Leading the team is Eng Teck Tan, senior portfolio manager, who reports to Peter Sartori, Head of Asian Equity at Nikko AM. Tan will apportion his time between Singapore, Hong Kong and Shenzhen^[1], and he is supported by three other portfolio managers based in Hong Kong and two analysts in Shenzhen^[1].

Designed for Insights Intensity

The colossal Chinese market is characterised by an intensity of information that demands a whole new level of research and connectivity that the Nikko AM team is purposefully designed for. With diverse and complementary experience, the team is adept in navigating and staying ahead in a fast evolving China.

Being on the ground, Nikko AM has an intuitive understanding of the Chinese market and its nuances. Furthermore, the firm benefits from its unique and long established partnership with Rongtong Fund Management Co. Ltd. An early entrant to China, Nikko AM is plugged into Rongtong’s local information network and frequent company engagement. The two partners work very closely in mining market intelligence and generating investment ideas.

Institutional DNA

Nikko AM further leverages its research advantage with institutional discipline in portfolio construction. Looking beyond crowded trades, the China equity team invests with high conviction in growth stocks with the potential for sustainable returns.

Nikko AM Deputy President, Global Head of Investment and CIO-International, Yu-Ming Wang said, “China is transforming quickly and we believe it is most prudent to invest in it as a stock-picker. We have widened and deepened our bench strength in China equity, building a team with experience that is bespoke to China’s evolving nature and stage of development. In sports, championships often go to the teams with the deepest bench because they have great ability to withstand adversity and the unknown.”

Our China team is backed by the domain knowledge of our Asian equity team with members who have been investing in China for some 20 years, and our access and connectivity to domestic information networks through joint venture partner, Rongtong. Our team relies on a developed and time-tested ESGintegrated robust investment process, applied for institutional investors.”

Nikko AM has been investing in China for close to 15 years. The firm was the first asset management company to be certified by the Chinese authorities as a qualified foreign institutional investor (QFII) in December 2003, and launched Japan’s first RMB-denominated Government Bond Fund in 2004. This was followed by the launch of one of the world’s first funds investing in the A shares of a burgeoning China in February 2005.

In April 2007, Nikko AM made a strategic investment in a leading Chinese asset manager, Rongtong Fund Management Co. Ltd. Established in 2001, Rongtong is today one of the largest Sino-Foreign joint venture fund management companies in China. Representing new China, its headquarters are Shenzhen, with branch offices in Beijing, Shanghai and Chengdu.

With proven track record and experience that is bespoke to the great growth opportunity that China presents, Nikko AM is poised to help global investors gain exposure to the world’s growth engine.

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[1] Shenzhen is where Rongtong is based.

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Taking a step back and looking at global trade numbers, we can draw a number of conclusions that might explain America’s new thinking on trade.

Trade data tell the story

There has been much concern lately about the new US administration’s trade policy. Under Trump’s ‘America First’ ideology, the US has pulled out of the Trans-Pacific Partnership (TPP) and is looking to re-negotiate the North American Free Trade Agreement (NAFTA). What other changes could a more inward-looking America make to its trade policy, and why are global trade deals suddenly falling out of favour?

Taking a step back and looking at global trade numbers, we can draw a number of conclusions that might explain America’s new thinking on trade. First, the US accounts for a shrinking portion of global merchandise trade, while China has surpassed it as the world’s #1 exporter.

Chart 1: USA, China exports – share of global total

Source: World Trade Organization, 2016

While the US remains the largest market for global merchandise exports, the gap with China is shrinking.

Chart 2: Imports – share of global total

Source: World Trade Organization, 2016

In fact, China already holds the #1 importer spot if trade within NAFTA is excluded. Another interesting observation from Chart 2 is that China imports significantly more from Emerging Markets than EU or North America. China has also caught up to rival the US as the largest importer of services.

Chart 3: Service imports – share of global total

Source: World Trade Organization, 2016

Within Asia, the waning trade profile of the US is even starker. China receives 44% of all Asian merchandise exports and is by far the largest export destination. The US is a distant third, with a 20% share of Asian exports.

Chart 4: Asia’s main export markets

Source: World Trade Organization; India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam trade with China as of 2015

 
When we see the numbers in this light, the protectionism of the Trump administration is perhaps less surprising. Faced with the threat of an increasingly dominant China, the new US trade stance could be a last-ditch attempt to seize back influence within the global arena.

