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瑞联银行新闻报道 18.12.2020

The drift towards thematic investing

The drift towards thematic investing

Rankia Pro (12.2020) - Interview with Didier Chan-Voc-Chun, UBP’s Head of Multi-Management & Fund Research

How is your team organised?

We always pay close attention to the profiles and skills that we have in the team and how they complement each other. A good example is our latest addition; our intention was to get a more “millennial” perspective and to rejuvenate our approach to manager selection. We’ve also taken advantage of UBP’s growth to make sure that we approach cultural differences and awareness in the best possible way. Today, we cover Asian managers on the ground in Hong Kong and Singapore. This also allows us to better support our clients and relationship managers. We also have resources at the Bank’s headquarters in Geneva, as well as in Zurich and London

We are primarily organised by traditional asset classes, but in recent years our set-up has evolved in step with industry and client needs. With sustainable investing now taking centre stage in UBP’s offering, we’ve enhanced our processes and adjusted our coverage. A second aspect is thematic investing; previously it’s been overlooked but has lately become increasingly relevant. This has pushed us to reorganise ourselves to make sure that we have comprehensive knowledge of the thematic space and make the appropriate offering to our clients. 

How important is it to have a market opinion when choosing a product?

Selecting funds – or any other instrument – should never be isolated from the overall investment strategy of any financial institution. Our goal is to provide a conviction-based palette of funds that can accommodate any market environment and any strategic objective. Nevertheless, it’s paramount to have a good understanding of the asset class and, if not, a firm market opinion, or at least a solid awareness of the market environment so as to be able to challenge the manager. 
The job requires a certain level of flexibility and agility. When our Global Investment Committee articulates a market view for which a very specific strategy is needed, having internal resources at our disposal allows us to quickly engage with the relevant managers and onboard the right solutions: it’s crucial to use the right tool for the right job.

How do you identify a good manager? What do you try to find out when selecting a fund manager?

Manager selection is a combination of art and science, and that’s precisely why our process combines quantitative tools with qualitative assessments. A good manager is not a one-man show, but rather the virtuous convergence of several aspects; in the team we call it the “ecosystem”. A good ecosystem means the firm where the fund is managed has the right ownership structure and is financially healthy. Then come the resources: we carefully analyse the team dynamics, the experience of its various members, as well as how they are incentivised, and whether or not this is in line with the fund’s objectives and the firm’s values. When it comes to understanding the process itself and where its competitive edge lies, we like a clear investment philosophy and we need to understand each step, from idea generation to implementation, and whether the manager can replicate their previous returns over time. Within the team, we’ve met a lot of good stock pickers in our respective careers, but a good portfolio manager with a comprehensive toolbox is a much scarcer resource. Once we have a clear understanding of all these relevant aspects and judge that the ecosystem is perennial, we’ll meet and take a decision. Within the team, we challenge each other because we all share these same principles.

How could fund managers improve their relationship with the fund selector?

The relationship between fund managers and fund selectors has improved over the years. From our perspective, it has become more of a two-way discussion than the old-fashioned, Q&A approach, and it goes beyond the perception of fund selectors being gatekeepers. I feel that third-party managers today have a better knowledge of the selectors’ organisations, client bases and needs. Fund managers are also keener to be challenged and even sometimes to pick the brain of the fund selector on a specific aspect of their investment process or their broader knowledge of the industry. At the end of the day, it remains a business of trust. Transparency and proactivity are key and you cannot patronise your clients. In terms of interactions, we like them to be more frequent and much shorter.

What is your relationship with the end customer?

Being in a wealth management business, feedback from the end customer is key. From large institutions to entrepreneurs, the variety of these exchanges is very insightful. As much as we are happy to provide solutions to their needs, it is crucial for us to have their perspectives on developments that we consider attractive. Generally, UBP is perceived as a client-oriented organisation with a strong ability to innovate and to adapt to market changes. 

Looking to the future, what role will thematic funds have in portfolio management?

An increasing number of managers are throwing off the shackles of traditional portfolio management and reimagining multi-asset investing. This comes with increased flexibility in the choice of equity strategies as opposed to long-established regional or style buckets. In most cases, allocating to thematic strategies comes with a wealth of advantages, such as exposure to companies that benefit from powerful long-term trends. It provides us with access to highly skilled, specialist managers who tend to be less constrained by their investment universe and who are able to capitalise on a theme’s value chain. We are seeing significant efficiency gains in portfolio management, as thematic investing tends to have a longer time horizon than conventional allocations. However, thematic allocation brings a complexity that requires expertise in the field. An allocator needs to identify investable themes that provide an attractive risk-reward profile. 

