Rosita Lee is head of investment products and advisory business at Hang Seng Bank, chief executive officer at Hang Seng Investment Management and director of Hang Seng Qianhai Fund Management Company.

Her role includes overseeing the development, selection and due diligence of the bank’s wealth management products for distribution to personal, corporate and institutional clients. In addition, Lee covers foreign exchange, retail margin trading, structured products, investment funds and asset management for the bank.

Lee tells AsianInvestor how her clients have been shifting their product focuses over the past few months.

Q. What trends in client demand have you seen recently?

We have seen a shift of client focus in a few areas: within fixed income, because of expectations of rising interest rates, interest is moving away from fixed-rate to floating-rate products. There has been more demand for floating-rate products through the year.

There is also a preference for short-duration products. An example of that would be a 364-day bond with a yield target of 4% to 5% per annum.

Within funds, we see demand moving away from US dollar offshore China credits and towards onshore RMB (renminbi) credits. It’s not necessarily in the form of bond funds; even cash bonds are in demand. The RMB seems to have stabilised and onshore credit offers relatively higher yield to offshore credit.

The expectation of the MSCI’s inclusion of A-shares in its benchmark Emerging Markets Index is also drawing interest in the Chinese market, where we have seen turnover in the A-shares market in July gain 18% over that in June.

Large caps have been outperforming relative to small caps, which is expected since industry leaders across different sectors are expected to benefit more by the MSCI decision.

Since the start of this year, the US dollar has also been weakening relative to last year. In this environment, the focus of clients is likely to shift towards currency-, commodity- and gold-related products.

Compared to previous time periods when the dollar was weakening, demand for these products has not been as strong. One possible reason is that there have been more opportunities in equities, but given that equity markets have been gaining strongly in recent times and could soon start to look quite expensive, we think it’s possible that investors will start to look at currency-, commodity- and gold-related products.

There has also been a nearly 10% increase in the number of active clients who traded or invested in mutual funds year to date.

We define active clients as those who have made investments or traded in mutual funds over the past one year. The focus of this increase has been China-focused funds, mirroring the growing interest in China.

Q. What about interest in private equity?

Demand for private equity has not been very high among investors, mainly because they remain concerned about transparency. Besides, with equities funds offering 20% plus since the beginning of 2017, they don’t seem particularly interested in private equity ideas.

Q. What are you recommending to clients right now?

Investors should maintain balanced portfolios and diversify in order to protect themselves against any possible market downturns.

We like emerging markets such as India, Indonesia and the Philippines, which have turned around in recent years, not just on fundamentals but also on fund flows. If China can sustain its current growth rate, we believe emerging markets can provide a good investment opportunity for investors.

Q. Can you offer some insight into your fund selection process?

For our active funds, our first and foremost focus is on the fund’s historical performance, followed by investment philosophy and the capability of the fund manager to execute fund strategy. A category such as global equities can have so many funds available that it is important to be discriminating in our choices. Some funds might even follow the exact strategy and the performance really depends on the capability of the fund manager.

When it comes to fund managers, sometimes you have teams that manage funds and sometimes you have star managers. A team gives us more reassurance but there are also many good funds with outperforming fund managers.

We check for stability as well: given a fund with a very good track record but a new manager versus a fund managed by a star manager for years, we would prefer the latter as we think that is a better choice. However, we also regularly review our fund selections on an ongoing basis.

We place extra emphasis on our top-selling funds and top holdings by customers; if a fund among the top sellers seems to be underperforming its peers or the overall market, we reach out to the fund house to ask why that is so.

In general, fund houses respond to queries quickly; it’s in their interest after all. If we can’t provide up-to-date information to our clients, our clients might change their minds about the fund and shift to another one.

In the case of passive fund selection, the main criteria are how closely the funds track their benchmarks (tracking error) and the expense ratio. When investing in a passive fund, investors want returns that are similar to the benchmark. There are several passive funds available, so if one fund doesn’t do the job, it’s easy to shift to another.

Size and liquidity are also important. In addition, we also have 15 non-listed indexes that track different country indexes.

Moreover, when we select funds, we tend to select individual funds, not a range. We look at the performance of funds as well as the support we can get from the fund house. We also try to determine if there is any new theme that we would like to cover and then identify possible choices under that theme. We then compare different funds to figure out the best choices.

Typically, we will not offer just one product under a particular theme—there will be some choices for the client.

Q. Large fund houses or boutique managers: how do you choose?

Big brand names offer more reassurance on the support, but there are many specialist boutiques that have expertise in a particular asset class or have outstanding funds. We are open to considering such funds.

Q. What product-related initiatives do you have planned over the next 12 months?

To start with, we want to broaden our customer reach by introducing simple-to-understand products or reducing the minimum investment requirement.

We also want to focus on execution efficiency for investors who want to trade in capital markets. We want to provide a multi-channel platform that can help them execute their investment needs on a timely basis. We are working on enhancing our digital platform to ensure more timely market and product information is available to our clients.

Finally, we also want to enhance the product suite for high net worth clients, and are looking to add liquid alternatives and direct investment real estate funds.