Looking beyond the trade numbers

Trade numbers don’t tell the full story, however. Let’s examine the supply chain of the iPhone, surely among the most profitable products ever made. The iPhone 7 retails at USD 658. Of this, USD 257 or roughly 40% goes to Apple, other US companies take home USD 70, Taiwan, Korea and Japan pocket between 5% and 10%, and China, as the assembler and shipper, nets less than 3% of the retail price ^[1].

Apple iPhone 7 Retail Price = USD $658

Source: Nikko AM estimates, 2017

 
This quick analysis reveals where the real value in today’s global economy lies. It is not within the components, the assembly, or the transport of a product. In fact, the real gold lies in the Intellectual Property (IP) portion of the supply chain, which in the case of the iPhone, mostly sits in Silicon Valley. It is, thus, not surprising that San Francisco and the Bay Area are the most expensive real estate markets in the US today.

The real competition is for Intellectual Property

Currently, the US still dominates the global economy value chain. It continues to be a leading IP originator in various fields from smartphones, to shale oil, to artificial intelligence. That said, we shouldn’t discount China’s capabilities on this front. It has recently surpassed the US in terms of patent filing^[2]. Its research and development (R&D) spending^[3] already exceeds that of Europe, and is closing in on the US.

In its ‘Made in China 2025’ initiative, Beijing has set out clear plans to upgrade its industries and move up the global value chain. Key sectors it is targeting include semiconductors, robotics and biopharmaceuticals.

It’s all about the people

Many US brands first found success in the large domestic market before going on to become multinational giants. In the same vein, the sheer size of China’s population could underpin its success in the competition for intellectual capital. The rapid rise of the Chinese middle class has created a huge domestic market for cars, smartphones and internet. If Chinese firms capitalise on this, the emergence of new Chinese global brands would be inevitable in the near future.

I remain bullish on the prospects of China and the wider Asian region. Looking past the noise surrounding US protectionism, we see that Asia is less dependent on US trade than we would expect. And looking past the noise surrounding global trade numbers, we see that the real trade war is for IP, innovation, and talent, to be fought on the turf that is Asia’s burgeoning class of middle income consumers.

In this arena, I believe that Asia’s population advantage and its sizeable domestic market position it favourably within the shifting global landscape.

by Yu-Ming Wang, Global Head of Investment and Chief Investment Officer, International
This text was presented in a speech at the Nikko AM sponsored ‘Global Interdependence Center Conference’ in Singapore on February 20, 2017.

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[1] Source: Nikko AM; estimates based on proprietary research; proportion of non-material cost components based on assumption that proportions would be similar to those of the iPhone 4
[2] Source: World Trade Organization, 2016
[3] Source: World Trade Organization, R&D spending as a percentage of GDP, 2016

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The Tokyo-headquartered asset manager was recognised as Japan’s Best Institutional House for its ability to provide progressive solutions for institutional investors amidst Japan’s negative interest rate environment in 2016. In response to the Bank of Japan’s introduction of negative interest rates, the firm has offered a series of U.S. and European fixed income products managed by the firm’s London-based Global Fixed Income Team, which has expanded over the past two years to broaden the firm’s global investment capabilities. In the first half of fiscal 2016, the firm’s Japanese institutional business saw net inflows of JPY 482 billion, placing it first in Japan for the private placement of funds.

“The Bank of Japan’s negative interest rate policy provided new challenges for Japanese financial institutions in 2016. Our in-house global investment capability allowed us to quickly provide our clients in Japan the performance they needed,” said Masato Mishina, Head of Institutional Sales Second Group at Nikko Asset Management. The firm was also acknowledged as Japan’s ETF Manager of the Year, for its leadership in expanding Asia’s largest exchange traded fund (ETF) market. Of the 11 new ETFs listed on the Tokyo Stock Exchange in 2016, three were from Nikko Asset Management, more than any other investment manager. Nikko Asset Management’s ETF business grew assets under management (AUM) to over JPY 4 trillion by December 2016, representing 29% year-over-year growth from 3.1 trillion at the end of 2015. The firm’s ETF business is ranked number two in Japan for AUM, and it is also one of the few investment managers that can provide a full range of ETF products across all major asset classes in Japan – Japanese equities, foreign equities, Japanese REITs and foreign REITs.

