Structured products are in the front line as the relationship between private banks and their investment side changes, reports Elisa Trovato

European asset managers have begun to recognise the attractions of open architecture, reports Elisa Trovato, but the banks themselves remain reluctant to let their proprietary fund houses go

Ted Wilson looks at the wide variety of banks that have entered the Sharia-compliant market and the innovative products they offer

Raiffeisen Capital Management has ambitious plans to distribute its specialist emerging market funds around Europe to build assets. This can be achieved through sales in the highly populated CEE region still at the beginning of its savings cycle, as RCM’s CEO Mathias Bauer tells Yuri Bender

With investors reacting to uncertain market conditions by moving out of mutual funds and into deposits, distributors are responding by seeking out traditional, high value products and newer opportunities in sectors and emerging markets, writes Elisa Trovato

In last month’s column, we spoke about diversifying your portfolio to protect it from recent high levels of volatility in the market. This month we focus on one of the most liquid and inefficient markets which can be central to that diversification strategy – currency.

Avoiding exposure to riskier assets and varying the proportion of a portfolio allocated to different managers, depending on market conditions, are both being used to manage risk in the private banking arena. But understanding client psychology and recognising the shortcomings of many risk models is vital, writes Elisa Trovato

ETF providers have been moving away from mainstream equity indicies and are well placed to benefit from investors looking for diversification, writes Simon Hildrey

Nick Shellard, head of UK & Switzerland sales at iShares, explains the trends that are driving the continued growth in the European ETF market, and predicts that it is set to continue­

Both emerging markets and the developed world offer massive

oppurtunities for investment in infrastructure, but this can carry

considerable risk. Martin Steward looks at some of the ways to gain

exposure

High net worth individuals suffering from portfolio losses on their UK property investments can reduce their liabilities by taking positions in the currency market. Nat Mankelow reports on a new product which claims to offer a widely accessible solution

“We still consider global conditions very challenging for equity investors and keep a prudential bias in our portfolio. However, following the Fed’s strong support to the credit market, we added exposure to the corporate bond markets buying the UBS Euro corporate fund. We kept a much diversified equity portfolio, including core European products (we think euro markets are cheaper than US ones), global products and energy/commodity related funds that have low to negative correlation with the MSCI World. We sold the Parvest euro govt fund to finance the UBS corporate fund purchase: government bonds have been outperforming credit portfolios since the beginning of the credit crisis last fall.”

“March 2008 was characterized by falling commodity prices and another interest rate cut by the FED. The recent commodity rally was abruptly reversed as the oil price plunged by 10 USD from its all-time-high of almost 110 USD and gold lost approximately 9 per cent from its peak price of around 1,000 USD. In order to prevent the US from sliding into a recession, the Federal Reserve Board cut the interest rate by 75 basis points to 2.25 per cent. We liquidated our commodity position and built up an exposure of 10 per cent (according to MSCI World) to the Japanese market.”

“Last year Japan was the worst performing developed market and so far this year it has continued to detract performance despite the revaluation of its currency. We now believe that the market offers investors some exceptional value and that the fear and disappointment surrounding economics and politics are already in the market price of equities. With this in mind we have sold out of the JPM fund to take a position in Melchior Japan Advantage, a large cap fund that will allow us to capture more market beta on the upside, but due to its value bias ensure relative protection on any market set backs”

“Due to the continued turbulence in the financial markets our portfolio was down 4 per cent in March. All fixed income products posted a positive return with Robeco Lux-o-rente being the best. The portfolio return was especially hurt by the exposure to emerging market equities, which declined 10 per cent during the month. We expect the turbulence to continue for at least the coming quarter, so lower the exposure to equities to 15 per cent. Because of a peg to the US dollar most of Asia has built up huge currency reserves, but inflation has become a concern and we expect the currencies to start rising. We placed the remaining 10 per cent in a money market fund until we re-enter the equity market.”

