On 28 June 2022, Asian Private Banker will host the fifth iteration of its market-leading APB Intensive event. The online forum provides asset managers with the opportunity to pitch their products to fund selectors from the region’s leading private banks. However, with just eight minutes to make their case, the fund managers have to make every second count.

If you are interested in APB Intensive 5.0 or learning more, please click here.

In the lead up to next week’s event, Asian Private Banker is reviewing what fund managers said at the inaugural APB Intensive event in December 2020 and how each product has performed since.

In the coming days, we will do likewise for subsequent APB Intensive events.

What they said then:
The Nikko AM Ark Disruptive Innovation Fund seeks to take advantage of the opportunities created by technological trends ranging from artificial intelligence to robotics, explained Darius Foo, head of intermediary business development at the Japanese asset manager.

“Innovation is not just the next exciting company that comes along the way,” said Foo in December 2020, comparing the scale of technological disruption in the 21st century to that in the industrial revolution two centuries ago.

“Today, we have five innovation platforms that have coincided and are working hand-in-hand to give us more investment opportunities, namely: AI, DNA sequencing, robotics, 3D printing and industrial production 4.0,” Foo went on.

The fund is advised by Catherine Wood, CEO and founder US-based Ark Investment Management, which invests in companies involved in ‘disruptive innovation’.

“The proof of the pudding is in the eating,” Foo said, highlighting the fund’s return of more than 100% in 2020.

What happened next:
The dramatic underperformance of the Nikko AM Ark Disruptive Innovation Fund, was “largely due to the macroeconomic factors rather than the managers doing anything wrong … on security selection”, Foo told Asian Private Banker, pointing to Russia’s invasion of Ukraine, worries over inflation and rising interest rates.

Foo added that Ark’s bets on AI and genomics “have been the most oversold and least understood”, with many of these firms being profitable and seeing revenue growth. “The current environment represents an opportunity to build positions within our portfolio such that when the economy recovers, these growth and innovation names will rebound strongly and benefit the portfolio,” he added.

In terms of distribution, Foo noted that some private banks in Asia-Pacific had been close to launching the Ark funds on their platforms in early 2022, but had delayed due to market volatility. “Whilst interest is still there, these new distributors of the fund are looking for the situation to improve before committing to recommend the fund and strategy to their client base.”

The fund actually saw inflows during 2021 and 2022 as existing clients topped up their allocations at a lower price, Foo said.

What they said then:
In December 2020, TwentyFour Asset Management made the case for how its US$13 billion in AUM Strategic Income Fund could combine the best source of fixed income risk into one actively-managed portfolio.

“To provide an attractive level of income is the primary goal of the fund and the secondary goal is capital growth where opportunities permit,” Mark Holman, partner, portfolio management, explained to fund selectors.

Holman outlined the unconstrained, global nature of the strategy, which takes an unlevered, long-only approach to investing in bonds across geographies, sectors, high yield and investment grade. The fund hedges against currency exposure and has the ability to change its overall duration quickly using interest rate swaps.

During his presentation, Holman predicted that “we’re probably going to have close to zero interest rates for most of the next decade” and “income will remain scarce”. At the time, the Strategic Income Fund yielded about 4.25%.

What happened next:
“Since the end of 2020, the environment has changed really significantly,” Eoin Walsh, portfolio manager for the Strategic Income Fund, told Asian Private Banker. When the fund was pitched, he continued, “the recovery from the initial shock of the pandemic was well underway and we still had a lot of liquidity being pumped in by central banks and a lot of support from governments. That was driving performance and spreads on risk assets and yields to very low yields”.

Today, however, the backdrop for bond investors is dramatically different with surging interest rates amid persistently high inflation leading to a substantial sell-off in credit markets in 2022.

Walsh pointed to several steps that TwentyFour Asset Management has taken in order to help preserve investors’ capital this year. They include going through the portfolio “line by line to make sure we’re not holding anything that can hurt us” and removing companies that have a harder time passing on higher prices to customers, such as telecom providers. Walsh added that the fund has also “generally moved up the ratings curve” in terms of the bonds it holds and increased liquidity to around 20%.

What they said then:
During the first APB Intensive event, German asset manager DWS cited attractive risk-adjusted returns and potential market mispricings as reasons to invest in its DWS Investment Global High Yield Corporates strategy.

Among the opportunities highlighted by Felix Jüschke, global head of fixed income specialists, in December 2020 were those in European high-yield. He cited lower default rates in the region relative to US high-yield and a higher proportion of issuers rated BB/Ba2, or one notch below investment grade. “In many years the European high-yield market has outperformed the US high yield market on a hedged basis,” he said.

“Global high yield increases the opportunity set on the macro and micro level,” he added. “For the yield-seeking investors, it is a decent asset class that provides good spread and yield pick up versus investment grade and emerging market fixed income.”

What happened next:
Performance of the fund since DWS pitched it at APB Intensive 1 has been driven by overweighting issuers viewed as potential candidates for ratings upgrades, as well as adding exposure to sectors that provide protection against inflation, such as energy-related names.

While the DWS fund benefited from an underweight in longer duration issuance ahead of a sell-off in government bonds earlier this year, its performance was hurt by an overweight allocation to sectors that were affected by COVID-19, such as airlines and leisure.

“Various risks remain including the ongoing war in Ukraine and a potential cut-off in gas to Europe which could lead to recession,” Charles Poon, a senior product specialist at DWS, told Asian Private Banker. “China’s COVID policies could have implications for global supply chains and could slow its domestic economy.”

What they said then:
With yield having become a scarce commodity for investors in recent years, Jupiter Asset Management’s Huw Davies pitched convertible contingent bonds as offering “good liquidity and value” relative to other parts of the credit markets.