Finally, Asia Asset Management awarded Nikko Asset Management the Best Responsible Investor Award for Japan, recognising the firm’s leadership in the field of responsible investing. Nikko Asset Management was one of the first signatories to Principles for Responsible Investment (PRI) in 2007, and is the only Asian-based asset manager to have received an A+ in the governance category for Japanese equities from PRI. The firm also maintains an ESG Steering Committee that governs the fulfillment of its ESG Policy, and is mandated by the Global Executive Committee (“GEC”) and chaired by the Global Head of Investment.

“Our primary focus is on delivering real value to our clients, as a performance driven, long-term global investor,” said Yu-Ming Wang, Deputy President, Global Head of Investment & CIO, International at Nikko Asset Management. “We believe one cannot claim to be a good fiduciary, mandated to create and preserve long-term wealth, while ignoring the principles of sustainable and responsible investing. Because of this fundamental connection, responsible investing is core to our identity at Nikko Asset Management.”

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[1] Asia Asset Management’s annual Best of the Best Awards have been recognising outstanding players in the fund management business in Asia for the past 13 years. The Awards are divided into three categories: Performance, Country, and Regional awards. The country awards are focused on the comparison of achievements and skill of each fund management company against other companies from the same country. This section looks at the company’s overall impact in shaping the nation’s asset management sector.

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“History doesn’t repeat itself, but it does rhyme” – often attributed to Mark Twain (1835-1910)

For investors outside China, whether they have holdings in Chinese shares or not, coming to a coherent investment view on the country has become imperative as it exerts an ever-increasing influence on global markets.

We believe that China’s economic riddle can only be explained as a once-in-a-century event – any shorter term perspective misses the wide-ranging and long-reaching implications. As Yngve Slyngstad, the CEO of the world’s largest sovereign wealth fund, has stated: “Every time I come back, my perception of China has changed…The uncertainty among investors is partially due to the very simple fact that it’s more difficult to know what’s happening in that large economy than in any other[1].”  In our view, it is crucial that investors take a balanced and comprehensive long-term investment view on China, including the significant implications of the country’s current reform process.

Over the past few years, many investors have been concerned that deflation is taking hold in various regions of the globe (including China) and, as a result, that asset prices will fall. Although there is evidence that deflationary forces may be at work in Asia, investors should not conclude this will be negative for equity pricing. Such an environment can, in fact, be a positive for equity investing. We will present evidence for such an argument, drawing a parallel between the US’s emergence as an industrial powerhouse in the late 19th century and the current decade as China undertakes significant reforms in its attempts to take the economic lead. For investors that want to harness the unprecedented rise of Asia, with China at the forefront, we would suggest thinking like an entrepreneur in that gilded age of US history.

Is deflation necessarily negative for asset prices?

Deflation does not necessarily spell another Great Depression. According to a recent study by the Bank of International Settlements[2], “it is misleading to draw inferences about the costs of deflation from the Great Depression, as if it was the archetypal example. The episode was an outlier in terms of output losses”. According to their analysis, it depends on the driver of deflation. Deflation associated with a demand shortfall pushes down prices, incomes and output, whereas supply-driven deflations depress prices while raising incomes and output. The study notes that “in the postwar era, in which transitory deflations dominate, the growth rate has actually been higher during deflation years, at 3.2% versus 2.7%”. Evidence from Great Britain and the US during the second half of the 19th century shows that deflation driven by rapid technological advances can co-exist with economic growth.

How does this link to Asia, and to China in particular? The answer is that China sits at the nexus of the deflationary argument. China’s rise as an economic superpower brings unprecedented manufacturing capacity into production, along with technological advances in energy and food production, communications and information industries. Together, these factors are conspiring to cause an oversupply of goods and excess capacity in many sectors. This is similar to the situation for the US when it rose as an industrial power in the late 1800s. Despite this period seeing a deflationary growth environment (see chart 1), US productivity rose due to the effects of technology, reform and increased competition. Equity investing in the key sectors at that time was, in fact, quite profitable (see chart 2).

As chart 2 shows, while the period of the Great Depression was extremely poor for US equity prices, the period of deflationary growth between 1870 and 1900 (the era Mark Twain called the gilded age) was very favourable to equity investing. Deflation during the Great Depression was driven by the destruction of capacity due to a sharp fall in asset prices, bankruptcies and risk avoidance. We would argue that, similar to the late 19th century gilded age in the US, the factors that are currently driving a deflationary environment in many parts of the globe, including Asia, are supply-driven due to new industry capacity from China, as well as increased digitalisation in many industries, including manufacturing processes.  Another driver of the global over-supply problem is the mispricing of many economic factor costs, such as interest rates and environmental protection costs.  Interest rates have long been distorted by central bank actions and environmental costs have been largely ignored in economic decision-making.

