The new additions to Frontier will bolster capability across a number of key areas of the business, including Investment Strategy, Alternatives, Debt, Technology and general consulting.

Paul Tulloch will join the Alternatives and Derivatives research team as a Senior Consultant after an eight year stint as a derivatives trader with Optiver, based in Sydney and more recently Amsterdam. Tulloch’s experience with exchange-traded options, warrants and futures will extend the work in this field already being undertaken by Frontier’s specialist team.

Tulloch will be joined in that team by new Associate Donna Davis who boasts prior experience with AustralianSuper, Commonwealth Bank, and ANZ Bank and brings a strong quantitative finance background to the team.

Iain McMahon joins Frontier from J.P. Morgan’s London Office where he has spent the last four years providing quantitative and qualitative portfolio analysis, and other risk management functions across a variety of asset classes. McMahon joined J.P. Morgan’s Sydney Office in 2012 and now returns to Australia to join Frontier where he will operate as a Consultant in the Debt and Currency team.

Ann Tran will join Frontier’s Capital Markets and Asset Allocation Team from a background in economic research, specifically applied econometrics, macroeconometric modelling for policy evaluation and analysis, and macroprudential policies for emerging economies. Tran, who has a PhD in economics, has most recently been lecturing at RMIT having previously studied in the United Kingdom and Vietnam before finding her way to RMIT in 2015.

Thushani de Silva will move into a client facing advisory role with Frontier and brings with her a decade of experience from Zenith Investment Partners, Capital Alliance and PwC.

Frontier Advisors CEO, Andrew Polson, is looking forward to seeing the capacity and capability of the firm develop with the new appointments. “We’ve been recruiting for some time and it’s quite exciting to be able to bring a significant number of highly credentialled people in to the business. We’ve another senior appointment to complete shortly which will see nine people join the firm in a relatively short timeframe. These roles represent a significant investment in developing our proposition for the rapidly evolving needs of our existing clients, in particular. In addition, they position us well as we grow into new markets”, said Polson.

“It’s critical to be patient and selective in recruiting but when a business is enjoying success, and clearly demonstrating a position of leadership, then quality candidates find a strong alignment with your organisation,” said Polson.

Once the soon to be announced Director of Sector Research is finalised Frontier will reach 74 staff in the firm, up from 54 just two years ago.

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Thushani De Silva

The inclusion of China A-Shares in major indices will materially increase investment opportunities for active fund managers, according to Zenith.

China A-Shares are a class of stocks listed on two Chinese stock exchanges (Shanghai and Shenzen) that provide a more open channel for foreign investors to access Chinese listed companies. Furthermore, the Chinese stock market offers significant depth in a number of different sectors that are not well represented in broader international equities indices.

In mid-2018 China A-Shares were included in the MSCI Emerging Markets and All Country World indices, a move that was well-received by global investors seeking improved access to Chinese stocks. Zenith believes the inclusion in mainstream international equities benchmarks will likely result in increased broker research and greater liquidity.

Thushani De Silva, Zenith Investment Analyst said, “As more China A-Shares are introduced, the composition of the emerging market index will change with increased exposure to sectors such as financials, industrials and real estate. This will give rise to more opportunities for active managers to diversify their portfolios and enhance performance outcomes.”

Zenith’s rated emerging markets fund managers have increased their average exposure to China from 18% to 22% over the past 12 months, with A-Shares exposure doubling from 2% to 4%.

Although China A-Shares offer attractive investment opportunities, Zenith notes that it also comes with higher risk. The volatility (as measured by standard deviation) of China A-Shares (represented by Shanghai Shenzen CSI 300 Index) was significantly higher than that of the MSCI Emerging Markets Index (25% p.a. versus 10% p.a.) over five years to December 2018.

Zenith believes the higher volatility of the China A-Share market is a direct result of its high retail investor participation, estimated at approximately 80% by Bloomberg. Retail investors generally have a shorter time horizon compared to institutional investors, increasing the likelihood of shorter-term trading of stocks, thereby increasing volatility.

De Silva said, “We consider the integration of A-Shares into mainstream indices to be beneficial for our rated active fund managers.”

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The MSCI Emerging Markets Index rallied 19.4% in the 12 months to 30 September 2017, and while this is an impressive result by any measure, it was predominantly driven by a handful of Asian technology and internet companies. The Emerging Markets IT sector returned 39%, double the return of the overall index for the same period. Despite generating strong absolute returns, the majority of actively managed Emerging Market equities funds rated Approved and above by Zenith underperformed the MSCI Emerging Markets Index over the last 12 months.

Thushani de Silva, Zenith Investment Analyst explained “While many IT companies in Asia have a dominant market position, they can be volatile with relatively opaque corporate governance and are potentially vulnerable to government or regulatory changes. Further, given the relatively elevated valuations of these IT names, they are potentially more susceptible to stock price corrections.“

Such concerns have led to substantial underweight positions to the IT sector across many fund manager portfolios rated by Zenith. The degree of underweighting was pronounced in portfolios that are not managed against the benchmark (benchmark unaware), and given that the IT sector now accounts for 25% of the total weight of the Index, these portfolios generally suffered more significantly in terms of overall performance.

Thushani advises that emerging markets needs to be considered over a long-term horizon. “For active managers, investing in Emerging Markets is not about chasing speculative gains confined to one sector of the market. Given the nature of these markets, a diversified stock picking approach that focuses on a range of fundamental drivers ensures that an optimal risk/reward is achieved over the long term.”

Summary of the Zenith 2017 International Shares Emerging Markets and Asian Equities Sector Review

From an initial universe of 46 products:

• 2 were rated “Highly Recommended”
• 17 were rated “Recommended”
• 1 was rated “Approved”
• 26 were “Not Rated”

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