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Five trends in Asia-Pacific: A call for factor analytics

Thursday 9th November, 2017

Style Research has been supporting investment professionals across Asia-Pacific for nearly 20 years, providing detailed style and factor analytics to inform the investment processes of asset managers, owners and consultants. With our two new offices in Melbourne and Tokyo, we are looking forward to expanding the services we offer our clients to best support their evolving needs in this dynamic region.

The entire Asia-Pacific region blends established, emerging and frontier markets, making the investment universe and subsequent opportunities for our institutional investment clients vast and varied. It’s an exciting time to invest in Asia-Pacific, but the complexity can be daunting, especially with the proliferation of new ETFs and other products, which are launching on a daily basis. So, let’s take a look at some of the key topics and trends we are helping our clients navigate:  

1. Growth of smart beta strategies and ETFs

We expect that passive and ETF products will continue to compete against active products. Both fund managers and investors require clarity and insight to understand and compare investment opportunities, identify performance drivers and assess risk and factor exposures. Only objective and consistent factor analytics can provide a detailed picture of what is really within a fund – despite what its label may or may not describe. This is especially critical in breaking down the complexity that can come with multi-factor approaches and ensure a product aligns with defined investment goals.

Furthermore, the continuing growth of these products and the ensuing competition will put pressure on fees, requiring managers to justify their solutions and effectively communicate the attributes of their offerings. Our neutral, industry-accepted factors provide the transparency to support these communications.

2. China’s inbound and outbound investing

Chinese investors are increasingly seeking exposures to other markets, especially US and UK. Their goal is to increase investing diversity and minimize the volatility of local and regional investing. At the same time, inbound investing in China is on the rise as global investors seek unique opportunities.

Factor analytics are hugely important in understanding what is driving portfolios and how local Chinese investment opportunities compare to global and regional ones. A deeper look into analytical factors informs what is driving growth, value and stability for investment professionals to make confident decisions. And a consistent factor framework enables investment professionals to compare opportunities objectively on a level playing field, accommodating such variables as sectors and countries, as well as exposures across an accepted, approachable set of factors.

3. Private wealth and retirement investing

Private wealth continues to grow across Asia-Pacific as economies mature and individual long-term investing expands along with that. This is particularly the case in Australia and New Zealand where retirement investing remains the key driver of investment management. These trends increase the need for deeper understanding of portfolio risk and exposures (including country, sector and stocks) for capital protection of individual investments and effective client service. The demand for transparency will also increase – not only in Australia and New Zealand but across the region – ensuring that investors have a clear understanding of investment opportunities as well as asset managers’ strategies and fund decisions.

4. Expanding SRI with ESG factors

Socially responsible investing (SRI) will continue to gain traction across the Asia-Pacific region and become an increasingly important element in portfolio construction – and not just for millennial investors. Incorporating environmental, social and governance (ESG) factors will be in demand. These include metrics to assess fund exposure to issues such as carbon and fossil fuel footprints, climate change, alignment to values (e.g. clean technology, ethics, human rights conflicts), and corporate governance topics such as diversity and pay policy.

Quantifying exposures of ESG factors will be required for marketing of funds and reporting performance, whether the fund manager’s strategy is fully oriented towards ESG investing or incorporating it as a component of a diverse product.

5. APEC’s Asia Region Funds Passport

The Asia Region Funds Passport is expected to go into effect in 2018, encouraging greater access to cross-border investing. The program is intended to facilitate investing and foster economic growth across the Asia-Pacific region, shaping policies to encourage fund marketing, management and investment between countries while streamlining regulatory, legal and tax requirements.

The APEC passport will lead to the demand for clearer comparisons of funds across borders which can only be achieved with an objective, consistent framework of factor-based analytics that accommodates exposures to equities in different countries while assessing their fundamental factors.

Navigating the Asia-Pacific region

As the investment community considers these trends as well as others, one consistent approach is to rely on an objective factor-based analytical framework that enables fund creators and buyers alike to understand and compare what is truly making up a portfolio and what is driving its performance. The Asia-Pacific region is ripe for continued opportunity, and knowing what you are getting and where the risks are is clearer when you can reveal detailed insights by breaking down the factors.

Factor Performance in Asia-Pacific YTD 2017 - Style Research

Factor Performance in Asia-Pacific YTD 2017: Growth and forecast profitability are the leading factors within Asia-Pacific ex Japan year-to-date in 2017. Source: Style Research Markets Analyzer, as of end-September 2017

 

Author: Jamie Spark | Categories: Markets Analysis

Learn more about using an objective factor-based analytical framework to navigate investment opportunities across Asia-Pacific.

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