Arrested development

The 7.9 per cent fall in the Shanghai Composite overnight won’t change much for wealth managers: the reopened exchange was largely playing catch-up with its Hong Kong peers, and onshore indices still have little relevance to DFMs’ portfolios. But there’s no denying that emerging markets as a whole are under intense pressure once again as coronavirus cases continue to escalate. 

That marks a swift turnaround from early January, when EM indices entered a new bull market amid optimism over looser monetary policy and a weaker dollar. Four weeks later, those same benchmarks have headed south, and funds are in the red for the year.

Whatever the ultimate severity of the outbreak, the restrictions on travel and trade now being put in place emphasise that the economic impact is unlikely to be mild. Comparisons with Sars overlook the very different role that China now plays in the global economy. And while the consequences won’t be limited to Asia, discretionaries will be conscious that their growing preference for Asia Pacific over broader Emerging Market funds might give their portfolios an added vulnerability.

Advocates for emerging Asian economies, which have increasingly taken business away from China in recent years, might feel they stand to benefit further. So too might those who favour India rather than China. The former has been relatively insulated from coronavirus concerns, hence why Stewart Asia Pacific Leaders was one of just three Asia strategies to make a positive return in January.

But there are problems of a different kind looming here. Investor concerns over India’s economic slowdown were underlined this weekend, when a disappointing Budget prompted a 2.4 per cent fall for the Sensex. Allocators looking to diversify away from developed economies face questions wherever they look at the moment. 

Cheap and cheerful

The end of last week saw the emergence of a document that could have a big impact on how asset managers conduct themselves this year: Vanguard published what it said was the first “assessment of value” report required by new FCA rules for fund firms. 

There’s been a growing interest in how fund firms will justify their charges under this new regime. Showing that a given strategy is good value versus its competitors is easier said than done. And behaviours may change even if clients don’t end up reading these assessments. It’s unlikely to be a coincidence that the start of the year has seen firms like Threadneedle and Polar Capital scrap performance fees on certain strategies. 

Then there’s the need to demonstrate how providers are using economies of scale. In short, the current answer is “not much”. Whether that changes remains to be seen.

Vanguard’s publication, for its part, is not particularly interesting for what it contains, or for the speed with which it’s been produced. It’s easy to be ahead of the pack when you’re proclaiming yourselves to be 73 per cent cheaper than the market. 

The simplicity with which this message has been outlined is notable, however. The document is straightforward and easy to understand. That, too, is easy to achieve when the value you provide is self evident. Nonetheless, its very existence will make it harder for other providers to justify more convoluted assessments of their own worth. The bar has been set, and asset managers will have to try their best to limbo under in as dignified a manner as possible.

On the platform

The long-awaited, or long-dreaded, Quilter replatforming process is finally drawing near, and the company is optimistic it won’t make the same mistakes as its predecessors.

The reason why these events are dreaded, of course, is that history shows mistakes are usually impossible to avoid. In Quilter’s case, the hope is that these will be blips rather than the elongated errors that characterised other platforms’ change of tech providers.

The rise of on-platform MPS means given DFMs of all stripes have a stake in the replatforming game nowadays, but Quilter platform users have tended to make do with either the WealthSelect service or Quilter Cheviot’s offerings. Either way, the end of this month will provide another test of the industry’s technological capabilities.