Archives » 2006 » Issue 44 (October)

As wealth management continues to shine, retail banking players are muscling in on the business, but can they afford to compete?

Hansjoerg Borutta, the global head of all alternatives products for UBS Wealth Management and branch banking, has been confirmed as a key speaker for the forthcoming FT Business private banking summit in Geneva.

— Ellis: meeting demands for wider choice

Fidelity International is to offer European distributors 12 new Luxembourgdomiciled Sicav funds, including two groups of core multi-asset and specialist portfolios. The launch of this range is part of the company’s ambitious plan to build a global multi-manager business for both retail and institutional clients.

— Hofman: they are not a panacea

Elisa Trovato examines the growing industry trend for investment banks to provide structured product expertise to their wealth management clients

Vincenzo Bafunno, chief executive officer of UniCredit group’s Xelion Bank will be talking of the key role of “promotori” in opening up the fund range in Italy and the importance of a chargeable advisory service for clients at the fifth in the European Fund series of afternoon conferences, to be held at the Hotel Principe di Savoia, in Milan’ s Piazza della Repubblica on 18 October.

Seven banks operating in China have so far been granted licences under the new qualified domestic institutional investor (QDII) regime including HSBC and Citigroup. Product launches on the back of the new regime last month are starting to give an indication of how the Chinese private banking market might look once the deregulation programme is complete. The QDII regime effectively allows banks operating in China to purchase a quota of foreign exchange to invest client funds offshore.

Investors seem to be turning their backs on Japanese equities, with many predicting a gloomy future for the asset class. In contrast to this, they are looking to Europe with over half optimistic over its prospects, writes Elizabeth Cripps

— Vorndran: private clients have been quicker to embrace commodities

If anything has benefited from Credit Suisse’s ‘one bank’ policy, it is the asset management division, which has seen assets swell and

status soar. Yuri Bender speaks to Philipp Vorndran, the company’s influential investment strategist, about his allocation ideas

Investors should not be concerned about rampant commodity prices or temporary corrections, believes Philipp Vorndran. “I am calling on private clients not to reduce exposure to commodities. People who are talking about a bubble in commodities have not realised the underlying power of the commodities boom,” he says. “It is not a cyclical story, it’s a long to medium-term story of supply and demand mismatch.”

Such is the appetite for alternative and innovative products, that manufacturers and distributors are experiencing a pull for their wares from investors. However, traditional alternatives are not the only target, as demand for specialist structured products and equity funds enter the mix. Yuri Bender reports

Best in class

Last month we discussed the challenge of building the correct asset allocation structure. This month we discuss how those assets can be managed to provide the best service for your clients.

In the UK, over the last three to five years, open-architecture delivery of investment through third-party distribution of mutual funds and sub-advisory relationships has revolutionised access for investors to top-performing managers and funds. It provides access to one-stop shopping and enables more consistent and robust product due to the ability to change investment content. However, it is surprising that the associated benefits are still not universally accepted.

The investment decision is crucial to the investor and eclipses the value of most other forms of advice given to clients – even taxation, given consistent reduction of tax benefits across investment products. Yet, despite the importance of this decision, investment remains a small part of the advice given to clients, with the majority of time spent on advising which wrapper to use – be it an Isa, bond or unit trust rather than which fund can best meet their investment needs.

As structured products become more scientific in their implementation, institutions are more willing to embrace the strategy. Elisa Trovato dispels some of the myths surrounding structured products and outlines the most attractive areas

BNP Paribas explains how commodities and structured products can improve a portfolio’s risk/return ratio and thereby satisfy the need for diversification

In replacing the regulatory framework for the use of derivatives in investments, Germany has opened the industry to more innovative use of the asset class and allowed funds to provide tailored fund solutions for investors, say Stefanie Ginsbach and Marc Boettinger, fund managers of DWS structured products

— Bhupinder Singh, Deutsche Bank

Quantitative research strategists at top banks typically spend their time advising hedge fund clients. Monetising this capability and packaging it for retail and institutional clients has become the latest trend in the structured products market, says Bhupinder Singh

The eurozone may be coming into its own as it has recently outstripped both the UK and the US. Recent market volatility has affected the zone, as it has other regions, but new opportunities have also been created. Simon Hildrey reports

“Over the month, our balanced portfolio has benefited from several bets such as European equity, corporate high yield and euro fixed income. Our bets taken for diversification purposes on equities have also positively contributed, as Asian and Japanese markets recovered over the last weeks. This month, we have slightly turned the allocation into a more secure way in order to keep the gains. We have decided to switch our growth bet on European equities into a core one that should be more resilient in a downside market. We have also cut our European convergence equity strategy because of high valorisation ratios.”

