The compelling alpha appeal of consumer credit

Text size

This is a sponsored article from FinEX Asia.

The number of millionaires in Asia has climbed to more than 8 million as the region’s growth in HNWIs significantly outpaces the global average. From 2011 to 2016, the number of Asian millionaires with investible assets of between US$1 million and US$5 million grew by 353.7% to account for nearly 90% of the region’s millionaire population.

These investment-savvy, risk-averse individuals are seeking performance and stable returns at a time when rising interest rates are eating into returns and the standard one-service-fits-all choices may not deliver what they are seeking.

With interest rate rises and market volatility taking the shine off traditional fixed income investment instruments, FinEX Asia suggests that these investors turn their attention to consumer finance for stable returns.

While many of the world’s largest asset managers appreciate the fundamentals of consumer finance, not everyone understands how to make alpha from it. Most mainstream houses are more at ease with traditional bonds, equities, and exchange-traded funds (ETFs), occasionally venturing into structured products.

Hong Kong-based FinEX Asia Investment Limited, however, has good reason to be comfortable with consumer finance. It has operated in this space for two years and currently manages over US$200 million in fixed income portfolios, offering Asian investors access to the US consumer credit market of personal loans and credit cards receivables.

Consumer finance is attractive because, with the right risk management, it provides returns that are both diversified and stable. FinEX Asia’s impressive returns are already attracting attention as the FinEX Asia Marketplace Credit Fund targets a yield of 7-8%, well ahead of most fixed income indices. Returns from loan repayments are steady and pre-set, avoiding the impact of the peaks and troughs of daily market fluctuations.

FinEX Asia Marketplace Credit Fund Performance

Source: FinEX Asia Investment Limited, as of Nov 2018

So how does FinEX Asia manage to deliver such solid returns with volatility of only 0.5% in the portfolio? The key differentiator is its risk management model. FinEX Asia Marketplace Credit funds have more than 2,500 loans, and the data from the US market is gathered 24/7 and in real time.

This application of technology in investment aggregation and risk profiling helps the asset manager select good quality consumer loans without the limitations of unaided human assessment. Technology-empowered risk management helps the asset manager sort through thousands of potential loans based upon consumer information, combined with detailed regional information such as state unemployment rates and local conditions.

One of the key attractions of FinEX Asia is its capacity to predict losses. This compares favourably to the relative instability and sudden fluctuations of stock markets which react instantly to world events, debt crises, trade wars, and geopolitical turmoil.

FinEX Asia Marketplace Credit Fund Volatility Comparison

Source: Source: Bloomberg, FinEX Asia Investment Limited, as of Nov 2018
* Since Oct2017

In addition, as all the investment processes and payment waterfalls are digitised, the cost of operations is significant reduced. This not only helps the investor to enter the sector with a smaller stake but also provides options for greater liquidity. While most investors would be happy with the return of FinEX Asia fixed income fund, some have different investment appetites. With a 7-8% target return as the benchmark, certain investors are aggressive while others are conservative.

Rather than offer a one-product-fits-all solution, FinEX Asia tailors investments to match individuals’ objectives. Those seeking higher liquidity through an investment of one to three months have the option to surrender some of their returns in favour of those who choose to lock their investments in for longer periods in exchange for higher returns. Investors with varying levels of risk appetite can select products with different returns, durations, and financial gearing to suit their needs, while the underlying asset class may be the same.

FinEX Asia Marketplace Credit Fund is now in the top 30 fixed income performance hedge funds as ranked by Bloomberg.

Hedge Fund (Fixed Income Discretional) Ranking

Source: Bloomberg, as of Oct 2018

Nearly 30% of existing investors reinvested within six months of subscribing to the FinEX Asia fund. More than 80% of investors topped up their investment within 12 months of subscribing. These powerful testimonials to FinEx Asia’s performance demonstrate its rising status as a compelling alpha opportunity that the region’s expanding HNWI population would be wise to consider.

This is a sponsored article from FinEX Asia.

Related Tags