There has been a tentative shift into risk assets this year compared with 2023, when many investors were content to earn 5% from cash accounts. Wealth management clients are increasingly turning to stocks and bonds as future lower interest rates focus minds on reinvestment risk, according to Karen Tan, head of managed solutions, Asia, Pictet Wealth Management (WM).
Yet, continued wariness about the US Federal Reserve’s intentions and the prospects for the global economy amid geopolitical strife mean other investors are cautious about returning to markets that have a recent history of volatility.
That may be a mistake, Tan warned.
“Don’t try to time the markets; instead make regular investments such as dollar-cost averaging — that is, investing a fixed dollar amount on a regular basis, regardless of the share price — to avoid missing a sustained upturn,” she told FSA in an exclusive interview.
“It’s a disciplined habit, reduces costs and can give you peace of mind,” said Tan, who moved to Pictet WM in 2020 from UBS, where she was a director and investment specialist for three years, after spending six years with Julius Baer.
Funds dominate a substantial part of the Pictet WM’s advisory, discretionary and mandated business, which has access to 240 active funds and 440 ETFs within an open architecture.
“Sometimes external portfolio managers set up a new strategy specifically to suit our clients’ requirements, such as, recently, a global investment grade ESG fund,” said Tan (pictured).
Due diligence and recommendations based on quantitative screening and qualitative analysis is conducted in Geneva to create a “conviction” list at the start of each year. Pictet Asset Management funds comprise 30-40% of the approved list.
“Indeed, Pictet Asset Management has several highly rated multi-billion dollar thematic funds covering a range of themes including AI, robotics, and cyber security sectors,” said Tan.
Screening for the conviction list begins with Morningstar data to produce a shortlist of funds, which are then subject to analysis of performance metrics, managers and their research abilities, and investment processes.
Underperforming funds or those that have experienced material changes in management are put under review for up to six months, and if their failings persist, they are removed from the list.
“The process at Pictet WM is rigorous and incorporates inputs and oversights from several of the firm’s investment business,” said Tan.
There is an investment review forum every week, in which Tan participates with strategists and managers to consider product risk and refine strategies. The discretionary portfolio management team select funds as building blocks for clients’ allocations, the advisory team tailor those recommendations for individual client needs, and Tan herself makes specific fund and product selections.
“It is a very active and dynamic process,” said Tan, who has a banking degree from Nanyang Technological University, Singapore, and speaks five languages.
High value strategies
Turning to the macroeconomic outlook and preferred strategies, Tan noted that interest rate cut expectations have declined, both to their extent and their timing. Nevertheless, Pictet WM believes the Federal Reserve will make two cuts by the end of the year, likely in July and September.
“A soft-landing for the US and global economy is most likely, and with Jay Powell as a good communicator, there is lower risk of a mistake by the Fed,” said Tan.
“In this environment we prefer investment grade bonds to high yield credit because of the historically tight spread difference,” she said.
Tan finds that unconstrained bond strategies and absolute return funds are the best options for fixed income exposure.
“They can invest in the full range of fixed income products, such as securitised debt, global bonds and can take foreign exchange positions. A couple of the unconstrained bond strategies we have on our shelf focus on generating income, which appeals to Asian clients.”
Fixed maturity products have also been popular, and typically they give our clients greater exposure to a variety of non-Asia issuers. On the other hand, although Asia investment grade bonds have outperformed their regional peers, they still appeal to clients who retain a home bias.
“Income in general is in great demand, but there is a generational distinction, with younger clients wanting capital growth, typically from equities, as they are still in an accumulation phase,” said Tan.
Among stock markets, she said that Pictet WM has “upgraded US equities to neutral, and we’re backing active managers who can generate alpha from companies that posting increasing earnings”.
Tan remains positive about Japan with the regulatory reforms improving corporate governance and increasing activism and Pictet is only “tactically bullish on China – for the short-term – because of attractive valuations and supportive technicals”.
Finally, alternatives are gaining traction among wealth management clients, with private equity and credit an increasingly attractive option. “The pipeline for alternative is very busy as we are fundraising for more than 10 strategies currently of which three strategies are in private credit: one investing in dislocated credit, a European direct private debt fund and, our flagship multi-manager private credit fund,” Tan said.
Other alternative investments in demand include M&A as well as global macro hedge funds strategies.
