6 November 2020 |

Thematic mandates with household names no longer sufficient for DPM clients

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Thematic or megatrend equity funds or DPMs have been driving major inflows for quite a number of private banks in Asia this year. Yet, HNWIs are getting more selective as a diversified multi-theme strategy may no longer meet their needs.

Gabriel Chan, head of investment services, Hong Kong, BNP Paribas Wealth Management, told Asian Private Banker that year to date, equity mandate inflows have been more focused on particular megatrend themes. Although the bank’s flagship global thematic mandate — which consists of 10 megatrend themes — continues to gain traction, clients are currently more interested in single or standalone themes, such as 5G, cybersecurity, or AI.

“Clients are no longer satisfied by thematic mandates which invest in just the most common names,” he said. “They want to go deeper into those themes and invest in something about which they have a high conviction.”

BNP Paribas launched a 5G mandate in 2Q20. Originally part of the global thematic mandate, this strategy is integrally managed by the DPM team. Most of the holdings are single stocks.

Compared to managing a broader thematic strategy, investing in a specific theme requires a higher professional bottom-up stock picking skillset. “If you want to invest in 5G, you need a professional manager to help identify hidden gems and long-term opportunities,” Chan said.

Concentration risk
Investing in a portfolio which consists of multi-themes or only one theme continues to be a popular debatable topic for the industry. Greater market impact and higher concentration risk of a single theme mandate remain the top concerns for managers with a preference for multi-theme investing.

However, Chan argues that one single theme does not necessarily mean a small investing pool or limited investment opportunities.

“It depends on how we define 5G. When investing in this theme, we don’t or shouldn’t only include direct 5G beneficiaries into the portfolio, but equally select and screen various industries through the lens of 5G,” he said.

“If you just focus on some of the key household names, there would be a big concentration risk. We focus on the overall supply chain, and the underlying industries can spread across gaming, entertainment, healthcare, and industrials.”

Espousing a similar view, Rodolphe Larqué, head of managed solutions, APAC, Credit Suisse Private Banking, told Asian Private Banker that at the top of the bank’s top high conviction product list sit thematic supertrends strategies, China solutions, and a multi-manager PE fund. “The thematic of supertrends is an evergreen strategy, and I don’t think we can get enough of it,” Larqué said.

Earlier this year, Credit Suisse also launched a 5G strategy, but with a third party asset management firm.

Short duration strategies drive FI inflows
Commenting on the overall DPM flow, Chan said that between equity and fixed income mandates, the bank sees stronger demand for fixed income solutions this year, as clients continue to look for consistent income solutions.

Asian Private Banker has learnt that at the French bank, about around 70% of the DPM inflows this year have come from fixed income, 30% from equities.

“A large amount of the flows into fixed income solutions actually comes from clients who normally focus on fixed deposit,” he said.

“As real interest rates are trending lower and lower, they increasingly look for cash alternatives and more steady income solutions. Short tenor or short-duration solutions have been inflow drivers this year.”