Pierre DeGagne leads DBS Private Bank's selection of funds in both the traditional and alternatives asset space.
In the second part of this interview to AsianInvestor, the Singapore-based funds specialist explains why the private bank decided to consolidate its funds platform and the challenges of convincing investors to buy into funds at the right time.
Q When do you decide to remove funds from the platform?
When I came here five years ago, we had close to around 800 funds in Singapore. We have pared it back to 250 to 300 since then. If we include our fund platforms in Hong Kong, Taiwan, China and offshore, we probably have about 700 funds in total. But we also removed around 300 funds from the platform last year, mostly from Hong Kong.
The funds that we took off were those that we saw no reason to have on board—we held no strong views or conviction on these funds. It might also be the case that some of these funds have been downgraded. Our research reports are typically valid for about six to nine months, although fund ratings can be revised if some event like a manager departure occurs.
On average, we add about two dozen funds a year. With this trimmer conviction platform, we are able to predict nearly 60% of the time if the funds should outperform or not.
One thing to note is I’m more cautious about most ‘purely thematic’ funds that are in the market, especially those that have done very well in the past year. Typically, after they gain assets and have performed well, many of these funds have trouble keeping up the momentum.
I tend to prefer managers who have great teams and high experience within a sector. So, while we like robotics, I would prefer using a technology fund than a pure robotics fund.
Q What is your biggest challenge as a fund selector?
The challenge is to convince the sales force to push an idea that doesn’t seem that great quantitatively. We like to push ideas before everyone starts to jump on the bandwagon, so often we are pushing an idea at least three to six months before there is a visible trend. Once the trend starts to show, it could take another three months before these ideas start being implemented in portfolios. From the client’s perspective, that is not always the best time to buy into the idea.
For instance, we put the H2O global bond fund on our platform at the beginning of 2017—it was one of our highest conviction ideas that we pushed for nearly a year. It has become one of the best-performing funds in the fixed income space but it took time before we saw traction on the fund [in terms of fund inflows). We were talking about this idea for more than a year before clients were convinced.
Q What are investors looking for right now?
Floating rate products are in demand. At the moment, investors want to see some momentum and there hasn’t been much of that of late, so most of them are focused on floating-rate funds.
As a house view, we are constructive on equity markets, in particular, the US. But we are cautious and investors are waiting to see how the geopolitics pans out.
Please click here for the first part of this interview, in which DeGagne discusses the private bank's fund selection process and the importance of recognising behavioral biases that can undermine the results if such biases are not taken into account.
The full interview featured in AsianInvestor's June/July 2018 issue of the magazine.