With appetite soaring for multi-asset strategies in Hong Kong, two of the biggest US fund houses each unveiled global multi-asset income products for the city's investors this week.
Fidelity’s offering went live in Hong Kong's retail market yesterday, while BlackRock’s fund, which launched in February, became available to local investors earlier this week.
Fidelity’s Luxembourg-domiciled fund, already being distributed in Singapore, gives investors exposure to a mix of assets, including global fixed income, equities and alternative assets.
While the strategy is not new, its ability to invest up to 30% in alternative assets – including infrastructure securities, loans and real estate investment trusts (Reits) – differentiates it from its peers, notes Eugene Philalithis, London-based fund manager at Fidelity.
“There is a huge appetite from investors from institutions [for yield]. I think that will continue,” he notes. His team will look beyond mainstream asset classes to seek opportunistic investments in order to enhance yield while managing portfolio risk.
The fund targets annual returns between 5% and 5.5%. Some 25% of its assets are allocated in Asia; 22% in the US; 16% in the UK; 7% in Eastern Europe; 6% in Germany and 6% in Latin America. Its management fee is 1.25%.
Meanwhile, BlackRock is meeting with both mass retail and high-net-worth individuals in Asia to promote its product, which has returned 11.8% since its June 2012 inception as of the end of March.
As with Fidelity’s fund, the offering will invest in equities and fixed income, as well as commodities, infrastructure, property and other alternative assets.
BlackRock's fund has a management fee of 1.50% and currently allocates 40% to fixed income; 38% to equities; 20% to alternatives; and 2% to cash. Some 45% of assets are invested in North America, followed by 33% in Europe and 17% in emerging markets, with the rest in the Pacific Basin and Japan.
Other asset managers are also bulking out their multi-asset offerings. In April, JP Morgan Asset Management hired Anthony Ho from China Asset Management in a newly created role to build this business in Asia.
Investor appetite for these strategies is clearly strong. Net flows into multi-asset funds spiked to $2.8 billion in the first two months of the year from $380 million in the second quarter of 2012, according to the Hong Kong Investment Funds Association.
Multi-asset funds now account for 72% of overall retail net fund flows, up from 8% in the second quarter of 2012.
But allocations to bond funds are on the decline, with flows dropping to $690 million in the first two months of 2013 from $3.2 billion in the second quarter of 2012, the data shows.
Despite strong investor appetite, these multi-asset platforms have been met with scepticism by some, notably passive investment specialist Vanguard, whose CEO, Bill McNabb, argues that tactical asset-allocation funds make it difficult to add value.
“Today the markets are even more complex, the tail risks are longer, the interconnectivity and relationships are harder to understand,” he told AsianInvestor in February.
McNabb predicts that products based on tactical moves or derivative overlays will ultimately lose money. “The models behind these strategies look good," he says, "but then the models always look good."