HK retail advisor app tests fund distribution waters

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Yunfeng Financial Group’s newly-launched Youyu Robo-advisor enables mutual fund investment on a mobile app, and the firm says a lineup of global asset managers are on board.

HK retail advisor app tests fund distribution waters

Hong Kong-listed Yunfeng is backed by Alibaba’s chairman Jack Ma.

The firm’s Youyu app, currently available for iPhones only, advises on a portfolio of mutual funds in six major asset classes, based on a selection of 145 products. The asset classes are: equities, bonds, REITs, commodities, allocation funds and money market funds.

“Youyu” means “have fish” or “surplus” in Chinese. It also rhymes with “with abundance”.

The firm aims to attract retail investors who want convenient fund investment services on a smartphone rather than face-to-face consultations from banks, said CEO Ting Li at a briefing last week. “Our client base would be someone who wants convenient service even when they are waiting for the subway,” she noted.

“Direct selling of fund products requires a substantial budget, and to enable pay-back, scale needs to be achieved quickly. Maybe a Jack Ma label will help"

Compared to advisories at retail banks, she said, Youyu has cheaper subscription and redemption fees, free asset allocation suggestions, and a lower investment threshold.

The app recommends a portfolio of two to three funds for each asset class, said Hua Cai, head of investment.

Each fund has a minimum investment between $120 and $800. The entry point for a portfolio has been set at $4,000.

“Clients will be notified about our recommendations and they have the ultimate discretion to decide if they want to implement them in their own portfolio,” the firm said.

Robo-human hybrid

Although Youyu calls itself a robo-advisor, its fund selection and asset allocation process involves human intervention.

The fund selection team consists of six people with Cai responsible for the overall portfolio allocation.

Each fund is scored on five factors: short-term performance, long-term performance, fund manager ability, capital flows and third-party ratings. The funds are also screened by the fund selection team.

The model portfolio construction process involves three layers: long-term strategic asset allocation, tactical asset allocation and manager selection.

Since ETFs and stocks are easily accessible by investors through other means, the app offers only access to mutual funds, where the added value of simplification is greatest, added Byron Wong, head of robo-advisory.

The total number of funds will soon be expanded to 343 as Yunfeng has signed partnerships with more fund houses, the firm said.

They include Amundi, Axa IM, Barings, Income Partners, Invesco, Manulife, Neuberger Berman, Pimco, Pinebridge, Principal, Robeco, and T Rowe Price. Yunfeng expects to sign distribution agreements with another 12 fund management firms this year, Cai noted.

Bank competitors?

Stewart Aldcroft, Asia-Pacific senior adviser for markets and securities services at Citibank, said robo-advisors might find it hard to crack the Hong Kong mutual fund market, as mutual funds are not popular. He estimates they account for only about 5% of total investment product holdings in the SAR.

“There have been a number of robo-advisory products set up in Hong Kong in the last year, but so far none appear to have captured the public’s imagination and raised lots of money,” he said.

Youyu’s direct sales model competes with banks’ own mutual fund platforms, which usually offer fee discounts. Banks dominated about 78% of fund distribution in the SAR, while independent financial advisers, brokers and agents only made up 3% of total, according to PwC data as of December 2013, the latest figures available.

“Direct selling of fund products requires a substantial budget, and to enable pay-back, scale needs to be achieved quickly,” said Aldcroft. “Maybe a Jack Ma label will help.”

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