Asia case-study: growth slowdown can spark a positive equity investing environment

More recent examples of supply-driven deflation can be found in Asia and they highlight that deflationary price trends can be positive for equity investing depending on the driver. Japan, Korea, and Taiwan all enjoyed episodes of economic success in the mid to late-20th century despite a deflationary environment.

The industrialisation experience of many Asian nations, including Japan, Korea, and Taiwan, follows a similar story, which is well documented in Joe Studwell’s book How Asia Works. Each of these countries, run by a strong government, pursues aggressive export-oriented economic policies, partially helped by a low exchange rate and fully exploiting its labour cost advantages. Successful industrialisation leads to years of extremely fast economic growth and high productivity gains. However, this success comes at the expense of subduing labour costs, interest rates, exchange rates and other industrial cost factors in favour of the exporting manufacturing sectors. The economic growth model, which encourages excess investment with a mercantilist mindset, becomes outdated as imbalances appear amid signs that economic growth is approaching an inflexion point. Factors pointing to a slowdown, or normalisation, of economic growth include higher wages, pollution factors, currency appreciation and increasing financial leverage from years of over-investing. To rebalance the economy, the government starts to liberalise the financial sectors by introducing free markets and lifting capital controls, while domestic consumption begins to pick up as industrial investment slows.

This scenario describes what occurred in Japan in the late 1970s to mid 1980s, and Korea and Taiwan in the late 1980s and early 1990s. It is also an accurate narrative of the economic environment in which Beijing has found itself in recent years. We can learn much about how to invest in China by analysing Japan, Korea and Taiwan in their transitional phases. While their best economic growth stories were written during a period of capital controls within a closed financial regime, all three countries actually saw some of their better equity market returns after GDP began to slow and financial reforms took hold as their governments worked to rebalance the economic model. The reform phase involves loosening capital controls, allowing exchange rates to free float and liberalising financial markets to enable more efficient allocation of capital. Despite headline GDP growth slowing considerably, it is during the second phase that equity performance improved substantially – in Japan during the 1980s (see chart 3), and Taiwan and Korea in the 1990s and 2000s.

Beijing has recently implemented a deposit insurance scheme and is about to liberalise interest rates to market forces. In addition, the Shanghai-Hong Kong Stock Connect (launched in November 2014) and talk of RMB full convertibility may be heralding a much more liberalised capital account. Domestically, we are seeing efforts to correct financial system vulnerabilities, promote market based risk-pricing and open up capital markets.

The introduction of the debt swap programme for local government financing vehicles is significant, representing one of the first steps in addressing more fundamental issues within China’s fiscal framework. The debt swaps should eventually give rise to more market discipline and more effective risk pricing, as well as improving financial markets’ perception of risk within the banking system. While the debt swap programme does not alter the trend for slower GDP growth, it should provide greater confidence in the country’s ability to deal with other well-documented issues and provides further evidence that China is entering the second transitional phase.

Conclusion: Understanding China requires a very long view

As with the US’s gilded age, China’s emergence as an economic superpower will distort many of the consensus economic conclusions drawn in recent decades.  Particularly on the question of deflation, we think the outcome will be similar to America’s impact on the world economy in the late 19th century.  China has and will continue to exert significant deflationary forces on the global economy, as well as key industries on which China focuses its industrialisation policies.

This deflationary scenario should not be interpreted as similar to the Great Depression, but as a positive backdrop to equity investing.  To thrive in this environment, an entrepreneurial mindset (think of those industrial titans of the late 19th century US) of ruthlessly pursuing one’s own competitive edge in a deflationary pricing environment is crucial to survival.  Thus, we favour a concentrated stock-picking investment style, echoing the famous quote from Andrew Carnegie, “Concentrate your energies, your thoughts and your capital”.

China’s current financial reforms echo the same efforts made by the Japanese, Korean and Taiwanese regimes in the late 20th century as they opened up their economy and financial markets to external participants.  Their rebalancing acts occurred at a point when high growth normalised to a slower rate and the economic model badly needed a change.  Historically, these types of financial reforms were often accompanied by higher returns in the local stock markets.

