Best Fixed-Income Fund House -- UOB Asset Management Limited
M: Morningstar U: UOB Asset Management
M: What is your outlook for 2017 specific to the markets you cover, and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
U: For 2017, several macroeconomic trends provide a solid backdrop to our view of the reflation theme. Leading indicators, confidence and corporate earnings are improving and are at the strongest levels reported since the last downturn in 2008.
The macro outlook is also more uncertain on the back of political change. The implications of policies from US President Donald Trump is a concern. We expect higher US interest rates and for the US Federal Reserve to enact at least two hikes for 2017, this means that the US dollar may resume its upward trend. Over in Europe, the heavy political calendar implies the election risks will overshadow economic fundamentals. Meanwhile in Japan, the shift from asset purchases to yield targets means the central bank would intervene to ensure Japanese government bond yields remain in a relatively tight range-that is, lower volatility coupled with stable yields. Hence we are positive on the US, negative on Europe and neutral on Japan.
In the US, deregulation is set to benefit the financials sector, tax reforms will boost technology companies and infrastructure while commodities and basic materials sector will see increased activity from more infrastructure spending.
Our stance is to keep duration short for investment grade bonds. In the high yield segment, we favour high coupon credits that offer good buffer to a rising rates environment. We are defensive on credit selection and positioned to opportunistically take advantage of any risk pullback, as we expect risk-on markets to fade and risk-off yields to stabilise.
M: Can you comment on the macro risks in the global economy, such as the change in leadership in the US, and the significant headwinds faced by emerging markets? How do these risks affect your investment decisions?
U: Geopolitical concerns remain as one of the key risks. Although expectations are for major central banks to scale back on accommodative monetary policies, political risks could escalate and skew economic data to downside which would have the effect of derailing central bank tightening in the developed markets.
Trump’s trade protectionist stance also means higher market volatility in the Emerging Markets (EM), particularly those with economies largely geared toward manufacturing exports. Open economies such as Mexico, South Korea, Taiwan and moderately open ones such as China would be more vulnerable, while relatively closed economies like Brazil and India would be least impacted.
Overall, fundamentals for EM have improved. Most countries have deployed both monetary (currency depreciation, rates) and fiscal tools (subsidy cuts, taxes) to improve their imbalances. Hence EM’s external vulnerability and rate sensitivity have declined.
Our portfolio is structured along key themes:
- Selected commodity exporting sovereigns (Chile, Russia)
- Countries less exposed to US policy uncertainty (Brazil, Eastern Europe)
- Idiosyncratic stories (such as Argentina re-entering capital markets, Ukraine making progress with the International Monetary Fund program)
- We are positive on countries which have undertaken difficult macro adjustments (such as subsidy cuts, new taxes) & sound macro management (Brazil, South Africa)
Regionally, we are overweight on Africa, and underweight on the Asian region on valuations (the overweights in Mongolia and Indonesia are more than offset by underweights in China and the Philippines). We are modestly overweight in central and Eastern Europe which is less exposed to US policy risk and neutral on Latin America (overweights in Brazil, Argentina balanced out by underweights in CAC and Colombia). We remain constructive on EM bonds, primarily for their carry and for the asset class’ favorable risk-adjusted returns over the long run.
M: What do you think are the success factors in your corporate culture than enables your firm to consistently deliver for investors?
U: Our customers are at the heart of what we do. It is always about doing the right thing for our customers. The team has fostered a culture that is vital to our efforts in growing our Asian footprint-we make sure that the strengths of our individual colleagues collectively add up to more than the sum of our parts. As a group, we share best practices in areas of scaling up business processes, product knowledge, operating procedures and governance with one another to support our regional growth.
M: Can you share some of your future business plans with us, such as the launch of new products?
U: We plan to build greater scale for UOBAM in existing and new geographies to entrench our competitive advantage. We will continue to grow our third party distribution network with the insurance/Independent Financial Advisors, mid-tiered regional banks and strengthen existing partnerships with our strategic partners.
As part of UOB Group, we are in a favourable position to capitalise on this advantage. To provide UOB clients with greater access to a wider range of investment solutions, UOBAM services are now offered as part of the Bank’s core product and service offerings for corporates. This year, we recently launched the United Global Quality Growth Fund and re-launched the United Global Technology Fund. Both funds offer investors an opportunity to capture growth opportunities in the current reflationary environment. With the asset management industry evolving with the force of digitalization, we will embark on key technology and digitalization initiatives across the region.
M: Are there plans to further strengthen your investment team? In which areas?
U: We would be looking to expand our capability in the local currencies bond markets in Asia as well as other emerging market regions.
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