market buzz – 16 June 2017

Nexus expands; Fundsupermart adds funds; Seeking yield; ETFs gather assets again; Franklin Templeton watching busses; Artificial intelligence; Getting a HK job and much more.

Spy, like everyone else in Hong Kong this week, was affected by the signal eight cyclone. Disrupted journeys to work and difficult-to-get-hold of contacts seemed an ominous coincidence as the Federal Reserve raised interest rates in the US and signaled more to come. Threats of a Fed balance sheet reduction and swooning tech shares has Spy wondering if the Goldilocks calm in markets may be coming to an end? The dramatically inclined, musically minded among Spy’s readers may want to put on Creedence Clearwater Revival’s classic “Bad Moon Rising” and settle down with a stiff glass of 18-year old Yamazaki whiskey. This could get messy.

News reaches Spy that Nexus, the Dubai-headquartered advisory business that bought Zurich’s Singapore tied agency wealth company, is branching out from its very locally-focused roots. Spy understands that Nexus is building an “expat-focused” wealth advisory business headed by Derek Young who joined earlier in the year. Derek was formally with IPAC in Hong Kong and has relocated to Singapore. Gary Harvey, Nexus’s Singapore CEO, is also an IPAC alumnus.

One of Spy’s regular bugbears is that the cost of fund distribution remains too high in Asia. Most distributors charge up-front fees, which seems absurd. Spy has therefore been keeping an eye on Fundsupermart, the B2C entity of iFast. In December last year, Fundsupermart’s Singapore business launched its FSMOne service, which has zero percent up-front fees for all funds and promises to keep it that way. The platform does, of course, have ongoing platform fees. The service now claims to have more than 1,000 funds available, 65,000 customers and more than S$4b in AUM. Sadly for Spy, FSMOne has not come to the Fragrant Harbour yet, and the local Hong Kong Fundsupermart continues to charge up-front fees. Spy did notice that in Hong Kong, Fundsupermart has just added two new funds to its platform: BlackRock’s Asia Pacific Equity Income and Jupiter’s European Growth. The Jupiter’s fund seems to have had a very positive launch for the firm as it is listed as the strongest volume producer in the last month.

If you were searching for a high-yielding bond fund you are probably going to look at emerging markets, right? That would be Spy’s instinct too. You could indeed grab some decent yield by buying Pimco’s Emerging Asia Bond Fund and get a healthy 6.19% yield or buy Invesco’s RMB High Income Fund and get 7.3%. But what’s this? The top performer Spy could find is in fact the distinctly non-EM, very much developed market, US High Yield Fund by Allianz, which is currently returning a rather stellar annualised 8.4%. The US continues to provide a range of surprises.

Active managers look away now. Lipper reports that, once again, ETFs are getting the lion’s share of new fund flows. Reuters, citing Lipper, said yesterday that “Stock ETFs listed in the United States attracted $17.7bn during the week ended June 14, according to the research service, while their mutual fund counterparts recorded $6.8bn of outflows in their largest week of withdrawals since April.” Not exactly the kind of news the active industry wants to hear, reckons Spy.

Spy is always looking for the pithy quote and spotted this maxim this week. “Nobody gets hit by a bus who sees it coming.” Spy is not sure who wrote the original line, but it was repeated by Franklin Templeton’s Matthew Williams. He was no doubt referring to investors who should be warned about rising interest rates and their potential impact. Notwithstanding the line above, Spy remains unconvinced that Asia is very well-positioned for rising rates, despite repeated warnings, and foresees plenty of pain ahead, especially in property and EM credit markets, should rates get lively.

Another line from a rather legendary global business leader, Jeffrey Immelt, the CEO of General Electric, felt particularly apt this week. “Every job looks easy when you’re not the one doing it.” Spy would bet that all too many investors need an occasional reminder of this when assessing their portfolio manager during periods of weaker performance. 

If you are wondering whether your job as a portfolio manager, sales person or any other part of the asset management industry will be replaced by Artificial Intelligence (AI), Spy read some down-to-earth sense from Schroders this week. In a blog post worth reading in full, Kevin Murphy, a value equity portfolio manager, highlights how dumb some of the so called AI really is. Training neural networks to intelligently do such simple things as name colours of paint or come up with a good chat up line have proven spectacularly unsuccessful so far. As Kevin writes, “when you read the breathless reports of every AI success, it is worth remembering all the failures from which these will have been plucked. The robot apocalypse may well be coming. But not today.”

Spy is the perennial optimist when it comes to the long term wealth management industry. Why? Very simply people are not saving enough. Not for their long-term health care needs, not for their living ambitions and least of all for their retirement. The World Economic Forum claims in a study that “The world’s six largest pension systems will have a joint shortfall of $224trn by 2050, imperiling the incomes of future generations and setting the industrialised world up for the biggest pension crisis in history.” This chart below shows the savings gap is growing and the WEF believes the global shortfall will soon be greater than global GDP. Spy predicts increased government invention forcing people to save more and that can only be good for asset managers in the long term.



Bloomberg has a great article on the shift in hiring practices in finance in Hong Kong in the last decade. According to John Mullally, an executive recruiter with Robert Walters, “as recently as 2010, expatriates from Britain and the rest of Europe, plus those from the US and Australia, landed 40% of his finance job placements. Today, that figure is 15%.” The gist of the article is clear – if you don’t have local language skills and tip-top qualifications, forget about applying for a front line role in HK. The days of wandering in with a mediocre CV and landing a plum position are well and truly over. Spy says, “停止抱怨和學習普通話.”

Until next week…

Part of the Mark Allen Group.