The wealth management arm of Tisco is open to fixed income products, but “everytime we look at launching fixed income, interest rates are so low that we don’t think it will go anywhere”.
The firm has considered high yield and RMB bonds in the past and will look again in Q4, after the expected US interest rate hike.
“Today it is so hard to get yield. The credit quality of all these issuers is lower and lower. [Fund managers] go to Brazil, Russia and Turkey in search of yield. We don’t want those products. We would be taking unnecessary credit risk.
“Internally there’s a strong belief that if we take credit or duration risk and add overall product risk, why not just take equity risk, where the cost is much lower? Volatility in fixed income will be similar to equity risk.”
Moreover, Tisco Bank’s deposit yield is competitive with a fixed income fund, he said. “It is difficult to find and launch an open-ended fund providing a higher yield than our deposit rates.”
"With open-ended fixed income funds, the yield rises when the prices drop and our clients don’t understand why"
The Thai market is also immature.
“With open-ended fixed income funds, the yield rises when the prices drop and our clients don’t understand why.
“If an income fund is a low-risk product, clients believe there is no way to get lost. The majority of Thai clients still have the impression that bond investment means government bonds.
“Then they get a 3% or 5% return [on a fixed income product] and then look at the net asset value and watch it fluctuate because it’s mark-to-market. Some clients will get angry and close their accounts.”
Fund of funds platform
Tisco runs advisory and discretionary mandates. The client wealth threshold is THB 5m (~$150,000) and for discretionary it’s $1.25m. (For discretionary, the firm runs a private fund business).
AUM for the group is THB 180bn ($5.3bn), with provident funds accounting for the bulk. About THB 35bn is the AUM of mutual funds, but it is the fastest growing segment, Tiasiri said.
To select funds, a monthly meeting brings in asset management, economic research, product and sales people for a broad discussion, including customer feedback. They form an overall market view and decide on the right investments for the next 1-2 months.
“We’re an equity house, so most are tactical products, but we have strategic products on the shelf.”
Tiasiri added that Tisco’s own trigger funds have been popular with local investors. They are closed-end equity funds with a market timing feature built in. For example, an India trigger fund that is timed to automatically redeem after an 8% return or eight months, whichever comes first.
For global funds, on the passive side, the firm uses ETFs from major providers such as Vanguard, Deutsche Bank, iShares and Lyxor.
For active global funds, the firm selects products for each of its fund of funds (FoF) platforms. The FoF manager tracks the performance and rebalances quarterly depending on his views.
To choose global funds, the team uses quantitative data to select a universe of 20. His team meets with those fund managers and narrows it down to eight managers. That number is multiplied through Tisco’s global FoF platforms, such as those focused on healthcare, China or global equities.
The firm works with UBS for China and biotechnology funds; JP Morgan AM, Pictet AM and Janus Capital for healthcare; and Robeco for its global strategy. Other products used include those from First State Investments, Axa IM and Fidelity Investments.
Tisco is currently focused on markets benefitting from quantitative easing programs, he said. Japan and China are preferred, and in Europe, the focus in on the German market.
“Germany mostly benefits from depreciation of the euro because they focus on export.” Two years ago, the firm launched the first and only German equity fund in Thailand, he added. The currency is hedged to Thai baht to avoid foreign exchange risk.
He also likes China H shares. “We’ve intentionally positioned overweight in H shares.”
A China/India product was the firm’s strongest performer last year, Tiasiri said. “But India is a foreign market to Thai people. Thais feel a kinship to the Chinese more so than Indians and they are comfortable with the Hong Kong market.”