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COVID-19: How can fund managers adapt?

Deepak Khurana
Deepak Khurana
Performance Director, Fund Ratings and Distribution, Asia Pacific, Refinitiv

Lipper Group Award winners spoke at a Refinitiv webinar where they gave their expert views on how COVID-19 will transform the industry, and highlighted opportunities these changes will present to Singapore fund managers.

  1. COVID-19 has permanently altered the financial services landscape. Experts at a Refinitiv webinar gave their views the nature of these changes, and how active fund managers can spot opportunities to generate alpha.
  2. The panelists agreed that fund managers need to be nimble and to focus on fundamentals, while also not losing sight of the long-term view amid the unsettling volatility in the markets.
  3. Two areas that fund managers should focus on are digitalization — including the use of technology such as artificial intelligence and big data analytics — and ESG, where investing tenets are reducing investor exposure to risk.

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As the world and its financial markets attempt to recover from COVID-19, there is little doubt in anyone’s mind that things will not go back to the way they were before the pandemic took hold. There is precious little certainty on everything else.

One of the many disruptions to the old way of doing things is Refinitiv’s decision to convert the latest edition of the annual Lipper Fund Awards — which honors excellence in Singapore’s asset management industry for more than 30 years — to an online format.

We brought together the winners and industry professionals for a webinar to discuss and debate current trends in the asset management industry, and help address investors’ concerns about the future and what it holds.

The webinar featured a panel discussion with some of the Group Award winners of the 2020 Refinitiv Lipper Fund Awards, Singapore. They included AllianceBernstein (Best Group Over 3 Years for Mixed Assets), J.P. Morgan Asset Management (Best Group Over 3 Years for Bond), and UBS Asset Management (Best Group Over 3 Years for Equity).

Listen to the webinar: Singapore Investment Management 2020: A Dynamic and Competitive World. COVID-19: How can fund managers adapt?

What can fund managers learn from the crisis?

In the short term, what should asset managers be doing? In order to arrive at a reasonable prediction of the future, it’s important to recognize the current situation.

According to Mark Wightman, Asia-Pacific Wealth & Asset Management Advisory Leader at EY, businesses around the world have demonstrated a high level of operational resilience despite widespread lockdown measures disrupting demand, scrambling supply chains, forcing people to work remotely and complicating existing challenges related to technology, cybersecurity, and governance.

Going forward, he predicted, companies will seek to learn from these experiences to reappraise product lines and market strategies, and contemplate a measure of consolidation, while building a greater degree of flexibility into their business models.

Download the Report — Dawn of a new age: Data and sustainability in fund management

Brian Tan, Head of Singapore Funds and Global Strategic Relationships, Asia Pacific, at J.P. Morgan Asset Management said that as the global business landscape undergoes a transformation, it is expected to create investment opportunities. These will occur in key markets such as China, and in sectors such as healthcare and technology.

Global estimated net flows — asset type

Global estimated net flows — asset type. COVID-19: How can Singapore fund managers adapt?

Tan also made a case for alternatives, noting that they were drawing a growing amount of interest for performing well in an uncertain environment.

Reiterating the case for nimble and active fund management, he added: “Volatility and market dislocations create opportunities — so the key is to be dynamic, flexible, and ready to pivot.”

Focus on fundamentals

A nimble approach should be paired with a focus on fundamentals and it’s vital to adopt a long-term outlook, the panelists advised, disagreeing with the findings of an audience poll that highlighted investors’ concerns about the current valuation of global equities.What's your view on global equities? COVID-19: How can Singapore fund managers adapt?Sherry Wong, Head of Products, Asia Pacific and Head of Asset Management, Singapore and Southeast Asia, UBS Asset Management, observed that while much depended on how countries ease lockdown measures, China’s efforts in this direction and the subsequent pickup in overall economic activity — especially in the e-commerce sector — was promising.

There are pockets of opportunities to be found in both equity and fixed income markets for active fund managers, she added, noting: “It’s really important that you find the right manager who can select the right markets, and look at the fundamentals of stocks, and also how the pandemic can change the market structure and some of the sectors going forward.”

In agreement over the advantages of an active fund management approach to capitalize on the opportunities afforded by COVID-19, the panelists also stressed the importance of taking the long view and the dangers of overreacting to short-term stress and volatility, which peak during crises.

ESG asset allocation

The fast-growing ESG segment is adding much needed diversity to client portfolios across Asia, the panelists agreed. They noted how ESG investing tenets could make portfolios less prone to risk and deliver better returns to investors while helping to address the climate change challenge.

Watch: Refinitiv Perspectives LIVE — ESG Investment, a cure all for Asset Management?

An audience poll on the topic showed half of all respondents said that investors’ focus on performance as a key challenge to adopting ESG. In response, the panelists stressed why this need no longer be a concern.

“I don’t think there is any further doubt that integrating ESG into your portfolio helps with risk management,” David Wong, Senior Investment Strategist and Head, Asia Business Development, Equities, Alliance Bernstein, said.Key challenges implementing ESG into investment decisions. COVID-19: How can Singapore fund managers adapt?“Investors should not see returns and ESG strategies as mutually exclusive. They can go hand in hand,” Tan concurred, adding that ESG investing can deliver enhanced risk-adjusted returns.

Global estimated net flows ESG funds — asset type

Global estimated net flows ESG funds — asset typeOpportunities for active fund managers

ETFs as an investment vehicle have been growing steadily in popularity, attracting an increasing proportion of inflows.

The argument to favor active fund managers was supported by the other panelists. David Wong said: “This COVID-19 crisis actually brings a major opportunity for active managers.”

Global assets under management — active, passive

Global assets under management — active, passiveSherry Wong said that ETFs could work for investing in up-and-coming sectors with few listed companies, an approach that doesn’t warrant active management.

However, she emphasized that active strategies may be better suited to take advantage of opportunities in emerging markets, especially during times of crises.

“So I think ETFs will develop a bit more slowly in Singapore and Asia. There will be growth but it will be more measured.”

If there is a silver lining to COVID-19, it would be the acceleration of the process of digitalization, the panel unanimously concluded.

Summarizing the changes the world is undergoing at the moment, including the growth of technology, Wightman observed: “This is not going to flip back to where we came from. There is change coming.”

Download the Report — Dawn of a new age: Data and sustainability in fund management

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