By Yu Ming Wang, Deputy President, Global Head of Investment, Nikko Asset Management

[1] Source: Bloomberg interview http://www.bloomberg.com/news/articles/2014-11-02/man-running-world-s-biggest-wealth-fund-takes-on-riddle-of-china

[2] “The costs of deflations: a historical perspective”, Bank of International Settlements Quarterly Review, March 2015. Authors: Claudio Borio, Magdalena Erdem, Andrew Filardo, and Boris Hofmann.

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Important Information: This material is issued by Nikko AM Limited ABN 99 003 376 252, AFSL 237563 (Nikko AM Australia). The information contained in this material is of a general nature only and does not constitute personal advice, nor does it constitute an offer of any financial product. It is for the use of researchers, licensed financial advisers and their authorised representatives, and does not take into account the objectives, financial situation or needs of any individual. The information in this material has been prepared from what is considered to be reliable information, but the accuracy and integrity of the information is not guaranteed. Figures, charts, opinions and other data, including statistics, in this material are current as at the date of publication, unless stated otherwise. The graphs, figures, etc., contained in this material include either past or backdated data, and make no promise of future investment returns, etc. Past performance is not an indicator of future performance. Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided.

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“UCITS funds are an excellent way for clients to access global investments in an easily accessible and efficient manner,” said Takuya Koyama, executive vice president and global head of sales at Nikko Asset Management. “The launch of more UCITS funds is central to our strategic effort to significantly expand our business.”

Nikko Asset Management is launching two new UCITS funds this month that invest in global equities and multi-asset. These institutional quality strategies will allow sophisticated global investors access to a broad range of exposures across developed and emerging markets.

The Nikko AM Global Share Fund, a recent new offer for Australian retail investors is substantially invested in the UCIT global equities strategy.

“As we position ourselves as Asia’s premier global asset manager, we are eager to leverage our expanded investment capabilities and expertise,” said Yu-Ming Wang, global head of investment at Nikko Asset Management. “We have a first-rate team of investment professionals, and now we are making their skills available to an even broader range of global clients.”

Over the past two years, Nikko Asset Management has been expanding its existing investment capabilities. The most recent addition was the highly experienced UK-based global active equity team led by William Low in August 2014. The global multi-asset team headed by Al Clark joined the company in March 2014 and the Asia ex-Japan equity team headed by Peter Sartori joined in October 2013.

The Tokyo-based asset manager has plans to launch more UCITS funds in the coming months in order to meet global investors’ evolving demand for exposure to more markets and strategies.

UCITS funds have been increasingly popular in recent years. They are typically used by global investors who want to access cross-border markets efficiently. UCITS total assets under management stood at EUR 8.27 trillion at the end of March 2015, according to the European Fund and Asset Management Association (EFAMA)[1].

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Not all active managers are as active as you might expect –‘closet indexers’ are becoming ever more prevalent. This can surprise investors in those managed funds who expect an active manager to be active but actually receive a close-to- benchmark return. Conversely, depending on the benchmark followed by passive investment strategies, investors can be unwittingly invested in some surprisingly risky indices. Due to their composition, some of these benchmarks are actually very active bets on certain market risks and thus can entail higher risks than investors expect for a ‘passive’ strategy.

In our view, it is important for investors to truly understand their investment managers and the risks that they are taking on. These issues have implications for expected returns.

In a world where the lines between passive and active are becoming ever more blurred, the identification of ‘true-to- label’ managers is crucial.

Active strategies are often more passive than people realise

Active investing seems to have failed investors’ expectations over a long period of time. On average, active funds have underperformed the market index by a statistically significant margin. This has led to an explosive growth in passive investing over the past decade, in large part because it is difficult for investors to justify paying active fund fees if active managers don’t generate alpha.

However, all is not necessarily as it seems.

Dr. Martijn Cremers and Dr. Antti Petajisto of the Yale School of Management analysed this topic in 2007 and proposed the concept of ‘active share’, which is defined as the percentage of a fund’s portfolio that differs from its benchmark index. In his 2010 study of the US fund management industry from 1980- 2009, Petajisto observed that actively managed mutual funds in the US saw their active share ratio consistently decline from 60% to less than 20%. He defines anything below 60% as ‘closet indexing’.

Petajisto’s conclusion is that on average, fund performance is correlated with the degree of management as measured by active share. The study shows that declining active share in so-called actively managed funds is what led to theunderperformance. This is because managers began hugging their benchmarks for a variety of reasons (job security, pressure to produce high IR, rigid risk control environment, swelling AUM, etc). The most significant catalyst may have been the GFC–when market volatility began to increase and stocks suffered severe losses, the pressure on managers to mitigate relative underperformance and increase risk controls was immense. This caused managers to align their portfolios more closely to a benchmark index in an attempt to reduce the risk of major underperformance and stem outflows from their funds.

