What middle-age crisis is this? Twice in the past week, Spy has been invited to drinks in Hong Kong with several usually reliable fellows who, instead of having a craft beer or glass of malt whisky, or at least a decent Bordeaux, have opted for sparkling water with a slice of lime! Spy senses an unwelcome health-kick descending on the industry. While Spy bemoans the lack of imbibing enthusiasm, the real complaints have come from asset managers who lament the adage “the best product seldom wins, especially in Asia”. A stellar, multi-year track record is often not enough to convince wholesale distributors to on-board their favourite fund. And why? “Brand, brand, brand,” comes the response. The evidence is overwhelming in Asia: Build your brand or watch the assets flow elsewhere. Don’t shoot the messenger…
News reaches Spy that Nelly Poon, who was part of the PR team at data giant, Morningstar, has left the firm to join Hong Kong-headquartered asset manager, Value Partners. Value Partners’ Classic B Fund, which focuses on Asia-Pacific investments, is up nearly 26% over the last year.
Spy heard that Norman Chan, who has been in the CIO role at Oreana Private Wealth in Hong Kong, has left the firm. His replacement is Isaac Poole. Your Spy has been sworn to secrecy about Norman’s next move, but over time (and over the right drinks), the information will no doubt find its way into a future Spy report.
In another people move, Spy notes that Alfred Goh, who was representing Australian mortgage-backed securities specialist FirstMac, has recently switched roles. Alfred has joined a fintech-orientated US credit fund, FinEx Asia, to build out their distribution in Southeast Asia. FinEx owns a platform that connects professional investors to thousands of lenders across America.
DBS in Singapore has introduced a new service it calls “Your Financial GPS”, giving further hints at where its huge fintech investments are heading. Leaving aside some of the breathless marketing Spy was sent, which includes the bingo jargon gems “empower your insights” and “leverage opportunities”, the service appears to encourage saving with new automated tools. Spy has not road tested the service and it is surely early days. However, DBS’s wealth management unit is one of the fastest growing in Asia, and this is unlikely to slow things down.
A birdie whispered in Spy’s ear that British asset management firm Artemis is exploring greater distribution in Asia. The firm currently manages about $37.8bn (£28bn) for clients and has the distinction of being a partnership, largely owned by its 27 partners and the American firm AMG. A few global banks, with Asian operations, already have a fund or two of theirs. Over the last year, the Artemis Small Cap US Fund is up 17%. No doubt Singapore will be the first stop; it usually is.
Spy has been looking for the perfect poster child for active management. A colleague pointed out it sits right under his nose: the Dow Jones Industrial Average. The Dow, which is a grand old index, is in fact, actively managed. It simply exhibits some of the best characteristics of active management: highly concentrated positions, very low turnover of stocks, sticks with things for the (very) long term, and plays a great theme: Large cap stocks that are a major influence on the American economy. The word “industrial” is now a bit misleading as hardly any remaining components can be thought of as industrial firms. Here is a staggering stat: The components of the DJIA have changed only 51 times since its inception in May 26, 1896. 51 changes in 122 years! GE has been in the index since 1907. Discounting the merger of Dow Dupont, the last time a stock was added to the index was Apple, which replaced AT&T in March 2015. This means that this actively-managed index has had not one change in 3 years. The next time you hear an active manager say they have a “low turnover” or “invest long-term”, compare that to the Dow. The Dow continues to defy its critics. It has been above its moving average for 471 days, its 7th longest streak, according to Charlie Bilello.
So, the bubble has burst in emerging markets. EM debt investors are scrambling to get out faster than drug dealers in the middle of an FDA raid. Argentina’s 100-year bond holders are probably feeling rather silly just at the moment. The carnage is everywhere: Turkey, Brazil, Russia, South Africa, especially in local currencies. And yet, look at default rates in Asia. It is very hard these days to put Asia in exactly the same bucket as GEM. Asian economies are growing by themselves and intra-Asia trade is growing at a rapid rate. There are going to be a lot of babies thrown out with the bath water, thinks Spy. Asian EM in both equity and debt has legs in Spy’s humble opinion.
What horror is this? The Hong Kong Banker’s Club is apparently being booted out of its premises at Gloucester Tower in Central in mid 2020, according to today’s SCMP. Apparently, the venerable club has been told that Hong Kong Land wants to put a restaurant in its 7000 square foot space instead. The club, with its languid lunches, where some of the real deal making in HK is done, is vowing to stay in Central, “or risk losing many members”. No Quarry Bay then.
The torrent of ESG activity continues by asset managers and banks. This is THE theme of the year from a corporate point of view. There is one area in which financial services continue to take a “do as I say, not as I do” approach: Boards. Take a look at the photograph of almost any bank or asset management board in their annual report and you will still see the smiling, middle-aged, venerable, (mostly) white men starting back at you. If ESG is going to lead to a real revolution, Spy expects to see more women and a whole lot more diversity on the boards.
Do risk ratings mean much? Surveying HSBC‘s Hong Kong’s mutual funds, some investors may be surprised to find a few moderately rated (level 3) funds down more than 40% over the last year. Still, removing the outliers in each category, Spy found that, in general, the HSBC team has done a cracking job of grouping the volatility well. Looking at risk levels 1 to 5 by both performance and downside, the groupings bear out risk well. Hat tip!
Spy’s quote of the week comes from Jim ‘o Shaughnessy, “According to Forbes, ‘since 1945… there have been 77 market drops between 5% and 10%… and 27 corrections between 10% and 20%’. I know that market corrections are a feature, not a bug, required to get good long-term performance.” Nailed it.
Spy’s photographers have spotted a new tram covered in M&G’s livery trundling up down the streets of Hong Kong. The advertising is part of a broader campaign seen online and elsewhere:
In Hong Kong, for the first time in a long time, an advert was spotted inside a cab. This is part of a longstanding campaign on China high yield by Fidelity that has also been seen on the sides of buses:
Until next week…
