London & Capital remains a China bull

By Alex Frew McMillan, special to FSA

Added 6th November 2015

Philippe Legrand, co-founder of the wealth management firm in Hong Kong, reveals two recent fund selections that underscore his asset class views going into 2016.

London & Capital remains a China bull

In equities, London & Capital is “long-term bullish on China”, Legrand said. 

“China’s recent economic disorder has been disruptive as cyclical stocks digest the impact of sub-6% GDP growth. China and India should continue to receive support from policy loosening and reforms.”

He likes the themes of the middle income consumer and local infrastructure development.

Reflecting those views is one product recently selected for clients, the UBS China Opportunity Fund. The vehicle is a play on the beneficiaries of China’s structural reforms such as companies in the consumer and healthcare sectors.

“The interest rate cut signals the start of the easing cycle from a monetary policy standpoint and this is a positive catalyst to the market as well as to the fund.

"Beta return is getting more difficult to find within the fixed income space and one has to be very selective and proactive"

“As the interest rate cut will reduce overall funding costs, property, insurance, brokers and leasing companies will be clear beneficiaries. The fund has about 20% exposure in these sectors.”

In other geographies, the firm's US equity preference is shifting toward stocks with mainly domestic exposure, he said, citing the defensive industrial and consumer discretionary sectors and selective healthcare stocks.

European stock valuations have corrected over the past quarter, which he said has adjusted the markets back to long-term average levels, "making them slightly more attractive".

Very selective bonds

“Right now bonds are not our favourite asset class,” Legrand said.

That said, another recent selection, different from most bond products, was the Jupiter Dynamic Bond Fund. Legrand likes the unconstrained strategy of the product, which he said can invest across the credit ratings spectrum, such as high yield, investment grade, government and convertible bonds to seek the best value.

“Beta return is getting more difficult to find within the fixed income space and one has to be very selective and proactive.

“The [Jupiter] manager has the flexibility to make tactical changes in response to macro movements.  For example, all US Treasury short positions were removed in Q3 2014 on concern about the build-up of risks in global bond markets and the economy.”

Legrand said another exception is emerging market bonds, where the firm has an “extremely selective” focus. Within Asia, he likes China and India, but avoids Latin America and Eastern Europe.

Under consideration are floating rate bonds “to gradually position ourselves in a rising rate environment”.

He is also advising clients, particularly those based in Asia with US dollar-denominated assets, to diversify part of their portfolio into euros or British pounds. The euro has ranged from 0.86 to 1.60 against the greenback, so he feels 1.10 to the dollar is a decent entry point.

“If [an investor] is only in one currency, he is speculating more than investing,” Legrand said.

He believes that in the current environment of very low interest rates and bond yields of little more than 2%, investors should be happy to generate annual returns of 5% to 7%, and keep ahead of inflation.

That threshold will need to be reviewed once interest rates start to rise, he noted, but double-digit gains would be unexpected.

Wealth managers group

Last month, London & Capital Asia, along with EXS Capital and Caidao Capital founded a Hong Kong association of wealth managers called (for regulatory reasons) the Association of Independent Asset Managers. It’s not affiliated with a group in Singapore that serves the same purpose, although the two organisations expect to cooperate.

The group has pending application from 10 wealth managers, Legrande said. The intention is to provide a collective voice for the industry to lobby regulators, push client-education programs and network.

When the Asian arm of London & Capital was launched in 2010, there was a handful of similar firms, he said. Hong Kong now has around 50 independent wealth advisory firms, according to a Julius Baer survey.

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