Most managers believe bond funds, as well as deposit-like investment products such as money-market funds (MMFs) and capital-protected funds, will be back in favour this year, according to a report published today by Cerulli Associates.
Last year was a challenging year for many fund houses in Southeast Asia as the industry saw higher inflows to lower-margin, lower-risk assets such as fixed-income and MMFs. Bond funds, in particular, saw strong inflows in Malaysia and Vietnam, while deposit-like MMFs led inflows in Indonesia and the Philippines.
The trend, if it continues this year, could hit inflows into higher-margin products such as equity funds and affect the profitability of asset managers, especially those that focus mainly on equities. Although most distributors initially expected a rebound in global equities this year, the conviction has wavered following the market turmoil and economic fallout caused by the coronavirus pandemic in the first quarter of this year.
With heightened volatility and uncertainty surrounding global economies and markets, asset managers should reassess their priorities and be more selective of the types of products they plan to launch this year.”
In 2019, bonds were the only asset class that saw net new flows into feeder funds in South-East Asia ex-Singapore, reversing the trend in 2018, when only equity feeder funds saw net new flows. Bond feeder funds also saw a 3% increase in their marketshare of feeder fund assets in the region in 2019, while both equity and mixed-asset feeder funds saw slight declines in their marketshares.
In the region, all three countries that allow feeder funds—Thailand, Malaysia, and the Philippines—saw a slight increase in feeder fund assets in 2019. Thailand led with $13.4 billion, followed by Malaysia (US$4.2 billion) and the Philippines ($400m).
Despite the uncertainty caused by the global spread of coronavirus, local managers in Southeast Asia ex-Singapore continue to express interest in seeking partnerships with foreign managers to launch new products. Managers told Cerulli that they have plans to form new product partnerships for global equities, global fixed income, and sectorial equity strategies such as healthcare and technology.
Some shared they also have plans to work with external managers for alternative and environmental, social, and governance (ESG) strategies. However, as the situation with the coronavirus is still fluid, it remains to be seen if managers will proceed with these plans.
Nevertheless, there are plenty of opportunities for foreign asset managers—particularly those without onshore presence—to work with local managers in the region, especially within the fixed-income space. Malaysia, for example, saw the launch of feeder funds that feed into global fixed income and MMFs earlier this year. In January 2020, RHB Asset Management partnered with AllianceBernstein to launch the RHB American Income Fund.
"The coronavirus pandemic may impact prospects and attractiveness of certain asset classes, and investors might take a more conservative stance this year," said Shannen Wong, a senior analyst at Cerulli.
"With heightened volatility and uncertainty surrounding global economies and markets, asset managers should reassess their priorities and be more selective of the types of products they plan to launch this year."