Every crisis brings challenges as well as opportunities. For wealth professionals in Singapore, the coronavirus pandemic has heightened market volatility, prompting them to reassess their strategies and adapt to the new normal.
Market activity has not diminished, but clients have changed their attitude towards investing, leverage and certain asset classes, while maintaining their equanimity amid the rapidly shifting environment.
Urs Brutsch, managing partner and founder of independent asset manager and multi-family office HP Wealth Management, finds his firm’s clients surprisingly relaxed despite the sharp market falls resulting from the health crisis.
“Our approach has always been to build a robust, well-diversified portfolio with quality assets and no leverage, which should see you through turbulent times,” says Brutsch. “Covid-19 has confirmed that. We had a handful of clients who wanted to raise their cash position. While understandable, it also meant that they did not fully participate in the recovery.”
He points out his firm is not product-led. “We use actively managed funds, ETFs and single lines, but rarely do we use structured products. I guess many investors are looking for yield through well-diversified bond funds.”
At DBS Private Bank, head of private banking Joseph Poon notes that at the height of market volatility in March, clients pivoted towards more short-term or tactical plays, and showed preference for equities over bonds. To achieve capital efficiency and limit loss potential when entering new positions, clients preferred using regular leverage financing of the underlying security.
“We also observed several other behavioural changes among our clients, including strong appetite for non-directional products such as relative performance notes as they allow clients to take advantage of outperformance in certain corporate sectors, against more generic equity indices, a growing diversification into precious metals, and quick reinvestment into growth equity sectors such as tech, healthcare, and innovation,” says Poon.
Bruno Morel, chief executive officer at Liechtenstein-based VP Bank’s Singapore branch, hasn’t seen any uncharacteristic investment behavior. Clients’ conduct is about the same as during previous crises, except now, the roller-coaster ride is steeper and faster both ways, down and back.
Says Morel: “It starts with disbelief and fear leading to rationality taking a hit, then the sharp rebound (disbelief) has led to debate on the recovery alphabet – V, L, U, W, swoosh, and FOMO (fear of missing out). Once the initial disbelief and fear subside, rationality returns, which brings about adjustments and opportunities.”
At Citi Private Bank, Adam Proctor, market manager for Singapore, Australia and New Zealand, says: “Most of our clients went into this situation with low leverage and as such, they were not adversely impacted and have therefore been able to take advantage of market dislocations.”
In fact, Proctor points out, market activity has been greater than in normal periods as clients have sought to exploit mispriced assets and heightened levels of volatility. “One of our key themes has been capitalizing on long-term trends, such as digital disruption, which has performed very strongly during this period.” he adds.
Mario Knoepfel, APAC head of sustainable investing advisory at UBS Global Wealth Management, says the ongoing pandemic has sparked renewed focus on sustainable investing, with wealthy families increasingly turning to businesses that are able to ride the pandemic.
“Despite people taking out money from investment markets in recent months, we have seen continuously strong growth in our (sustainable investing) strategy. Conversations with clients are now focused on companies that are still going to exist going forward, and the ones best positioned to come out of Covid-19 as winners,” Knoepfel notes.
In recent months, Knoepfel has seen growing client interest in sectors such as healthcare, education and disruptors in the food industry, which he says are poised to be winners in the post-pandemic world.
At independent asset manager TriLake Partners, chief investment officer Noli de Pala says a number of clients have been keen to take advantage of dips in specific securities/markets since the recovery began in late March. “They acknowledge that much of the downturn was caused by an exogenous shock and are prepared to take advantage in the context of a long-term growth portfolio,” he says.
De Pala has rebuilt some positions in subordinated debt and other securities lower in the capital structure, but he continues to be very light on high-yield bonds.
“We have bought protection at opportune times and thus feel freer to buy quality assets when we feel the current price is reasonable given the investment horizon of each portfolio. However, we remain wary of certain sectors where the price recovery over the last six months appears way ahead of fundamentals,” he says.