“In the last month we have reduced some total return fund as Credit Agricole Var 4 and we have bought some liquidity fund as Raiffeisen Euro Liquidity. The asset allocation of the portfolio was

underweight in long bonds ad neutral in equities. We are always monitoring the market, looking for new funds that could be included in our portfolio. Each potential change in the portfolio will derive both from fund picking and asset allocation.”

“Over the past month our equity investments contributed positively as global markets recovered. Risk aversion decreased slightly, and positions in government bonds and volatility suffered from profit taking. In view of the cheap valuations, Fed action and credit spread tightening, we have increased equity assets by 5 per cent through a defensive bet on the US (via the Franklin Mutual Beacon fund). This fund invests in distressed securities but also in bonds and cash. We believe that our convertible bet will deliver results in the near future, as it is favoured by low implied volatility and a high credit spread.”

“In March we sold our holdings in the Schroder Agriculture Fund. This fund may continue to appreciate but the story of bio fuels and food price increases appears now to be so well known that one could argue that much of this is already priced in. We may have sold early but a 30 per cent return in this environment over 5 months is one we decided to book. The IdB Equity Income Fund, given its defensive nature and ability to hedge, has performed well, but we have been disappointed by the Invesco Perpetual High Income Fund, which has underperformed the market so far this year by 3 per cent, despite the manager’s bearish economic outlook.”

“The equity exposure of our balanced portfolio stands at its lowest by now, at 35 per cent. The remaining Asian exposure has been removed. Some credit risk has been brought back, through the investment in a corporate high yield bond, with an emphasis on the US market. Corporate spreads have skyrocketed, whereas default rates are staying at or near their lowest ever. Still, due to the terrible market sentiment, our holding in the Goldman Sachs fund remains relatively modest, but should be increased as soon as a certain sense of confidence will be back in the market.”

“Main market themes remain unchanged: we continue to believe that the current market uncertainties are more driven by the fears surrounding credit than by the slowdown in growth. Fed rate cuts will hardly help the market rebound, as long as confidence between lenders and borrowers remains an issue. We maintain our cautious bias and significant exposure to alternative investments, through multi-strategy funds of hedge funds. We take special care in operational due diligence. We favour large cap equities against small cap and consider that strong sectorial bets should be avoided due to the high volatility across sectors.”

“March completed a shaky first quarter for the markets. Continued concerns with issues such as the credit markets, corporate profits, economic growth and consumer sentiment continued to dent confidence, although all equity funds ended March at higher levels than were plumbed mid-month. The higher beta areas such as Emerging Markets (JP Morgan) and Japanese Smaller Cos (Atlantis) suffered but we remain comfortable with both managers and long term prospects for the respective asset classes. Dexion Absolute, a listed fund of hedge funds suffered from discount widening or, strictly speaking, a partial loss of its premium rating.”

“Generally a successful fund manager is rewarded for past performance by huge inflows once the “community” recognises the excellence of the fund, leading to an upward market movement. A recent example is the Schroders Euro Dynamic Growth fund. But when things start to worsen and the first investors start to take profits, the fund manager is forced to liquidate large positions of illiquid names, driving prices down. More investors then decide to sell the fund. Exactly this has happened with the Schroders fund since the summer 2007, and the spiral only ended recently. Remarkably the relative performance immediately improved to previous levels as soon as there were no major net outflows.”

“From a Euro investor’s perspective home markets were the safe(r) haven during an awful month for anyone taking investment risk. Our defensive stance helped somewhat, but recent investments overseas only outperformed on a relative basis – JO Hambros Japan for example giving top quartile relative returns. Holdings we continue to favour would include IVI European which has held up well so far in 2008. The Far East and other emerging markets continue to gyrate wildly and yet overall the prospects continue to support an overweight stance, and if markets rebound, these regions should contribute.”

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

Widely used in the Belgian wealth management market, Thaler enables private banks to offload their operational concerns, reports Peter Guest