How UBS WM cuts funds from its platform

As the head of UBS Wealth Management's regional fund selection, Jansen Phee is tasked with ensuring the Swiss private bank always has a selection of the best available fund products, and that the ones it offers are well tailored for economic and market conditions. 

As he discussed with AsianInvestor, this sometimes requires removing existing products from its fund platform if they stop performing well, get superseded by other funds, or if conditions turn against them. He offers more detail below. 

Q When do you decide to remove a fund from your platform?

It is not always about short-term performance. Instead, we focus on why the fund’s performance has changed over a period of time—and whether that merits a change in our assessment.

If the market is up 30%, and the fund is up by 20%, we will examine what caused the deviation in performance. If the market is up 10% and the fund is up 20%, we also try to understand what caused this deviation.

It might be that the fund manager has deviated from the investment policy. For example, if a value fund gains strongly at a time when growth stocks have performed well, it could be because the value manager decided to put growth stocks in the fund. That means the manager is deviating from the investment objective and chasing the market for pure performance and we don’t want that. 

We would then remove the fund because a fund manager is not adhering to the fund’s investment policy. If there is consistent underperformance because the fund manager is making all sorts of wrong calls, it is a sign that the investment process is not working and we will remove the fund from our platform.

Basically, we would consider all the qualitative aspects that matter before we decide to remove a fund from the platform.

Communication with fund managers is crucial. We would doubt how serious the intentions of a fund house are if it doesn’t provide adequate after-sales support, especially if the fund is a flagship.

It is important to speak with fund managers on a regular basis because we get to see how they articulate their thoughts and views. From our experience, managers who don’t articulate well could suggest they are not totally convinced about what they are doing, possibly because they don’t have strong conviction in their ideas.

Q What are the biggest challenges you face as a fund selector?

One challenge is to find genuinely new ideas to fill a gap on our product shelf, which is already quite comprehensive. When we do find something very new, the issue is either the fund size is quite small or has a short track record.

Most managers can handle small inflows because they can be easily deployed and don’t move the market, but whether the manager can handle a $500 million inflow/outflow is entirely another matter. A fund with a short track record also needs to be assessed very closely because we need to be convinced that the investment process can withstand difficult or volatile times.

Another key factor to always consider is regulation. Sometimes, our value proposition of being able offer a fund across all our business locations is challenged because of different regulations in different markets.  

Q Are you seeking to fill any gaps in your product shelf?

The one topic I find discussed heavily in Asia is China’s one belt, one road initiative. The challenge, however, is finding products in the listed space that can meaningfully participate in this idea. 

Quantitative investing and artificial intelligence (AI) are other areas in which we are interested. It’s not only about having funds that invest in companies that develop AI technology but also funds that apply AI in the investment process.

Some fund houses are already using extremely sophisticated machine learning techniques in their investment processes but it is still a very new area and requires more research and monitoring.

Please click here for the first part of this interview, in which Phee discusses mixing a qualitative and quantitative approach to choosing funds for UBS. The original interview featured in AsianInvestor's April/May 2018 edition.