A migration in the use of ETFs from the institutional world to wealth management and retail space seems likely, but it will take time. Elisa Trovato reports

A limited number of complimentary spaces are available to PWM readers wishing to attend the FT’s Business Excellence in Fund Management conference in Frankfurt on 2 April.

Ted Wilson explains how maintaining wealth management activities in the wake of the credit crunch is vital

The cosy old family structure of Julius Baer may have changed forever. But, writes Yuri Bender, bank bosses hope to boost profits by encouraging more co-operation between private bankers and product developers in the asset management division

Absolute return strategies – originally borne out of the need to preserve investors’ capital during the equities downturn – are now popular core offerings for many managers. Elisa Trovato reports

The traditional way of analysing managers has been to measure their tracking error by looking at the volatility of the difference between a portfolio return and its benchmark index return. This works with managers who take a thematic approach to their fund. But a fund which is a pure stock picker and looks for a good company will be quite diversified by industry. In this case, their tracking error may be quite low and lead us to (wrongly) assume that they aren’t taking much active risk.

ETFs have yet to gain the popularity among private clients that they enjoy with instituational investors. But a combination of active and passive management could prove ideal, writes Elisa Trovato

Combining the advantages of both index funds and stocks, ETFs carry a range of benefits for private clients. Eleanor Hope-Bell, head of wealth sales at iShares, explains

Thibaud de Cherisey of Invesco explains why, as Europe’s appetite for ETFs grows, intelligent indicies look set for a bright future

Emerging economies are better placed than in the past to weather an economic storm, writes Simon Hildrey

Listed private equity funds offer efficient exposure to a great long-term investment opportunity that is otherwise tough to access for private investors and their intermediaries – and yet the sector is little known in the wider investment community. Martin Steward takes a look at how they work, and the pros and cons which the structure presents

Deutsche Bank has combined its global market and private wealth teams, providing foreign exchange products to a new breed of high net worth client. Nat Mankelow reports

“With equity markets still weak and volatility high, we maintain a diversified, conservative portfolio. The duration of the bond portion has been decreased, following a strong performance of long-duration government bonds. We took exposure to convertibles, to benefit from the continuing high volatility and the bond floor. On equities, we reduced exposure to the utilities sector and increased investments on Japanese equities. Market conditions still suggest sector plays like MLIIF W.GOLD$ and funds focused on large caps. We still like emerging markets total return bond funds such as the AMEX Global Emerging Markets Absolute Return fund.”

“The first month of 2008 was affected by a high degree of volatility. The fluctuations can be attributed to the following event: following the negative macroeconomic indicators (increasing unemployment rate, higher inflation) in the US, France’s Société Générale announced a loss of E4.9bn due to speculative trading activities. The liquidation of many long futures positions on European equity indices aggravated the situation on the global stock exchanges. In this difficult market environment, we left the portfolio relatively unchanged and built up a cash position of 10 per cent.”

“Last month we ­suggested 2007’s volatility would return in 2008 but few foresaw the savageness of January’s global sell-off. The Federal Reserve’s aggressive action compared with that of the European Central Bank gives us confidence to increase our US weighting relative to Europe. In the ­current climate, we favour growth in the US and have sold ML Flexible US Equity, replacing it with Martin Currie North American Alpha. This portfolio represents the manager best ideas and is biased towards large-cap growth.”

“Robeco Lux-o-rente was the best performing fund in January as ­government bonds rose amid the ­turmoil in financial markets. This fund uses a proprietary model to ­continually adjust the interest rate sensitivity to the ­economic ­outlook. The Senior Bank Loans suffered under the fallout from the credit markets and general risk aversion. Default rates are currently at a very low level and will most likely increase in 2008 but this scenario already seems to be more than priced in at current levels.

The equity funds took a hit in January but we still prefer to overweight equities at the expense of bonds.”

“In the last month we haven’t made any change to our portfolio. Any choice in the current market would be very difficult at the moment, so we prefer to maintain our position.

