UOB Private Bank’s fund selection process works from a broader list of funds to single out only a few products for a positive rating and recommendation to clients.
Without giving an exact figure of how many funds are on its platform, Wong Meng Keet, Singapore-based head of managed product solutions, said that the bank has a rating system that runs from A-D, with A being the highest.
“A grade of C would be your average typical manager,” he told FSA in a recent interview.
“Around 80-85% of the managers fall into this category. There is nothing to distinguish them [from others] or they are unable to outperform other funds.”
The bank’s rating system is consistent with S&P’s Spiva report, which shows that a majority of funds globally have underperformed relevant benchmarks over one-, three- and five-year horizons.
Wong noted that there is no “forced curve” within its internal rating system, which means there are certain fund categories that have no A-rated funds.
One example is in the commodities space, in which a very few managers have shown evidence that they are able to outperform the relevant benchmarks over meaningful time periods, he said.
ETFs
Given that a number of active managers are finding it difficult to outperform their benchmarks, Wong said that the bank makes use of ETFs to cover certain areas of the market.
The US market, for example, continues to reach record highs after a decade-long bull run, making it difficult to beat through active management.
“There are certain markets in which it is very hard for asset managers to beat the index, so you might just be better off holding the index.
“So it is a combination of an alpha and beta strategy.”
Other wealth managers, such as Pictet Wealth Management, also believe that ETFs are an important element in building a portfolio.
Richard Mak, Pictet WM’s Hong Kong-based head of advisory for Asia, explained that ETFs are mostly used for tactical allocations. Like Wong, he said that these products are used when active fund managers have difficulty outperforming their benchmarks.
On the other hand, DBS Private Bank has far less interest in ETFs.
“In a way, ETFs are akin to benchmarks,” Pierre DeGagné, DBS PB’s Singapore-based head of fund selection, said previously.
“We need to be outperforming benchmarks, so our focus is on identifying funds that can add value over benchmarks.”
UOB’s criteria
A lot of UOB PB’s focus is evaluating a fund’s management team. The assessment includes how long they have been working together, how experienced they are and the relevance of their experience, according to Wong.
“For example, a manager who has spent 20 years in the financial industry, most of which were spent analysing small cap companies in Japan, may not be highly relevant to a strategy that focuses on trading fixed income in a different market.”
The bank also looks at the firm’s compensation structure to see if there is an alignment of interests. For example, it prefers that any bonus is deferred over a multi-year period so the team is aligned to take a longer-term view of their strategy, rather than just compensating them every year.
On the investment process front, Wong looks at how the universe is defined and if the fund manager has been consistent with his process and performance.
“If I look at the underlying portfolio, I want to make sure that the portfolio is aligned to an investment style. If a manager is self-described to be a long-term value investor but is actively trading a few tech names, I am not sure I would agree.
“We watch out for investment style drifts. Consistency is important,” Wong said, adding that the bank also pays close attention to how a manager makes decisions in different market environments.
Wong noted that the bank needs to have multiple conversations with a fund manager.
“After having many meetings, the marketing speak has been stripped away, and it would be easier to get into the core of the investment process.”
