Best Fixed Income Fund House - Fullerton Fund Management
M: Morningstar F: Fullerton Fund Management
M: What is your outlook for 2018 specific to the markets you cover, and how are your portfolio managers positioned to take advantage of opportunities and/or mitigate potential risks?
F: US Treasury markets have been volatile and yields have risen sharply in response to climbing inflation and stronger economic data. Taken together, these factors may put pressure on the US Federal Reserve to hasten the pace of interest rate rises this year. On the policy front, the rise in US trade protectionism could stoke global trade tensions. Furthermore, political uncertainty in the US could weigh on sentiment, given the unpredictability of the Trump administration. Market volatility is thus likely to remain elevated this year.
While the recent spike in volatility across risk assets has caused concern among investors, economic fundamentals supporting continued synchronised global growth remain intact. Better growth prospects in the US and the Eurozone, coupled with sustained growth momentum in Asia, have provided tailwinds to the global recovery.
Furthermore, inflation in Asia remains within policy targets in most regional countries. Hence, Asian central banks mostly retain leeway to keep real interest rates low. While China is judiciously moving to resume reforms and to rein in credit excesses, we still expect policymakers there to prioritise stability.
In terms of credit strategy, we continue to favour investment grade over high yield and have a preference for shorter-dated, lower beta names. We will also maintain select exposure to high yield credits which provide some buffer in a rising interest rate environment. On duration, we are keeping to an underweight duration bias across our credit portfolios to mitigate interest rate risk.
Across our Asian local currency portfolios, we remain underweight duration largely in low-yielding markets, and carry returns should more than offset the duration losses during the year. Our preference is to fade any sharp cyclical USD rallies on risk aversion – we view this as corrective within a bearish USD trend. Furthermore, the ‘twin deficits’ (trade and budget deficits) in the US are likely to weigh on the USD in the medium term, given the increased fiscal stimulus in the advanced stage of the US cyclical expansion.
M: Can you comment on the major risks facing financial markets, such as rising US rates and elevated asset prices? How do these risks affect your investment decisions?
F: As mentioned earlier, market volatility could stay elevated, given US Federal Reserve and trade policy risks. We thus remain vigilant against further correction in risk assets.
In this environment, we believe active management is key to delivering returns across our portfolios. Our portfolios are thus actively managed to mitigate potential downside risks and achieve total returns.
M: What do you think are the success factors in your corporate culture than enables your firm to consistently deliver for investors?
F: Fullerton prides itself on the investment experience and stability of its senior investment professionals and investment team heads across the asset classes, many of whom have been with the firm and have worked together for over a decade. We believe that the stability and longevity of our investment team is unique, and their impact on portfolio performance cannot be underestimated.
Specifically on the fixed income team, located in Singapore and Shanghai, we have deep bench strength. The senior portfolio managers have an average investment experience of 18 years and have worked well together for several years. Our managers' in-depth knowledge of, and familiarity with their respective markets also allows them to identify potential investment ideas. In addition, we adopt a team-based approach with individual accountability and responsibilities.
With almost 15 years of experience in managing funds, Fullerton is well placed to understand the unique investment challenges faced by investors, particularly the need for generating superior risk-adjusted returns. It is no surprise that the firm has a strong risk oversight and compliance culture. We are keenly aware of the need to evaluate risk versus return trade-offs, in order to capture excess returns and manage risk. At the same time, we are proactive in managing the portfolio’s downside risks.
We believe in a diversity of carefully researched and well-thought out investment perspectives, supported by a robust research framework across the asset teams. The close proximity of our portfolio managers and analysts encourages and facilitates cooperation and collaboration, allowing the various asset teams to leverage one other’s strengths.
M: Can you share some of your future business plans with us, such as the launch of new products?
F: Fullerton remains focused on accelerating our growth across key markets, as we continue to deliver strong investment returns for clients. For example, we have made significant strides in China and most recently announced the launch of our WFOE's first onshore private fund product.
A few months ago, we also shared news about the strategic partnership between NTUC Income (Income) and Fullerton. Income will appoint Fullerton as the investment manager of a portfolio of Income assets estimated at SGD23 billion – when completed, the strategic partnership will establish Fullerton as one of the largest locally-owned asset management companies in Singapore, with its assets under management (AUM) increasing to over SGD40 billion.
The combined investment capabilities will lend strength and greater opportunities to explore innovative investment products and solutions for clients. Looking ahead, Fullerton is very excited about working alongside Income and leveraging the potential opportunities that this partnership will bring.
M: Are there plans to further strengthen your investment team? In which areas?
F: Fullerton is focused on investing in and the strengthening of our investment and leadership team, to ensure we remain well positioned to deliver value to clients, while navigating a constantly evolving market environment. This year, we are likely to add on teams across fixed income, equities and multi-asset.
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