However, the study shows that the most active stock pickers outperformed their benchmark indices even after fees and transaction costs. Concentrated stock-picking can produce consistent excess returns, whereas managers that purport to be ‘active’, while actually hugging a benchmark, can underperform. In the study, non-index funds with the lowest active share score underperformed their benchmark by over 1% annually net of fees.

Our investment management teams believe that it is important to take active positions based on the fundamentals of issuers, stocks and fixed income securities. Valuation is crucial to the delivery of long-term returns, while closet index tracking can be detrimental to real returns and the preservation of capital. We view benchmark indices as a useful way to measure long-term performance compared with the broader market and not something to be rigidly followed as part of the herd. As global investor Sir John Templeton said, “if you buy the same securities everyone else is buying, you will have the same results as everyone else. By definition, you can’t outperform the market if you buy the market.” If you claim to be an active manager, then you should be actively managing portfolios with high conviction calls and not just chasing the index.

Passive strategies more active than you might think

Apart from lower fees, passive strategies seem to offer the perception of lower risk than active management since index funds shouldn’t underperform the benchmark. However, passive strategies replicate the composition of a particular index, which in itself implies certain market bets depending on which regions and/or companies it comprises. Passive investment strategies can actually be riskier than investors expect since certain benchmarks actually entail very active bets on certain market risks.

As an example, if you look at the MSCI Emerging Markets Index over the past two decades, its composition has changed dramatically (see chart 1). Asia’s portion now accounts for almost two-thirds of the Index, compared with less than 50% when Asian Financial Crisis hit. MSCI is due to review the inclusion of China’s onshore equity market in its benchmark Emerging Market Index next year with a proposed initial 5% weighting. When this happens, it will cause a major shift in the index composition so that passive investing in that index will entail a direct exposure to Renminbi-denominated securities.

Thus, buying an Emerging Markets index can actually be a very active form of investing. ‘Passive’ Emerging Market investing with a market capitalisation-weighted index in effect means following a momentum-based strategy, where you increase the weight of the best performing regions and companies every year and sell the losers. Market capitalisations and stock returns drive the portfolio weights, dictating how much you invest in each region and each underlying company.

There is nothing wrong with momentum investing, but investors must understand that it works in certain cycles and fails in other cycles, so it may not be as ‘low risk’ as they expect. This is particularly true for passive strategies investing in China and shows how passive investing may actually be a very active form of investing when the choice of a market benchmark is not straightforward.

Due to market controls and government regulations, there are currently several exchanges where Chinese companies list and four or five indices that an investor can access to invest into China. But if you look at the components of these indices, they are vastly different in terms of what they cover.

Depending on which index you choose, you may be investing in the largest State Owned Enterprises in China where most of the ownership is still Beijing-controlled, or you may be more weighted towards private enterprises. Looking at the returns over the past two years, the differences might make you think that they are related to different continents altogether (see table below).

In effect, a passive investment into China is actually a very active bet on a particular sector of the Chinese economy. Factors in Emerging Markets are far too complex and too fluid to have a truly passive investing strategy so benchmark selection is crucial.

In addition, as Emerging Markets recovered from the GFC, the correction started to reflect regional dynamics and themes. These regional fundamentals have started to drive stock prices much more than macro events. For example, earnings from Asia have been rising much faster than the rest of the Emerging Markets (see chart 2). Looking at the differences in underlying fundamentals, you can see that labeling everything under the Emerging Markets banner may be an oversimplification of risks and returns in a ‘passive investing’ strategy.

By Yu Ming Wang Deputy President, Global Head of Investment, CIO International, Nikko Asset Management

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Disclaimer: This material is issued by Nikko AM Limited ABN 99 003 376 252, AFSL 237563 (Nikko AM Australia). The information contained in this material is of a general nature only and does not constitute personal advice, nor does it constitute an offer of any financial product. It is for the use of researchers, licensed financial advisers and their authorised representatives, and does not take into account the objectives, financial situation or needs of any individual. The information in this material has been prepared from what is considered to be reliable information, but the accuracy and integrity of the information is not guaranteed. Figures, charts, opinions and other data, including statistics, in this material are current as at the date of publication, unless stated otherwise. The graphs, figures, etc., contained in this material include either past or backdated data, and make no promise of future investment returns, etc. Past performance is not an indicator of future performance. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided.

