Contribution - Alfi

Meeting Asian investors’ income needs

Ken Yap, managing director chez Cerulli Associates. (Photo: Loreen Kelley)

Ken Yap, managing director chez Cerulli Associates. (Photo: Loreen Kelley)

Challenging market conditions, slower economic growth and trade tensions have adversely impacted investor confidence, risk appetite, and net new flows (NNF). In 2018, balanced funds were among the top asset classes by net flows in Asian markets, excluding China.

Net flows to balanced funds increased in Hong Kong, Taiwan and Korea as investors continued to seek diversification and means to weather volatility. In Taiwan, even as balanced funds ruled, the new funds with the highest net flows were bonds. On the other hand, India received the highest NNF to equity funds in 2018 compared to other Asian markets.

Income and diversification, coupled with capital protection and low volatility, continue to underpin Asian investors’ needs. To meet these needs, Asian asset managers are focusing on fixed-income funds and multi-asset strategies. Asset managers feel that differentiation via multi-asset solutions is key. By providing portfolios that attempt to meet specific investment goals of investors, asset managers hope to provide greater customisation for their investors, and cater to their needs.

Similar to asset managers, distributors see features such as regular and steady income payments, capital protection, and low volatility as most important to retail investors. Cerulli’s survey of fund distributors showed that fund performance and investment process are the top-ranked factors when selecting a fund. Distributors across investment channels demand products that can withstand different market cycles and generate stable and good returns. Regular interactions with fund managers, often considered integral by global bank distributors to gain a better understanding of the fund dynamics and investment philosophies adopted, are particularly important during market downturns.

Among fixed-income funds, they are keen on fixed-maturity plans (FMPs) and Asian high-yield funds.
Ken Yap

Ken Yap,  managing director,  Cerulli Associates

Distributors in Singapore and Hong Kong shared with Cerulli that among fixed-income funds, they are keen on fixed-maturity plans (FMPs) and Asian high-yield funds. FMPs witnessed considerable demand last year and could continue to receive interest in 2019 as well, as distributors are keen to onboard such plans, especially the ones with floating rate bonds.

Cerulli’s trends survey

Other niche ideas that distributors want managers to come up with over the next three years include structured products, retirement funds, multi-asset funds, and funds of ETFs, among others. Retirement and target-date funds seem to be getting more attention, especially in markets such as Korea and Taiwan, with their aging populations. However, as retirement products still form only a small fraction of the total universe of mutual investments offered in Asian markets, there is a need for both asset managers and distributors to educate investors on the importance of such products to generate traction.

According to Cerulli’s survey, there has also been some interest by distributors in thematic funds such as technology, clean energy, infrastructure, and healthcare. In Singapore, distributors are keen to onboard technology and infrastructure-focused funds.

Even though Cerulli gathers from its interviews that sustainable investing is increasingly becoming a part of due diligence, distributors in our survey ranked it as the least important factor during fund selection. This could be because European private banks are the ones embracing ESG investing, but other distribution channels such as online platforms and independent financial advisors are late in adopting this. It could also indicate that demand from end investors in Asia is still low, given their penchant for fund returns over sustainability.

Although asset managers continue to favour traditional mutual funds such as multi-asset and fixed income, they will need to continuously strive to bring out differentiated product features to stand out in the crowd and gain a better chance to onboard products with key distribution channels.

More news on the fund industry in  Paperjam’s Alfi  supplement