Magazine Issues » October 2019

Interview: Timing the market

Amy_ChoAmy Cho, Schroders’ Hong Kong chief executive and regional head of intermediary clients, tells Romil Patel about Hongkongers’ love of investing, staying nimble in a volatile market and following ESG principles.

You joined Schroders in December 2018 and your responsibilities include helping to drive the next stage of growth of the Hong Kong business. How have you settled into the role and what are your long-term business aims?
Schroders is a public company, but we are still 48% owned by the family. In that regard there is a heritage of looking at things in a long-term way and the institution is very focused on people – we aim to look after our people, which is the biggest asset of the firm. But we don’t want to be complacent. It’s how we can – together with the people, human resources and talent that we have – contribute to the environment and community from an investment management perspective.

What product trends are you seeing in the Hong Kong funds market and what do you expect to happen over the coming 12 months?
I have two roles: looking after the Hong Kong business, so all institutional and intermediary business falls under me, as well as the regional role – I look after intermediary clients in particular for Schroders in Asia-Pacific (APAC). In terms of the local market, Hong Kong investors love investing. Their investments include, but are not limited to, mutual funds, whose penetration has improved over the years – particularly with the introduction of the Mandatory Provident Fund (MPF) in 2000.

People started to have a longer-term outlook on financial planning or retirement savings, even though Hong Kong enjoys a very simple tax regime. The introduction of the MPF helps investors to be aware about how to save money over the long-term and after retirement to sustain the same quality of life. In terms of mutual funds, the SFC – the Hong Kong regulatory authority – has been working very closely with the industry in terms of safeguarding the interests of the end-investors whilst making sure that we have the relevant products that are being offered to public investors here.

What are your top business and investment challenges right now?
What we are seeing is that the market has been volatile and in terms of investors timing the market, it is not easy. Because the market is volatile, investors may want to stay cautious and look for lower-risk investments or alternatives. They may look more at income-oriented solutions, such as fixed income and multi-asset income. Why multi-asset? Investors are realising that it is just too difficult to time the market and they may not be as nimble as a professional investment manager in terms of making asset allocation changes in the event of risk developments.

Investors generally still want to stay invested, but they will likely increase more allocation into low-risk options, such as fixed income and towards examples of income-paying multi-assets, which are predominantly income solutions. This goes back to the underlying challenges everybody faces: a low interest rate environment coupled with low growth and low returns at the same time.

Is the continued US-China trade war affecting investor confidence and investments?
I wouldn’t deny that. On the institutional side this year, investors have been a bit more cautious and the risk-off mode is still on. On the intermediary space, whether private bank clients or retail investors, they stay cautious but are not avoiding all risk. So, they are not in total risk-off mode, they still stay invested but pick the more prudent investment options, including the income-oriented solutions.

In August, we saw a so-called ‘yield curve inversion’ for the first time since 2008. How alarming is this for investors and to what extent are there fears that a recession could follow?
Starting from late last year, given the interest rate trajectory, what has been selling successfully this year is global credit income, so it is very globally diversified. Credit, because people are not looking just at government bonds, given low interest rates and low yield challenges. Investors are more willing to take on credit exposure – high-grade investments that will generate better returns than bank deposits for them. Because of the low interest rate environment, putting money in the bank is not yielding anything after inflation adjustment, so this trend will likely continue.

Will investors be forced to adjust their time horizons as responsible investing becomes a more prevalent part of the investment landscape?
More institutions, or sophisticated investors, are talking about sustainable investing. In terms of its implementation and increasing awareness among the general public, that will take some time. People know what responsibility is but are not exactly applying it to the investment space yet. Today, investors predominantly look at the return opportunity and risk tolerance but may have not seriously considered the impact in relation to the environment, social and governance (ESG). This is up and coming because as a very active major player in this region, including Hong Kong, we are seeing institutional investors paying more attention to ESG and asking and expecting the managers they appoint to incorporate ESG into their own investment process, if not as an investment theme.

On the intermediary space, even though there aren’t a lot of sustainable ESG investment funds that you can find in the Hong Kong market, intermediaries are increasingly talking to fund managers, who are close partners, in terms of helping to improve the know-how.

How do you incorporate ESG factors into your investments and what are your core focus areas?
The first is through integration, so incorporating ESG into the investment process. As a bottom-up manager, we always look at governance – the management quality and sustainability of the management team, it’s just how the E and S would play into our whole investment process, including the stock selection and portfolio management process. On that, we have a dedicated sustainability/ESG team that focuses on putting together governance for all the various different internal teams to respect. But it’s not one-size-fits-all, because different asset classes will need to apply ESG in a slightly different way in order to make sure that we stay relevant. The other part around how we apply ESG is via asset investment themes. This will likely be thematics. For example, we have climate change, global cities and energy transition investment funds. These are the themes that are about ESG and we have investments accordingly in the group.

When we talk about sustainability, those type of investment funds are primarily aiming for long-term, sustainable and a secular growth story rather than a regionally or globally biased fund. It is not cyclical – it is not short-term, but about long-term, secular and self-cyclical growth.

Can you identify some of the dynamic investment themes?
We have a few thematic investments, such as climate change and the energy transition. Our plan is to launch more down the road and give investors a choice where, if they have a specific conviction in any theme, they can make an allocation to it.

How does Hong Kong compare to the rest of Asia when it comes to ESG investing?
It’s behind. In Hong Kong and Asia more generally – other than Australia and Japan – ESG is playing a catch-up game. Institutional investors are realising that and are starting to incorporate ESG into the manager selection process, whilst intermediaries are trying to do more in terms of ensuring their sales force is up and running when it comes to talking about ESG. Mutual funds generally in Asia are being sold more than bought, so we need the frontline people who are promoting the funds to be well-versed before they can explain the beauty or benefit of having ESG in the portfolio to end investors. The Hong Kong SFC has recently put forward guidelines for investment managers to refer to. For any of the investment funds that they would like to market under an ESG label, the SFC has guidelines in terms of the criteria the funds need to meet to have this label. This is challenging because there is no universal definition of ESG.

Given the market volatilities and various geopolitical matters, it is not a bad time to promote and draw awareness of ESG to general investors, because this helps them to pursue more long-term investments with a better quality of risk-return profile.

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