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Al Clark

Australian and New Zealand investors’ sizable allocations to global assets is leading Nikko Asset Management to make a major global product push into these markets, the company announced yesterday.

The Tokyo-based asset manager is also aligning the current Tyndall brand names in both Australia and New Zealand with the firm’s global name, Nikko Asset Management.

The asset manager will use its expanded investment expertise and capabilities to provide new products to institutional and retail clients in both countries. In August, Nikko Asset Management formed a new global multi-asset team led by Al Clark. In the same month, it added a global active equity capability headed by William Low, and in October 2013, an Asia ex-Japan equity team led by Peter Sartori.

“We are one company and therefore should share one name globally as Asia’s premier global asset manager,” said Takumi Shibata, president and chief executive officer of Nikko Asset Management. “The investment teams, the sales and marketing teams and the back office teams are all working collaboratively for the benefit of our clients. One brand simply reflects what is already working for us.”

Nikko Asset Management plans to introduce several global strategies through its local subsidiaries in Australia and New Zealand in the coming months, while continuing to offer products investing in local securities. The move will allow the firm to leverage its significant global resources in meeting the varied needs of investors.

“We are very pleased to be expanding our global offering to Australian investors,” said Mike Davis, Managing Director of Nikko Asset Management, Australia. “The evolution of our business over the past three years as part of Asia’s premier global asset manager has added to our depth of investment capabilities to meet the sophisticated needs of our clients in this competitive environment. Approaching the market as Nikko Asset Management in Australia will allow us to differentiate the value we bring to our clients, borne out of our Asian insights.”

The firm’s Australian operation has A$24 billion (US$23 billion) in assets under management, representing approximately 14 percent of Nikko Asset Management’s total assets of US$168 billion as of June 2014.

“Nikko Asset Management is well known globally, and we are excited to bring more of the firm’s global expertise to our clients,” said Peter Lynn, Managing Director of Nikko Asset Management, New Zealand. “With this brand transition, there is no change to our investment teams, their investment philosophy, processes or portfolios. As one company, with one name, we will further distinguish our offering to clients in New Zealand.”

The company’s New Zealand operation, which is based in Auckland, is the only foreign asset management firm operating in the country. Its assets under management reached NZ$3.8 billion (US$3.3 billion) as of June 2014.

According to a June 2013 survey conducted by the Australian Prudential Regulation Authority[1], some 31 percent of superannuation fund assets were allocated to global investments, with 25 percent in equity and 6 percent in fixed income. Meanwhile, in New Zealand, a survey of leading balanced funds by Aon Hewitt[2] reveals that 48 percent of assets were allocated globally, with 32 percent in equity and 16 percent in fixed income.

Nikko Asset Management is conducting its inaugural Foreword client event this week in Melbourne, Sydney and Auckland. Speakers include the firm’s global head of investment Yu-Ming Wang, in addition to the portfolio managers in charge of its leading global and local investment strategies.

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[1]Annual Superannuation Bulletin June 2013 (revised February 5, 2014)

[2] The Aon Investment Update, Aon Hewitt Investment Consulting July 2014

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Al Clark

Global investors’ increasing demand for multi-asset investment strategies is driving Nikko Asset Management, a related company to Tyndall Investment Management Limited, to form a specialist portfolio management team in Singapore, the company announced yesterday.

The team, which currently oversees $24 billion of assets for institutional and intermediary clients, will be launching multi-asset products as well as integrated solutions for clients around the world.

The Tokyo-based asset manager previously had multi-asset staff in separate locations, and through this move will strategically consolidate its resources in order to maximise the firm’s global multi-asset capabilities.

Nikko Asset Management aims to provide institutional-quality multi-asset products, solutions and customised advisory services to global clients, who are increasingly allocating their assets to investment opportunities around the world, while also protecting against downside risk.

“Multi-Asset is gaining a lot of attention from investors, and we are taking this action to serve growing demand across the globe,” said Yu-Ming Wang, Global Head of Investment at Nikko Asset Management. “Clients are demanding multi-asset funds as well as tailored solutions to manoeuvre through volatile markets to reach their investment targets. To meet these needs, we’ve brought together a highly specialised team in the same location to reach critical mass.

We recognise Singapore as our centre of excellence for Asia, and as a central hub we will be strengthening our investment capabilities further in this region, and elsewhere as the opportunities arise.”

