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A smarter way of seeking returns
AS global markets continue to be roiled by uncertainty, a growing number of high net worth individuals are starting to shift their focus away from maximising returns and towards preserving their wealth. Persistent concerns over a hard landing in China and the impact of low oil prices, and the more immediate risk of Britain's exit from the European Union (EU) has kept investors on edge this year. For instance, January this year was the worst month for Chinese stocks since 2008, as fears of a slowing economy and worries over the direction of the renminbi spooked investors.
"Investing for income and stability is more in focus now. You have to be savvy about how to position your portfolio conservatively but still be able to generate income. The simple buy and hold strategy is dead," said Johan Jooste, chief investment officer at Bank of Singapore, the private banking arm of the OCBC Group.
While investors should still consider conventional asset classes such as stocks and bonds in developed and emerging markets, they must also start to explore alternative asset classes and strategies. Bank of Singapore, for instance, is seeing opportunities in the hedge funds and private equity space, revealed Mr Jooste. "Hedge funds have had a bad run in performance and also in terms of PR (public relations), but this means that a bank like us can find opportunities and get price concessions from managers," he explained.
As for private equity, he noted that more entrepreneurs are looking at this asset class as markets generally have become less liquid. "We have done some private equity deals. We are able to do that for clients on a bespoke basis. These are alternatives outside of the usual investments."
The bank is also looking at the commodities market, and whether the recent rally in oil and other products is sustainable. Commodities prices have risen by around 12 per cent this year, according to the Bloomberg Commodity Index. Meanwhile, oil prices reached a year high of US$53 earlier this month, rising from a near 13-year low of around US$27 in February this year.
However, Mr Jooste acknowledged that markets might be in for a period of turmoil if the UK does leave the EU, as there will be a host of yet unknown risks that investors may have to face. "If there is Brexit, it will be risk-off until there is clarity. You won't be able to spot the risks beforehand. That is why there are so many imponderables. It can result in a poor sentiment for a long time," he said.
There is also a risk that the fallout from Brexit will not be confined to Europe as many UK and European firms operate in markets around the world. "The major energy players in Europe have a global footprint. If contractual arrangements change because of Brexit, there could be a contagion effect," he warned. A referendum on the issue will be held in the UK on June 23. Recent surveys point to the "leave EU" camp taking a lead in the vote. The polls show older voters wanting to leave while younger ones overwhelmingly want to stay in the EU. Most assume that there will be higher turnout among those from the older generations.
Mr Jooste is more sanguine about the situation in China. While there is some concern over the country's onshore debt burden, the Chinese government still possesses policy measures that they can employ to avoid a hard landing. The authorities there have also had the benefit of witnessing the Lehman Brothers crisis unfold in the US, and would have learnt from the policy mistakes made in that saga.
Looking ahead, he expects markets to trade within a relatively tight range for the rest of the year. "Markets are going to be range bound and choppy in 2016. At the top of the range we are risk-off, and at the bottom we are risk-on. In the longer term, we might be in for a prolonged period of low liquidity and higher volatility."
Growth in managed accounts
Mr Jooste noted that more of the bank's clients are turning to managed accounts - where clients entrust their investment decisions to a team of professional portfolio managers - to help them navigate the volatility; although such products are less popular in Asia compared to the West.
Unlike their European counterparts where money has passed down to the third or fourth generation, wealthy families in this part of the world are still mostly run by first generation founders of the business. These entrepreneurs are still actively involved in running the business and also managing their own personal wealth. "If you are the first generation of a family business you are still in the business of making money and your investment portfolio is part of that business," he said.
However, there has been growing interest in managed accounts among the bank's clients in Asia in recent years, he noted. "We work with clients to achieve their investment goals with the assets not involved in the entrepreneurial side of their wealth. We have had good penetration with managed accounts in Asia compared to others," he said. He added: "It is not just about managing your risks. You need a sophisticated way of thinking about how your portfolio sits together."