FSA: What product trends are you seeing in Asia?
RB: There is a huge amount of complexity of product development in the mutual fund space at the moment and we are pushing back on product innovations that apply complicated strategies. Some fund managers are trying to complicate strategies through structural-type overlays. We want to keep mutual funds simple. Clients don’t like over-engineered solutions.
If you have identified a world class portfolio manager, that is the most important thing to make available to clients. The bells and whistles of product development around it are of less importance.
FSA: What are your current views on investment trends in key asset classes and geographies?
RB: Fixed income performed quite well prior to the US Federal Reserve signalled that it would gradually end [quantitative easing] in 2013. During the “taper tantrum” we helped clients reduce their fixed income allocation. We were of the view that the when the US federal reserve flagged that interest rates were going up, we would be more defensive on fixed income allocations.
More recently, client allocations to fixed income have been channelled into high yield fixed income products. That’s been building over the past 12 months.
From a geographic standpoint, the investment focus is much more on high yield in Asia, especially Greater China and Europe. Last year there was more of a focus on high yield in the US.
On the equity side, we’ve been increasingly optimistic for the last 18 months. Now US equities are a little high and clients are starting to pull back a little and that money that’s liberated is rotated into Europe and Asia.
There’s a dramatic increase in European equities, where allocations have been at a low level, and specifically to China equities. There’s currently a lot more interest in China. A lot of it is underpinned by very poor performance over a long time and low valuations. Central authorities have also engineered a soft slowdown in growth that’s better than people were anticipating.
Fund managers have been overweight North over South Asia. Up until recently, that hadn’t been a good call. Markets in Indonesia, Thailand and India have soared, so we’re seeing clients taking a step back and allocating a little to South Asia.
On Japan, the interest in equities really slowed significantly. The clients who got in relatively early were happy to take their money and move away. We’re not seeing clients increasing allocations to Japan. There’s a view that the honeymoon period is over and it will take a little more time for the market to evolve in a positive way. This is a shift over the past few months.
In India we’ve seen very strong performance. My sense is that most clients have missed a lot of that. That said, we’re not seeing people chase that market.
We’ve done well with sector theme investing in equities. For example, shale gas. We know specialist managers in the US. Also technologies that are disruptive such as e-cigarettes or rapid prototyping.
FSA: What about ETFs?
RB: Private clients do not ask about ETFs. Why track an index if I can outperform it? They have massive demand in the US but private clients in Asia don’t ask for them.
FSA: What funds have you recently invested in?
RB: We’re invested in Allianz Europe Equity Growth as well as Blackrock European Equity Income. We’ve been proposing these to clients in Asia who want to increase exposure to European equities.
On the fixed income side, we’ve recently started allocating to the UBS European High Yield Bond Fund. Otherwise there have been no major changes on fund side.
We have an approved list of funds and clients are utilizing those funds based on our views of world. In Asia, we have not changed our approved list in the last 12 months. The stability of the approved fund list is very important. On the global approved list, we have at most 10% turnover per year.
If we pick top quartile funds, there should be no reason to keep changing that for another fund. Of course, if we’ve misread the situation or it turns out something is wrong with fund manager, then we need to act. Otherwise, the only reason we would sell funds is when our asset allocation views change
Fund turnover should be your enemy if you’re picking longterm funds for clients.
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To read part 1 of this interview, click here.