It’s crucial to gain a deep understanding of the managers, as their investment universes and processes can vary, potentially leading to diverging outcomes. Given its potential benefits, we expect thematic investing to keep gaining traction as comfort and expertise levels increase.

What themes do you believe will be key players in thematic investing?

We see thematic investing as being all about adopting a long-term horizon and building a no-nonsense portfolio rather than attempting to pick the hottest theme. Our aim is to generate long-term value and outperform the broader equity market by selecting themes, picking the best managers and blending them together in diversified portfolios. Each theme must provide exposure to one or several of the four secular trends which constitute our framework: climate change, demographics, consumption patterns and disruptive innovation. These structural trends will act as a tailwind for those companies which are able to take advantage of them. Recently, we’ve been trimming strategies in the technology and consumer space that have been direct beneficiaries of the pandemic, and adding to those that are either more cyclical or likely to benefit from fiscal stimulus, for example in the environmental and infrastructure space in Asia. The aim is to maintain a balance and provide some degree of insulation from the macroeconomic environment while offering a decent upside potential in a normalisation scenario.

How does thematic fund selection differ from the more general equities or fixed-income selection? Do you look for something different in the management style?

The core of the selection process remains the same. Only a few key elements are emphasised in thematic fund selection. While the investment universe of traditional strategies is well-defined, it gets more complicated in the thematic space. Understanding a manager’s investment universe is crucial: if the universe is too narrow, the manager will not have a large alpha potential, and too broad a universe is likely to defeat the purpose of thematic investing. Managers use varying definitions and purity criteria for inclusion in their universe. As a result, two seemingly similar strategies can have different risk exposures. It is critical for the fund selector to grasp these differences and analyse fundamental metrics to ensure that the value proposal extends beyond storytelling. Last, combining thematic strategies can prove challenging, as risk exposure is often not intuitive. Therefore, we believe that a thorough risk analysis is pivotal in order to avoid unwanted exposure when blending thematic funds.

Perhaps the most important investment theme for the coming decades is responsible investing; what specific sustainability trends are you most excited about, as an investment professional?

We believe sustainable investing will become a core allocation in our clients’ portfolios. We’re especially excited about impact investing. Impact investing aims to achieve a dual mandate: to generate a measurable social or environmental impact alongside a financial return. Companies which help to solve the world’s acute societal and environmental challenges should experience faster growth, fewer regulatory problems and superior profitability. Although still relatively new, it’s gaining both credibility and popularity with investors. The market is growing fast. The Global Impact Investing Network (GIIN) estimates that, as at the end of 2019, over 1,720 organisations managed some USD 715 billion in impact investments.

Besides detailed screening, fund evaluation, and exclusion-based strategies, how are you and your selection team at UBP incorporating the transition of investment strategies to a more sustainable footing?

We realised that we could not only rely on picking a sustainable and responsible investment (SRI) scoring to analyse third-party funds, and that a qualitative assessment was needed to avoid drawing flawed conclusions. SRI investment is holistic and goes far beyond the traditional financial investment framework, which tends to ignore ethical, social and environmental risks. These factors are, however, subjective and therefore more difficult to assess and integrate into a traditional due-diligence process. We supplemented our core selection process with a proprietary SRI framework that goes beyond science to evaluate the managers we intend to select. For instance, we believe that challenging managers about specific holdings can be relevant. Controversial stocks are always a good pick, as managers tend to have strong and diverging views when it comes to SRI attributes. Discussing a specific stock enables us not only to grasp the essence of the approach, but also to get closer to a hands-on experience. At the end of the day, the idea is to assess the robustness of the thought process and rationale rather than focus on the conclusion. The transparency gained through this approach is essential for getting the necessary understanding of the sustainable features of our recommendations and to offer our clients the solutions that match their own expectations in terms of sustainability. Last, we’re not only incorporating SRI factors in our due-diligence process: we also have dedicated resources in the team and are offering our clients exclusively SRI mandates.

Didier Chan-Voc-Chun
Head of Multi-Management & Fund Research


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