Marc Van de Walle
Head, Group Wealth Management, OCBC Bank
Chairman of OCBC Wealth Panel
OCBC offers insights to investors keen on growing and diversifying their portfolios
IN TODAY'S volatile market, many investors are seeking new ways to complement traditional investment strategies to generate higher returns. Liquid alternatives offer opportunities for investors to take advantage of higher volatility while, at the same time, enhance returns over the medium-term through diversification and risk-mitigation.
According to Mr Marc Van de Walle, head of Group Wealth Management, OCBC Bank, and chairman of the OCBC Wealth Panel, "There are a number of factors driving the demand for liquid alternatives. From a macro perspective, this is really an extension of the growing demand for the alternatives asset class in general, which would include hedge funds and private equity funds. Alternative investments have grown in popularity due to the high market turbulence that many investors endured with traditional stock and bond portfolios over the past decade."
"Additionally, the slow global growth environment has resulted in more muted forward-looking return expectations for most asset classes. These factors have driven investors to look beyond traditional asset classes with classic buy-and-hold strategies. Alternative investments offer investors the ability to diversify and improve the returns of their portfolio with lower correlation and reduced volatility."
In the past, traditional alternative investments such as hedge funds and private equity were primarily limited to institutional investors or high net worth individual investors. This is due to the unregulated nature of the alternatives investment class. Additionally, a stake in alternative investment required a number of additional investment hurdles including, but not limited to, net worth requirements, limited liquidity, high minimum investments and other restrictions.
"The introduction of liquid alternatives has opened up the world of alternative investing to an even wider investor base," says Mr Van de Walle.
Liquid alternatives are organised like mutual funds, providing investors with access to sophisticated hedge-fund-like strategies while allowing the flexibility of daily or weekly liquidity. These investments have the potential to reduce overall portfolio risk and mitigate the effects of severe drawdowns, especially during periods of market stress.
In contrast to traditional alternative investments, liquid alternatives are much easier to redeem, have greater transparency and lower investment minimums. Liquid alternative funds provide investors the ability to redeem their investment anytime rather than having their money locked in. In addition, liquid alternatives can offer a variety of fee structures depending on the preference and priority of the particular investor.
"One of the key differences is that liquid alternatives have fewer investment constraints versus traditional mutual funds. Liquid alternatives are designed to capture alpha opportunities and generate absolute returns on a risk adjusted basis," says Mr Van de Walle.
Over a longer investment horizon, studies have shown that alternative investment classes, such as hedge funds, exhibit more stable returns with lower volatility on a risk-adjusted basis than most major asset classes. Incorporating liquid alternative strategies in portfolios can provide a more stable return profile as a result of greater diversification, which may increase the effectiveness of investors' asset allocation strategy.
Liquid alternatives tend to have more flexible investment mandates and are generally benchmark agnostic. This allows fund managers to invest across a broader range of markets and asset classes using a wider array of financial instruments relative to long-only or benchmark-oriented managers. With a less constrained investment mandate relative to traditional mutual funds, liquid alternative fund managers are able to take advantage of an expanded investment opportunity set to capture alpha, hence potentially improving the overall returns of an investor's portfolio.
Mr Van de Walle says: "Liquid alternatives pursue less constrained investment styles and are typically positioned as absolute return products. Their mandate is to generate alpha regardless of market direction and hence offer the ability to produce uncorrelated returns to potential investors. Along these lines, liquid alternatives certainly have a role to play in providing investors more choice along the liquidity spectrum and can offer additional features such as limitations on concentration risk, leverage and other requirements that unregulated investment products may not necessarily follow."
For instance, says Mr Van de Walle, a fund like JPMorgan Global Macro Opportunities, a liquid alternative fund, not only has the flexibility to invest in traditional assets like equities and fixed income, but also wields a toolkit of derivatives - non-traditional assets such as options and futures - which enable the fund to take long or short positions in currencies and other assets to generate returns in accordance to different market conditions. This increases the flexibility and expands the opportunity set for a fund manager to find attractive market opportunities versus a traditionally simple buy and hold strategy.
Things to consider
Mr Van de Walle highlights the importance of a fund manager in liquid alternatives investment. He explains: "Investing in the alternatives space is more challenging versus traditional asset classes because access to managers and information can be restricted. Plus, the dispersion of returns among managers can vary widely. Therefore, manager selection is critical and should be based on a well-designed due diligence process."
"Liquid alternatives should be evaluated on their track record - their ability to produce strong risk-adjusted returns over time, while mitigating both portfolio volatility and drawdowns through a range of market stress and downturns. Once a credible manager is selected, there is a need for constant monitoring and re-evaluation of managers to ensure that the original investment objectives remain intact and that the managers are positioned to perform in the environment at each point."
Looking ahead, by combining the proven advantages of hedge fund strategies with the benefits of daily liquidity and transparency, liquid alternatives will continue to be a fast-growing segment of the marketplace, whether as stand-alone solutions or as part of a portfolio alongside traditional investments.
"Demand for products in the alternative investment space is poised to grow as investors continue to seek investment opportunities and additional sources of return outside of traditional asset classes. The flexible nature of liquid alternatives strategies, combined with the skill and conviction of the managers implementing them, become the key drivers of return and risk management," says Mr Van de Walle.
