The FSA Spy market buzz - 14 October 2016

By FSA Spy

Added 14th October 2016

Hang Seng’s bestsellers; CIMB concentrates; Phillip's new ETF; Competition in HK; Capital Group’s observation; DBS on the fence; Nanny UOB and much more.

The FSA Spy market buzz - 14 October 2016

Spy has been accused in the past of enjoying a glass too many on occasion. In his defence, he will steadfastly claim it is usually in the service of journalism. After all, industry contacts seldom speak the unvarnished truth on a glass of mineral water or tomato juice, do they? The Irish have a proverb, “the truth comes out when the spirit goes in”. True words, dear readers. It was under such inebriated conditions this week that Spy heard the best possible line about robo-advice from a private banker, who is usually of a more reserved demeanour: “The sort of men who fear robo-advice, are the sort of men who were fearful when vibrators made their debut. They thought they were going to be replaced, when, in fact, used properly everyone involved gets increased pleasure.” Well, quite.

Spy has been keeping an eye on which funds have been selling well. Hang Seng Bank continues to provide a handy up-to-date list of its best sellers. Excluding its in-house range, the following funds are among the top 10: AB American Income Portfolio, Allianz US High Yield, JPM Asia Pacific Income, Schroder Asian Asset Income and Value Partners Greater China. It surprises Spy not one jot that income-orientated funds dominate the list. Something that Edmund Yun at CIC Banque Privee highlighted in today's interview with FSA. It has been said of Asian investors that they have “an insatiable appetite for income”, forget that, fund marketers, at your peril.

Spy often wonders how fund selection teams grow the funds on their platform. How ruthlessly do they cull, how assiduously do they add? Take CIMB in Singapore, for example. Drilling down into the available funds on offer to retail investors, there are 731 funds in total (including hedged share classes) from 29 different fund groups. Seems like plenty of choice and diversity, doesn’t it? However, a closer analysis reveals that HSBC Global Asset Management has 157 of those funds, followed by Schroders with 56, J.P. Morgan Asset Management with 55, Eastspring with 54 and Blackrock with 51. More than half of the funds available to CIMB customers are from just 5 of the 29 groups. The available choice seems a lot less broad when seen in this light.

Is DBS getting a numb bum sitting on that fence? Spy reported in May that DBS had not found a single equity to recommend selling across Singapore, Hong Kong, Malaysia, Indonesia or Thailand. Reviewing the recommendations again this week, Spy has discovered nothing has changed. DBS still can’t find a single stock to sell. Spy did note that Swiber was conspicuously absent from its list though…

Phillip Capital Management is getting into the ETF game with the launch on the SGX on Thursday 20th of October of the Philip SGX APAC Dividend Leaders REIT ETF. It is being billed as the “first dividend-focused Asia Pacific REIT ETF” and Spy suspects with Singaporeans’ enthusiasm for both property and income, it may well garner some traction.

If you are like Spy, you are forced with regularity to go to a retail branch of a bank in Hong Kong. An unpleasant experience at the best of times. Spy usually wiles away the queue time looking at wealth management promotions, naturally. How many funds are being promoted at any one time on average? Not many, 10 perhaps? On occasion, a few more. Here is the rub for asset managers: according to the HK Investment Funds Association, there are 404 bond funds, 1,021 equity funds and 101 index funds authorised by the SFC for sale in Hong Kong. Throw in money market funds, hedge funds, balanced and you get to 2,133 SFC authorised funds which apparently have a total NAV of $1.26 trillion as of the end of March. With the short-term, quarterly promotion mentality of the distributors, how do you get consumers to take note? Spy’s recommendation: have a chat with your CEO, you are going to need some more marketing budget in this hyper-competitive environment. 

Capital Group has an infographic doing the rounds that caught Spy’s eye. It is about short-term reactions to dramatic news and the 12-month response to that news. It highlights what we instinctively know: people overreact and often provide a buying opportunity when they do so.

 

Singapore’s government has a notorious reputation for behaving like a nanny when overseeing citizen interests. UOB seems to have taken that attitude to heart when thinking about wealth management. On its unit trust overview page, it states clearly that you will need to be 21 years of age to buy a unit trust. In Singapore, you can buy a beer or drive a car at age 18 and have sex or enlist in the army at 16. Spy is not sure why buying a long-only US equity fund, requires more maturity than going to war or having children, but then Spy is an old fashioned sort of a fellow.

Many Asian investors have enjoyed a long happy ride investing in Australia. They may want to look quite closely at what S&P has to say about Aussie debt, as reported in The Australian (subscription wall). “Australia’s foreign debt has hit extreme levels that match the worst in the world,” it reports. The Lucky Country may be beginning to run out of luck, thinks Spy and investors exposed to Oz may do well to consider a currency shock in the future. 

The NYSE was founded in 1792 with the listing of the Bank of New York. According to a Bank of America Merrill Lynch report, it took 99 years for the first real bear market to arrive. In 1891, the NYSE finally sold off more than 20%. If only today’s investors could enjoy nearly a century without a bear market, laments Spy.

Spy’s quote of the week comes from Fred Schwed, author of Where are the Customer’s Yachts?, “Those classes of investments considered ‘best’ change from period-to-period. The pathetic fallacy is what are thought to be the best are in truth only the most popular — the most active, the most talked of, the most boosted, and consequently, the highest in price at that time.” Spy can hardly argue with that.

Spy heard most asset managers had a poor start to 2016 with sales slower than the ratification of a free trade agreement. However, by July investors had decided the world had not fallen apart and got investing. It is no surprise in that case that Spy’s photographers have spotted a lot more asset management advertising of late. Case in point, Allianz GI is back in the MRT promoting Asian Income:

 

 

Until next week…

 

 

 

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