The top funds in our portfolio are all ­managed by high-quality managers who will do a good job even in this unstable scenario – such as Tom Dobell and Graham French (of M&G;), David Winters (of Wintergreen) and Carlos Jarillo (of Long Term Investment).”

“In the past month our secure investments protected the portfolio during the collapse in equity markets: Pam Bonds Euro returned +2.42 per cent ytd (as at 31 January) and Centrale Long Vol +0.91 per cent. They benefited from the flight to quality and the rebound in volatility. But our balanced portfolio suffered from its equity exposure. European and Asian equities contributed negatively because of the downturn in these markets. So we cut our position on Fidelity South East Asia and replaced it with the Threadneedle Asia Growth Fund, which is supposed to be more resilient in falling markets.”

“There is little need to comment on market movements in January, but which managers did well (or not!) is certainly of interest. The MSCI Europe ex UK Index fell more than 12 per cent. The IdB Equity Income fund, which made full use of its flexible mandate, hedged its exposure during the month and fell only 4 per cent. This helped compensate for the poor performance from the Artemis European Growth Fund, which returned -15 per cent. Given the poor performance of this fund last year and the apparent difficulty of the quant processes in general to outperform in a non-trending market, this fund is under close watch.”

“The equity exposure of our balanced portfolio stands at 42 per cent. Short-term risks and long-term opportunities must be carefully balanced: stock ­markets worldwide have not been cheaper in the past 20 years, but risk aversion is culminating, so we have to add to our exposure, but carefully. For instance, we seized the opportunity to re-enter the Indian market, while reducing the European holding (Oyster fund) a little in order to keep the risk level roughly unchanged. On the fixed income side of the portfolio, we have redeemed the oldest holding of the portfolio.”

“In our opinion, current market uncertainties are more driven by fears on credit than by the growth slowdown, which explains why markets reacted less to the Fed rate cuts than they did to Warren Buffett’s announcement on credit insurers. We maintain our slightly cautious bias, keeping a 40 per cent exposure to alternative investments, through multi-strategy funds of hedge funds. We continue to favour large-cap equities and believe strong sectorial bets should be avoided because of the high volatility across sectors. Investor pessimism is high and could trigger a short-term rally but care should be taken before turning bullish again.”

“Equities continued their poor performance in January, as fears of weak economic growth or recession led to worries about falling corporate profits, particularly in the banking sector where visibility is poor. To help mitigate some of these fears the Fed cut interest rates but the UK and European central banks have been more hawkish in their outlook. With substantial bad news priced into the areas of greatest risk in the market, there appears to be value on offer if the world economy experiences a soft landing but the period of greatest risk is in coming months. With this in mind, a watchful approach is required.”

“Since the summer, cyclical stocks in the US and the Eurozone have recorded a significant underperformance compared with defensive shares. Recently US cyclical stocks regained roughly one-quarter of the relative performance lost since July. In the Eurozone, cyclicals have remained depressed. The market is apparently factoring in the expectation that the expansionary monetary and fiscal policy in the US will turn the economy around and produce a strong rebound in the second half and in 2009. In Europe, the ECB is seen as continuing to concentrate on inflation risks, thus accepting a more prolonged slowdown in the economy.”

“January saw difficult market conditions continue. The fact that 10 of our 12 fund selections outperformed their peer groups was cold comfort but key weightings in defensive holdings such as BlackRock Absolute Alpha and Thames River Global Bond mitigated the poor returns overall to a degree, as both once again rose in value. We retain our current portfolio structure and selections in the expectation they will use their experience and flexibility to profit from the current difficult markets.”

Each month in PWM, 12 top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

Cost reduction through the introduction of automated processes and standardisation is essential if the transfer agency business is to maintain revenue in a changing technological environment. Virginie O’Shea reports

Changes in the IFA community are being felt by transfer agents. Peter Guest looks at the problems faced in moving away from traditional clients