At OCBC Premier Banking, both customers and Premier Banking Relationship Managers have access to rich market information provided by the OCBC Wealth Panel. With over 200 years of collective investment experience, the Panel's insights are available to help guide customers' investment decisions.
Here is the bank's recommendation:
- JPMorgan Global Macro Opportunities Fund
Any opinions or views of third parties expressed in this material are those of the third parties identified, and not those of OCBC Bank. The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before you make any investment decision, please seek advice from your OCBC Relationship Manager regarding the suitability off any investment product taking into account your specific investment objectives, financial situation or particular needs. In the event that you choose not to seek advice from your OCBC Relationship Manager, you should carefully consider whether the product is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into any transaction or to participate in any particular trading or investment strategy. OCBC Bank, its related companies, their respective directors and/or employees (collectively Related Persons') may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.
The information in this material is not intended to constitute research analysis or recommendation and should not be treated as such.
The contents of this material are a summary of the investment ideas and recommendations set out in OCBC Investment Research and Group Treasury research reports. Please refer to the respective research report for the interest that the entity might have in the investment products and/ or issuers of the securities.
Foreign currency investments or deposits are subject to inherent exchange rate fluctuation that may provide opportunities and risks. Earnings on foreign currency investments or deposits would be dependent on the exchange rates prevalent at the time of their maturity if any conversion takes place. Exchange controls may be applicable from time to time to certain foreign currencies. Any pre-termination costs will be deducted from your deposit.
For fund investments, a copy of the prospectus of each fund is available and may be obtained from the relevant fund manager or any of its approved distributors. You should read the prospectus for details on the relevant fund before deciding whether to subscribe for, or purchase units in the fund. The value of the units in the funds and the income accruing to the units, if any, may fall or rise. Please refer to the prospectus of the relevant fund for the name of the fund manager and the investment objectives of the fund.
No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.
The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent.
Cross-Border Marketing Disclaimer
1. Indonesia: The offering of the investment product in reliance of this document is not registered under the Indonesian Capital Market Law and its implementing regulations, and is not intended to constitute a public offering of securities under the Indonesian Capital Market Law and its implementing regulations. The investment product may not be offered or sold, directly or indirectly, within Indonesia or to citizens (wherever they are domiciled or located), entities or residents, in any manner which constitutes a public offering of securities under the Indonesian Capital Market Law and its implementing regulations.
2. Malaysia: Oversea-Chinese Banking Corporation Limited (?OCBC Bank?) does not hold any licence, registration or approval to carry on any regulated business in Malaysia (including but not limited to any businesses regulated under the Capital Markets & Services Act 2007 of Malaysia), nor does it hold itself out as carrying on or purport to carry on any such business in Malaysia. Any services provided by OCBC Bank to residents of Malaysia are provided solely on an offshore basis from outside Malaysia, either as a result of ?reverse enquiry? on the part of the Malaysian residents or where OCBC Bank has been retained outside Malaysia to provide such services. As an integral part of the provision of such services from outside Malaysia, OCBC Bank may from time to time make available to such residents documents and information making reference to capital markets products (for example, in connection with the provision of fund management or investment advisory services outside of Malaysia). Nothing in such documents or information is intended to be construed as or constitute the making available of, or an offer or invitation to subscribe for or purchase any such capital markets product.
3. Myanmar: OCBC Bank does not hold any licence or registration under the FIML or other Myanmar legislation to carry on, nor do they purport to carry on, any regulated activity in Myanmar. All activities relating to the client are conducted strictly on an offshore basis. The customers shall ensure that it is their responsibility to comply with all applicable local laws before entering into discussion or contracts with the Bank.
4. Taiwan: The provision of the information and the offer of the service concerned herewith have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant laws and regulations of Taiwan and may not be provided or offered in Taiwan or in circumstances which requires a prior registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorised to provide the information and to offer the service in Taiwan.
5. Thailand: Please note that OCBC Bank does not maintain any licences, authorisations or registrations in Thailand nor is any of the material and information contained, or the relevant securities or products specified herein approved or registered in Thailand. Interests in the relevant securities or products may not be offered or sold within Thailand. The attached information has been provided at your request for informational purposes only and shall not be copied or redistributed to any other person without the prior consent of OCBC Bank or its relevant entities and in no way constitutes an offer, solicitation, advertisement or advice of, or in relation to, the relevant securities or products by OCBC Bank or any other entities in OCBC Bank?s group in Thailand.
6. Hong Kong SAR: This document is for information only and is not intended for anyone other than the recipient. It has not been reviewed by any regulatory authority in Hong Kong. It is not an offer or a solicitation to deal in any of the financial products referred to herein or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient or Investor. This document may not be published, circulated, reproduced or distributed in whole or in part to any other person without OCBC Bank?s prior written consent. This document is not intended for distribution to, publication or use by any person in any jurisdiction outside Hong Kong, or such other jurisdiction as the Bank may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank and its related corporations, connected persons, associated persons and/or affiliates to any registration, licensing or other requirements within such jurisdiction.
? Copyright 2016 - OCBC Bank | All Rights Reserved. Co. Reg. No.: 193200032W