Aman Dhingra, the head of advisory at Union Bancaire Privée (UBP) is focused on offering Asian wealthy clients a healthy variety of investment fund choices, while also explaining their respective merits and weaknesses in more volatile conditions.
In the second of a two-part interview, he discusses with AsianInvestor the degree to which the private bank likes exchange-traded funds, liquid alternatives and the key areas of investor interest today.
Q. What is your view on ETFs?
ETFs help us provide a backbone to the managed funds platform. The 120 to 150 high conviction active strategies that we have on the platform cover major asset classes but can at times be too broad to express nuanced views on niche asset classes. For example, clients who are looking for access to smaller single countries, we prefer to recommend ETFs.
We also like to express our views on select thematics and sectors through ETFs. Finally, we prefer to recommend ETFs to clients who have a more trading approach (typically less than one year).
Q. What is your view on liquid alternatives?
We like the liquid alternatives space. But it is important to identify the right strategies to put in liquid alternatives format; you can’t achieve that with every strategy. When managers try launching strategies that don’t fit naturally in the liquid space and use the brand power of the offshore strategy to market, it inevitably leads to disappointments.
Typically, long-short equity, market-neutral and macro managers work very well in the Ucits format – performance wise, macro managers may not have done very well per se, but that has more to do with view and less to do with the format. On the other hand, event-driven strategies are more complex to express as liquid alts, while distressed credit strategies cannot be packaged in the Ucits format.
As long as the underlying is liquid, you would prefer a more regulated structure, more regular liquidity and you can avoid gating.
I think the growth of liquid alternatives is a positive trend which will add to the arsenal of asset allocators and advisors, and we certainly hope that platforms offering these become bigger and more relevant.
One key point to make is that we would like to see more performance from the hedge fund industry as a whole (including liquid alternatives). Managers have defended the relatively anaemic performance of the industry from 2008 to 2017 due to dominating factors like low interest rates and low levels of dispersion due to central bank policies. Today, those factors are clearly at a point of flux and that now needs to reflect in the industry’s alpha generation ability.
Q. What is your biggest challenge as a fund selector?
I would say that the toughest task as a fund selector is maintaining conviction through a period of weak [manager] performance. Previously we spoke about giving managers time to perform but since we are in the business of helping our clients generate returns [and] these periods of underperformance do test the nerves of fund selectors.
Q. What are investors looking for right now?
Given the economic environment, which is filled with rapidly changing geopolitics and mixed signals, I would say that the one thing that all investors are seeking is guidance.
On the one hand, US economic data is robust and both the stock market as well as credit spreads in developed markets are broadly holding up. On the other hand, emerging markets, battered by trade war fears, are suffering across asset classes.
In that context, US growth sectors have seen significant flows right from the beginning of the year and that trend is largely unabated. Technology-led thematic like electric and autonomous cars, data management, analytics and storage, and global payments have caught investor interest. We have also seen strong flows into healthcare and biotechnology sectors.
The emerging market sell-off has also offered investment opportunity, especially in Asia. We are thus seeing flows into Asian fixed income and select Chinese equities where investors are using the volatility to build positions on dips.
Looking forward, we see potential demand for more new thematics, including areas of impact investing and evolving food sustainability trends.
This is the second in a two-part interview with UBP over its approach to fund selection in Asia, which was adapted from AsianInvestor's October/November edition. To read the first part, please click here.