Al Clark, who was appointed as Global Head of Multi-Asset in March, will lead the 18-member team. The team has an average of 20 years of experience in the financial industry. Clark himself has over 20 years of experience in trading and portfolio management, having spent the last seven years in Singapore as Head of Multi-Asset for Asia Pacific at Schroder Investment Management where he played a leading role in asset allocation decisions for the region and had management oversight of a team across Singapore, Hong Kong, Taiwan, Tokyo and Sydney.

Global investors recently have increased their searches for multi-asset products, growing by 33% in 2013, according to a Mercer LLC survey in April[1] . Meanwhile, State Street Corporation said in a separate report in June[2] that there was a limited supply of managers who could provide multi-asset solutions.

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[1] 2013 Global Manager Search Trends
[2] State Street 2014 Asset Manager Survey – “Frontline Revolution: The New Battleground for Asset Managers”

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The addition of a highly experienced global active equity capability is Nikko Asset Management’s latest move in fortifying its investment offering to clients, the company announced yesterday. The Tokyo-based firm has brought in a team of six portfolio managers, led by William Low, who previously managed the high-alpha equity team at Scottish Widows Investment Partnership (now owned by Aberdeen Asset Management).

“We are excited that we have been able to attract this highly successful investment team in an area where we believe we can add value to clients’ portfolios,” said Yu-Ming Wang, global head of investment at Nikko Asset Management. “The track record that Will Low and his five colleagues have assembled demonstrates that they are exceptionally qualified as active global equity managers, and we look forward to their contribution to our European business.”

In 2001, while at BlackRock, Low formed and led an EAFE* team that was known for its strong alpha track record. In 2011, Low joined Scottish Widows Investment Partnership, where he led the formation of a global equity team that included Stephen Corr, James Kinghorn, Greig Bryson, Iain Fulton and Johnny Russell. From its inception, the team provided an excellent alpha track record in global equities in addition to continuing to manage EAFE mandates.

“We are delighted that Nikko Asset Management will be the new home for our team. We clearly share a vision for making global equities a key source of growth for the overall firm,” Low commented. “We’ve been impressed with Nikko Asset Management’s commitment to providing world-class investment products to clients, and this arrangement allows us to do what we do best, which is concentrate on well-researched, high-conviction ideas to deliver alpha in global equity strategies for our clients.” The team, which manages benchmark-agnostic, long-only global equity portfolios, will continue to be based in Edinburgh, Scotland, and will work closely with Nikko Asset Management’s full-service European headquarters in London, covering sales and marketing, client service, operations, information technology, legal and trading functions.

Nikko Asset Management has been expanding its investment capabilities recently. In October 2013, it acquired a specialist Asian equity team from Sydney-based Treasury Asia Asset Management, and in March 2014 it brought in a multi-asset capability, which is based in Singapore.

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Al Clark has joined Nikko Asset Management’s Australian subsidiary, Tyndall Investment Management Limited, in the newly created role of GlobalHead of Multi-Asset. Based in Sydney, Clark will be responsible for driving the growth of the multi-asset business for Nikko AM globally.

Nikko AM is bolstering its investment infrastructure to provide more value to its growing base of institutional and retail clients. Clark has more than 21 years of experience in trading and portfolio management, and has worked for major asset management groups such as Macquarie Funds Management, BT Financial Group and Schroder Investment Management, in both Sydney and Singapore. He has been developing and implementing strategic asset allocation models for almost a decade.

“We are very pleased to have Al on board, with his broad multi-asset knowledge and his proven experience in growing assets in this exciting area,” said Yu-Ming Wang, Global Head of Investment and CIO International. “Nikko AM’s investment team will concentrate on delivering performance in their respective asset classes, and Al will ensure that this performance is captured and packaged into products and investment solutions that meet the needs of our global clients. His appointment will accelerate the speed at which we can bring competitive multi-asset, multi-region products to market.”

Clark will report to Yu-Ming Wang, based in Tokyo. His appointment is the latest in a series of hires to support Nikko AM’s plans to deliver world-class investment products to clients across the globe. The matrix management structure announced by Nikko AM earlier this year has already proven successful in cross-fertilising investment ideas and investment capabilities, and the company intends to launch new products that combine local market needs with sophisticated multi-asset strategies.

Clark joins the Nikko AM Group from Schroder Investment Management (Singapore) Ltd, where he was responsible for growing the multi-asset business in Asia-Pacific.

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