UCITS funds continue to be one of the most popular forms of foreign-domiciled funds in Asia Pacific according to an article written 30 May 2013 by Sanjay Jayant, Global Head of Product Solutions – Fund Services, HSBC Securities Services. Their popularity, says Jayant, is principally down to the level of protection their give investors and, if they are domiciled in Luxembourg or Ireland – as many UCITS funds are – certain tax advantages.
Fund promoters and managers in Asia are busy capitalizing on what has become an internationally recognized fund wrapper and as Jayant writes: “Fund managers are using UCITS to tap into an increasingly affluent Asian investor base. Economic growth in most Asian countries is relatively high…and that growth is both enriching and increasing the longevity of the population. Wealthier, ageing populations need long-term investment and retirement products, and UCITS often fit the bill.”
As for why an EU investor might wish to favour a UCITS fund managed by an Asian fund manager as opposed to one located in Europe is really a function of the fund strategy. If, as Jayant points out, the fund is investing in Asian assets, as Asian manager will necessarily be closer to the market and “have a better sense of risk and return”, as well as benefit from operating in the same time zone; a crucial factor during frothy market conditions.
Whilst there will no doubt be challenges ahead, Jayant is optimistic on the growth potential of UCITS funds in Asia: “As the region’s middle classes grow, so will the demand for safe collective investment vehicles. However many other competing products enter the fray, UCITS start with a clear advantage.”
Investec Asset Management is preparing to launch a UCITS version of its Investec Diversified Income fund in response to demand from international investors, reported Citywire Global this week. The Investec GSF Diversified Income fund will use the same investment strategy as the multi-asset Investec Diversified Income fund, managed by John Stopford since 1 July 2012, according to Trustnet.com. The strategy invests across fixed income securities, equities as well as derivatives. The UCITS version of the fund will be less focused on the UK market according to Stopford and take more of a stance in finding global equity opportunities.
Global asset manager Russell Investments has launched the Russell Absolute Return Bond Fund, a FoFs that is designed to use diversified strategies and skilled managers that have the flexibility to deliver positive returns in any market conditions. The fund will utilize a number of active strategies across interest rates (both developed and emerging markets), currency and credit markets, and employ both long and short positioning. Commenting on the fund, James Mitchell, Russell portfolio manager, said: “Investors in conventional fixed income strategies currently face a number of challenges. As developed market yields are at or near historic lows, investors using market cap-weighted fixed income benchmarks are locked into portfolios that are progressively getting riskier and are greater risk from rising interest rates and capital losses.
“Russell's newest fund has been designed to over come these challenges, employing a mix of our highest-conviction strategies and managers to provide a well diversified fund designed to deliver positive returns in a wide variety of market environments. We've got a strong track record in managing fixed income assets and we want to capitalise on this to offer even more to our clients.”
Finally, EFAMA this week reported in its latest quarterly release that UCITS enjoyed the largest quarterly net inflows in Q1 2013 in over six years. Total net inflows amounted to EUR130billion; the highest recorded inflows since Q1 2006. This would appear to underscore just how popular UCITS remain among global investors, boosted in no small part by the strong performance in financial markets across the globe. Ten countries attracted net inflows in excess of EUR1billion, said EFAMA. Luxembourg led the way, attracting EUR67billion, followed by Ireland with net inflows of EUR36billion.
Equity and bond funds recorded an increase of 8.8 per cent and 4.5 per cent respectively for the quarter. Net sales of balanced funds reached EUR36billion, compared to EUR13billion in Q4 2012. Total UCITS net assets rose 5.5 per cent to EUR6.641billion as at 31 March 2013. In addition, the combined assets of Europe’s investment fund market – including both UCITS and non-UCITS funds – rose 5.0 per cent in the first quarter to reach EUR9.3trillion.