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EFG sees more ETF inflows

EFG sees more ETF inflows

In an exclusive interview with Citywire Asia, EFG's head of investment counselling, Edward Liu, shares his views on passive strategies, liquid alternatives, and more.

Q. Tell us more about your role.

A. I oversee the team of investment counsellors and specialists at EFG Bank in Hong Kong.

Q. What size is your funds team?

A. We have one fund specialist based in Singapore providing fund advisory and a team of three in Hong Kong focusing on fund due diligence and product management.

Q. How many funds are there on EFG’s high conviction list? At what point will a fund be delisted?

A. We have 20 to 30 funds on our high-conviction list, with one or two funds per asset class. We do an in-depth review at least once a year.

We will delist a fund for reasons such as underperformance due to a change in investment process, weakened risk management or simply because we have found a better replacement.

Q. Have you started any partnerships with new asset management firms?

A. We’ve not onboarded any new managers this year, but we’ve introduced about 10 new funds to our platform.

This includes funds in emerging market equity and fixed income, particularly global fixed income and the global technology equity sector.

Q. Has EFG onboarded any smart beta products?

A. We’ve not onboarded any smart beta funds for two main reasons.

First, we don’t see much demand from clients.

Second, smart beta is quantitative in nature and because of this, we are very cautious about the mean reversion and crowding effects of these strategies.

Q. Are you seeing more demand for passive strategies?

A. At both the industry and organisation level, we are seeing more investments into ETFs in the thematic equity space.

Within the technology sector, for example, clients have asked for ETFs that would give them exposure to robotics and artificial intelligence.

However, when it comes to bond investing, clients still prefer actively managed mutual funds over ETFs.

Q. What is your view on liquid alternatives?

A. There is demand for liquid alternatives at the industry level, but we’ve not seen much interest from our clients.

Especially after the 2008 financial crisis, liquid alternatives will appeal to investors interested in investing in hedge funds but uncomfortable with the gate provision and the illiquidity surrounding the traditional structure.

However, I personally prefer traditional hedge funds.

Investors going into a hedge fund should hold a longer-term view and believe in the managers’ experience and ability to adapt to market conditions and identify new opportunities.

How has the demand for fundlinked structured products been?

A. Demand for fund derivatives within the private banking industry has been muted for many years, but interest was reignited in late 2016.

As with many other private banks, we have managed to raise a substantial amount of assets through these fund-linked structures.

Capital protection is one of the features that our clients appreciate. Some clients prefer investing in single bonds rather than bond funds because they will get back their principal at maturity unless a default happens.

However, in today’s environment, where credit spreads are very tight, investors will need active management skills to generate alpha.

A principal-protected structure will therefore appeal to this group of clients.

Q. What role does the funds team play in selecting the underlying funds?

A. Our funds team focus on identifying ‘best-in-class’ funds in different asset classes, regions and sectors.

The funds on the high conviction list may be used as underlying funds in fundlinked derivatives.

This tends to be stable fixed income funds with long track records.

Q. What are your thoughts on consolidations within the asset  management industry?

A. This is bound to happen as competition in the industry intensifies, as we have seen in private banking. In merging with another firm, fund houses should focus on creating the right synergy and consider theeconomies of scale they can gain.

Q. What are your thoughts on consolidations within the asset management industry?

A. This is bound to happen as competition in the industry intensifies, as we have seen in private banking. In merging with another firm, fund houses should focus on creating the right synergy and consider the economies of scale they can gain.

Q. Tell us about the worst meeting you’ve had with a fund manager?

A. This happened back when I was more involved in the selection of hedge funds. An outstanding mid-sized hedge fund caught my attention and I met up with the manager to discuss a potential partnership.

The first meeting went well, but it was a niche strategy and we needed to observe it for longer. We did that for about six months – which is pretty normal – and met the managers again after.

I had high expectations based on my prior experience, but in the second meeting the managers were unwilling to share anything about the commercial ventures of the fund, so it just ended up being a little awkward.

This article appeared in the 2017 Asia Selector supplement to the Citywire Private Wealth magazine.


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