Davies, assistant fund manager, fixed income, pointed out that about US$17 trillion worth of fixed income issuance worldwide was negative yielding and that only 10% of global credit issuance yielded above 3%. “Yield will be a very big story for some time to come as we see central banks keep interest rates low as they look to support their economies through 2021 and 2022 in support of, what they hope will be, a very vigorous recovery,” he told fund selectors.

Convertible contingents could provide a solution, he argued. Launched in 2013 to support the banking sector’s capital-raising efforts following the global financial crisis, CoCos, as these instruments are better known, can offer investors in some cases higher yields than bonds but with lower risk.

Davies pointed out that as of October 2020, the Jupiter Financials Contingent Capital Fund was yielding about 5.7%.

What happened next:
Luca Evangelisti, head of credit research at Jupiter Asset Management, told Asian Private Banker that the fund had benefited from a “combination of top-down positioning and a prudent security selection” in light of rising interest rates and inflation.

“As spreads tightened aggressively in 2021, we adopted a progressively prudent approach in the strategy which has led to us avoid most of the new issues in the primary market and also to reduce some exposure to banks with a less comfortable fundamental profile,” he explained.

The fund has avoided exposure to banks with operations in Russia, Ukraine and Belarus, whose issuance has been hit by geopolitical strife. Jupiter Asset Management has reduced the fund’s duration in light of aggressive global monetary tightening.

“CoCo valuations are even more attractive now compared to the end of 2020 with average yields exceeding 7%,” Evangelisti added.

What they said then:
T. Rowe Price’s China Evolution Equity Fund seeks to invest in those companies that the asset manager believes will play a significant role in driving innovation in the world’s second-biggest economy over the coming years.

Gerald Koh, head of intermediaries, Southeast Asia, T. Rowe Price, explained to gatekeepers how the fund has a 95% active management share and seeks to uncover opportunities below the US$30 billion market cap threshold.

 

“We want to go beyond the obvious to discover unidentified opportunities and emerging trends,” said Koh. “The future winners in 10-20 years from now are not the megacap companies that we see in the market today. We want to be investing in change.”

The fund takes a bottom-up approach and invests across markets in Greater China. The strategy was overweight consumer discretionary, consumer staples and industry. It was underweight financials and communications services.

What happened next:
The fund generated alpha versus its benchmark in 2021 as the portfolio managers largely navigated the worst of Beijing’s regulatory crackdown on sectors including technology, online education and property.

“A lot of [the actions] were more targeted at the megacap names and areas that we are not fishing in,” said Koh. “So the fund did really well.” The China Evolution Equity Fund was helped by its exposure to auto suppliers and semiconductors, which were boosted by global shortages.

However, 2022 has been a different story. The fund’s performance has been affected by its lack of holdings in the financials and energy sector, verticals that have been supported by a style rotation from growth to value, and the effect of the Russia-Ukraine war, respectively.

What they said then:
South Africa-based Ninety One’s Asia Dynamic Bond fund is a high conviction, bottom-up fund that seeks to take advantage of opportunities across the region’s high yield and investment grade spectrum.

“The key here is to avoid the landmines as much as it is to find the alpha opportunities,” said Alan Siow, one of the fund’s portfolio managers at APB Intensives 1. He pointed to what was at the time brewing credit stress in China’s property market, which is home to a high concentration of Asia-Pacific’s high-yield issuers.

He predicted that more defaults would come across the real estate sector and COVID-19 would return to haunt the Chinese economy. “We expect more volatility and this could create opportunities for investors that have done their homework,” Siow added.

What happened next:
While the fund has held an underweight allocation to China, the Asia Dynamic Bond strategy’s performance in late 2021 was unable to avoid the fallout of a credit crunch at China Evergrande that spread across the country’s real estate industry.

In 2022, the fund’s performance has been affected by a sell-off in global fixed income markets amid escalating interest rates, as well as weakness in the Chinese economy. “The combination of COVID-zero and high oil prices has put headwinds against the Chinese economy,” Siow said, “and as we know in Asia when China sneezes, the rest of us may catch a cold.”

However, he pointed out that the fund has reduced duration in an attempt to mitigate the worst effects of higher interest rates. The strategy has avoided Sri Lanka’s sovereign default earlier this year and the near-default in Pakistan. “We have delivered what we say on the tin,” Siow explained, and have “stuck to our knitting”.

What they said then:
The Robeco Global Total Return Bond Fund aims to achieve 150bps of alpha relative to its benchmark annually using a global, actively-managed approach that invests across developed market global and corporate bonds, as well as emerging debt.

David Hawa, client portfolio manager, fixed income investments, told fund selectors that Robeco’s research-driven approach meant it could determine mispricings and identify opportunities in global credit markets.

“Markets are not efficient and undershoot or overshoot depending on panic and greed,” he explained.

Hawa said that Robeco’s European expertise coupled with a global outlook had allowed the fund manager to identify “tremendous opportunities” in more volatile markets such as Italy and Spain, where “understanding the dynamics of what’s happening on the political side and on the economic side is essential”.

What happened next:
The rising threat of inflation has resulted in losses for many global bond markets in 2022 as major central banks have rapidly withdrawn monetary stimulus.

In an investor update marking the end of 1Q22, Robeco noted that “yields have risen fiercely and curves have flattened significantly over the past 12 months globally”.

Because of that and of developments such as Russia’s invasion of Ukraine, the portfolio managers of the Robeco Global Total Return Bond Fund have made several readjustments to the fund’s asset allocation in 2022.

“After having run sizable underweight duration positions during most of 2021 and early 2022, we have adopted a more neutral duration stance recently and see more opportunities in yield curve and cross-market strategy,” wrote Jamie Stuttard and Bob Stoutjesdijk, portfolio managers.