Challenging market an opportunity for active managers to shine
The year so far has been a challenging one for the asset management industry, as better-than-expected global growth has been counterbalanced by continued investor caution and markets that are at times unpredictable. After a significant run-up since March 2009, equity markets have been held in a range for most of 2010, making the selection of individual stocks an important driver of fund performance.
While challenging for fund managers, John Ford, Fidelity Investment Managers' Asia Pacific Chief Investment Officer, says these are the type of market conditions that allow the active fund management industry to demonstrate value to investors.
"Asset management houses like Fidelity that are active managers are particularly well placed to do this. We are research intensive, we adopt a bottom-up investment approach, and have a strong commitment to training, retaining and supporting our portfolio managers," he explained.
"We deal exclusively in actively managed funds so we're very much focused on providing portfolio managers with the right motivation, support and tools to perform well. We have a long track record of investing heavily into the resources we think can provide our portfolio managers with an advantage. This includes cutting-edge investment analysis tools and an extensive global network of local research teams that provide in depth, on-the-ground knowledge and analysis," Mr Ford said.
There is also the infrastructure that surrounds these research capabilities. Mr Ford said Fidelity has built a platform of sophisticated proprietary communications and information-sharing technologies, which allow its portfolio managers to share ideas and extract the most value out of the intellectual capital that its research analysts generate every day.
Crucially, the firm considers these global research capabilities and its sophisticated technology platform, which have been developed over four decades of operating in Asia, as a significant competitive advantage. According to Mr Ford, Fidelity has been well placed to commit the vast sums of capital needed to build these resources because of its private ownership structure. Where its publicly listed peers may come under pressure to meet short-term profit objectives, the firm's private ownership allows it focus more on long-term strategic goals and establish a highly stable business model, which focuses on one core competency - quantitative, fundamentals-based investment management.
Ford, who supervises Fidelity's 32 portfolio managers and 64 research associates in the Asia-Pacific region, considers the freedom the firm affords portfolio managers to work creatively as another key advantage of its investment processes and platform.
"Investing is as much art as science. Portfolio managers need to be able to use both their creative abilities and academic grounding to make sound investment decisions. We can't mandate creativity from our portfolio managers, but we can train them to think creatively and create an environment that allows self expression to flourish," Mr Ford said.
One way the company attempts to achieve this is through extensive investment support services. For every manager and analyst in the Asia Pacific ex Japan region, there is one investment support team member dedicated to assisting in the investment process. These support staff perform a wide range of duties - from order generation, portfolio risk management and capacity management, to research related tasks, and even handling client meeting requests - thus freeing up time for portfolio managers to focus on stock selection and portfolio construction.
"They're encouraged to use their time creatively and constructively. This could mean spending more traveling to gain first-hand knowledge of the companies they invest in or communicating with other portfolio managers. We organise events to facilitate communication among investment management staff as well. Every half year, we hold a review week offsite to allow portfolio managers to share and cross reference ideas," Mr Ford added.
At the same time, the firm maintains a strong compliance culture and comprehensive risk management processes, which aim to safeguard investors' interests. Some of the risk mechanisms include a real-time portfolio risk management system, quarterly fund reviews with the CIO and a monthly investment risk oversight committee.
As for the future, with the region's economic undergoing positive structural changes, prospects for the asset management sector in Asia-Pacific appear to be bright. "The medium-term outlook for the region is positive. And what is particularly encouraging is that the factors driving economic growth are beginning to come from within the region itself. Factors such as changing consumer spending habits and population growth are expected to act as a powerful economic force in Asia and suggest valuations will continue to appreciate over long term," Mr Ford said.
There are, however, some caveats, the most important is when and how governments turn off the liquidity tap. "There's a delicate balancing act. Stimulus needs to remain on the table to ensure the economy does not hurtle back into recession, but not so long that it will cause markets to overheat. Some countries, Australia and China, have already begun tightening monetary policy."
"This may cause markets to be fairly subdued in the near term, but it will favour firms like Fidelity with strong global research resources that are able to cast their net wide to find overlooked investment opportunities," Mr Ford added.