Wanted: funds to address macro fears

Fund platforms in Asia may be crowded, but there remain gaps for products able to cope with the likes of US rate rises, China uncertainty and low oil prices, according to a new study. And alternative strategies are increasingly in favour.

Research house Cerulli surveyed* regional and international fund selectors based in Asia, and the findings reiterated some points made recently by senior gatekeepers, such as Roger Bacon of Citi Private Bank and Karen Tan of Deutsche Wealth Management. 

It is a challenge to get on product shelves, but the good news is that selectors are still looking to add funds to cater to macroeconomic events, found the report. There are good opportunities for strategies that can potentially withstand the impact of the expected US interest rate hike, China uncertainties, low oil prices and market volatility.

Cerulli said that 40% of global and regional bank selectors surveyed planned to add funds to cater to the impact of Federal Reserve rate rises. A similar percentage of respondents said they would not add funds but may adjust their recommendation list to allow for China uncertainties.

As for local bank respondents, 43% said they would add funds to overcome the impact of low commodity prices and disinflationary trends, and 86% would adjust their current recommendation list to take account of the coming US rate hike.

Independent financial advisers (IFAs) and online platforms said their priorities were adjusting product lists to combat the impact of the US rate hike and adding funds to reduce the effect of declining corporate earnings and China uncertainties.

Meanwhile, insurers said they may add funds to address geopolitical tensions and falling corporate earnings.

Liquid alternatives are attracting more interest from international and local banks, with 60% of selectors saying they planned to add more alternative funds than traditional funds this year.

Moreover, 73% of global/regional bank respondents and 60% of IFAs/online platforms intend to add alternative products. Local banks prefer a balanced approach, while 60% of insurers were against adding more alternatives than traditional funds.

In the liquid alternative segment, some global and regional banks are looking for fund-of-hedge-fund products but finding limited availability, said Chua Shu Mei, associate director at Cerulli.

When it came to traditional funds, respondents said they favoured global equity, Asian equity, global unconstrained fixed income and multi-asset. They also currently like European and Japanese funds but most will not reshuffle their recommended lists to accommodate these two areas.

Cerulli’s report also confirmed that fund selectors preferred to work with big brands, though niche players get traction in certain areas, including those offering renminbi bonds, Indian fixed income and Indian mid-caps.

“At times, we hear selectors will relax their quant-screening criteria and we therefore think managers with niche ideas have a better chance to approach selectors,” said the report. Potential ideas include Asian mid-cap strategies, Chinese high-yield bonds and Indian fixed income, as well as European high yield and funds of hedge funds, it added.

* Twenty-eight fund selectors, responsible for $2.8 trillion of AUM in Asia, were surveyed during February and March this year about their firms' selection processes. The firms included global/regional banks (including private banks), local distributors (banks and securities firms), insurance companies and IFA/online platforms.