“We have left the asset class exposition of our portfolio virtually unchanged from August. We are still overweight in equities at 46 per cent and underweight in bonds, at 36 per cent, with alternative investments and cash at 10 per cent and at 8 per cent respectively. Due to the good relative performance of most of our fund picks, we have only changed the fixed income side. There we have sold two absolute return funds in favour of two euro-benchmarked funds, reflecting the improved outlook for euro benchmark bond prices.”

“After July’s bounce, August continued to see progress, with even some higher beta areas doing well. Also bonds rallied on the Fed, giving a good month for investors. Thames River High Income fund had a good debut month in our portfolio relative to the conventional bond fund it replaced, and the government bond funds from Mellon and Thames River did well relative to their peers. In Europe, we back JO Hambro’s defensive stance, and stick with Mainfirst for the bounce after a difficult period for this high flyer.”

"For a balanced portfolio, we continue to recommend an allocation of 40 per cent to equities, 30 per cent to alternatives and 30 per cent to fixed income. We will rebalance the portfolio to this allocation on a periodic basis. As the equity rally continues, we have taken some of these profits and reinvested in our fixed income and alternative allocations to ensure consistency. There were no manager changes during the month. We continue to watch the market data, and despite an apparent Fed pause, we remain cautious especially given the poor housing data from the US."

“During the summer, we continued to focus on the more conservative holdings. We trimmed our natural resources holdings, which we believe are in the midst of a secular bull market but are poised to suffer drawdown whenever the markets fear any type of economic slowdown. We also switched part of our European exposure to a portfolio dedicated to high dividend stocks. And last, we added to a conservative US equity manager. The equity weighting has not changed but the portfolio is becoming more conservative.”

“We still remain cautious and wait for more visibility before increasing our equity exposure. However, valuations are reasonable and offer protection against a severe downturn. The slowdown of economic growth now calls for a more defensive stance. On the fixed income side, we believe the risk-return ratio has improved due to less probability of a large rise in interest rates. We therefore increased our investment in LMS Global Bond fund, to the detriment of our fund of hedge funds.”

“Our portfolio is fairly balanced between bond and equity. In the eurozone, the investment in the mid to long-maturity government bonds has been increased against funds with a total return approach. The equity component of the portfolio remains conservative. Our preferences go again towards defensive funds or funds with a value approach, although some aggressive themes still remain in the portfolio with a very reduced weight.”

“Following the sharp setback in equity markets during early summer, most regions have experienced a gradual recovery to regain much of the lost ground. Earlier concerns about inflation and rising interest rates have been replaced by a belief that a gradual slowdown in economic growth and inflation will be achieved, without the world tipping into recession. Bond markets have also rallied but seem unlikely to improve much further without weaker economic data. Equity valuations remain attractive relative to bonds.”

“An unsettled geopolitical climate and the confirmation that the US economy is slowing down helped to sustain the pressure on US Treasury bond yield that had begun in early July 2006. Equity markets rallied further in August, with virtually all of the major sectors and countries participating in the rally. We remain overweight equities relative to the bonds. There were no changes in our asset allocation this month, even if we replaced Parvest Euro Advantage Bond Fund with DWS Forex Strategy Fund.”

Each month in PWM, nine top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

As Chinese equities recover after last year’s market correction, managers are launching new products to meet investor demand. Elisa Trovato speaks with two firms looking to capitalise in the region

Front office wealth management technology is growing in size and many providers are entering into partnerships in order to get a piece of the action. Elisa Trovato reports on the added value and efficiency offered by automation

In the ever-changing area of transfer agency technology, banks are finding it increasingly difficult to keep up with the demands of change. A trend for outsourcing is developing in an attempt to cut costs, writes Elisa Trovato