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CCB Asia's Jacky Fong: the art of portfolio construction

CCB Asia's Jacky Fong: the art of portfolio construction

Inspiration comes in many shapes and forms, from the sudden brainwave to the profound influence that can shape a whole career.

For Jacky Fong, China Construction Bank (CCB) Asia’s head of investment research, there are two things that inspired him to become the investor he is today.

The first is investment legend and value guru Warren Buffett, while his second source of inspiration – based on a very different type of guru – is Buddhism and its belief in life cycles.

‘What really inspires me is Warren Buffett. He doesn’t often come out and talk about his investment strategy, but when he does he insists on the importance of looking deep inside a company’s valuation rather than looking at market sentiment.

‘I’m a believer in Buddhism and, as you may know, the belief is that everything goes in circles. I started looking into Buddhism in 2004 and ever since I have started seeing things a little bit clearer.

‘Markets do not go crashing by themselves without any reason. Markets won’t crash if a bubble has not formed. It all goes in a circle. Everything that goes to one extreme ultimately has to come down.’

Understanding the chain of cause and effect – known in Buddhism as karma – is important for an investor to successfully navigate the financial markets, Fong says.

Based in the $28.3 billion group’s Hong Kong offices, Fong is in charge of the fund manager selection process as well as leading its research team to uncover what’s going on in global markets and finding the best products to fit his clients’ portfolios.

‘There are always contradictions when people are looking to invest in the Asia Pacific area,’ he says. ‘They see potential for high returns, but they also have to pay attention to the risk and volatility involved while investing in emerging market equities which would normally be higher.

‘Our view is more globally focused and our advice to our clients is they should diversify their portfolio.’

Factfile: CCB Asia

CCB Asia is the Hong Kong subsidiary of the China Construction Bank (CCB), one of the ‘big four’ banks in China.

Over the past few years it has made a number of acquisitions, including Bank Of America (Asia) and AIG Finance (Hong Kong) and currently runs assets totalling $28.3 billion.

Different style

A native of Hong Kong, Fong began his investment career in 1996 with HSBC in their offices in Canada, where he’d carried out his university studies before joining the bank.

He returned to his home city in 2000 and over the next few years worked for Citibank, where he was appointed as the advisor to the bank’s biggest portfolio, as well as for two local domestic banks in their investment research teams.

In 2010 he joined CCB Asia to launch their wealth management and investment research business. The group is the Hong Kong subsidiary of the China Construction Bank, one of the ‘big four’ banks in in China and among the biggest in the world with total assets of over $2.4 trillion.

Markets won’t crash if a bubble has not formed. It all goes in a circle. Everything that goes to one extreme ultimately has to come down

One thing Fong says sets his group’s approach apart from its competitors is its portfolio construction.

‘We have a more comprehensive approach. Some institutions source a product, promote it to their front line salespeople who then contact their customers to talk about the product.

‘That really doesn’t fit into our customer needs-based approach. Our approach is trying to find out what is in the best interests of our customers, what fits their needs, and trying to find a product that is appropriate to them.’

So far their approach has proved successful, as in 2013 their assets under management for retail banking customers grew over 30%, and since 2010 CCB Asia’s total assets under management has more than doubled.

‘Taking into account the customers’ risk appetite, investment view and market conditions, we provide timely information to our customers and help them make informed investment decisions.

‘We are really pleased to see some of our customers who have benefited from the recent market rallies after changing their asset allocation from high-grade to high-yield bonds, and including more dividend-paying stocks in their portfolios.’

China spotlight: investors and markets

Since he returned to Hong Kong in 2000, Fong says he has witnessed first hand the evolution of local investors from being inherently domestic-focused to being increasingly keen to include a diverse range of products and global assets in their portfolios.

‘Wealth is growing in China and people there are starting to realise the investment opportunity outside its borders and the Asia Pacific region.

‘This has been happening since the market crash in 2008, but over the past two to three years we have seen an increase, with a lot of Chinese investors showing more interest in assets abroad.’

Many investors across the globe have been voicing concerns over China’s growth slowdown, but Fong says this is something his team knew was on the cards for over two years.

Since the Chinese government laid out its 12th five-year plan in 2011, investors have known to expect a slowdown because they were not aiming for 8% annual GDP anymore but instead 7.5%.

‘Over the past three years, annual GDP growth has been above 7.5%. Although the market believes that the next two years are going to be below trend, we are confident it will remain at 7-7.5%.

‘If annual GDP growth is lower than 7%, we anticipate that policymakers may loosen their monetary policy and introduce a stimulus package.’

Investors must also expect the RMB’s stellar rise to slow down, says Fong, while still maintaining its upward trend.

‘From 2005 to 2013 the RMB/USD exchange rate appreciated by nearly 33%, roughly an annual increase of 3.3%.

‘The market predicts that the RMB appreciation may be relatively flat in the short run, but we might still see annual increase in the range of 1-3% annually. This is because anything beyond the 3% mark will dampen export growth even further, and we believe that the policymakers would not want that to happen.’

The selection universe

Finding the right products for customers is at the heart of Fong and his team’s process. Using both quantitative and qualitative analysis, they carry out a selection from a universe of around 1,000 funds from 30 asset management groups available to customers through CCB Asia’s fund platform.

In line with Hong Kong’s regulations, Fong does not supply buy or sell fund lists to his customers, leaving the final selection firmly in his clients’ hands.

‘Although some retail banks in other countries may provide a mutual fund buy or sell list, we adopt another approach given the wide range of mutual funds available for customers’ selection.

‘For example, for customers interested in European equities, we will take into account personal circumstances – including risk appetite, investment view and market situation – to filter the appropriate mutual funds for further explanation.

‘During the process, we will provide market information and the funds’ historical performance and market trends for their reference.

‘We will carry out analysis and give details of the funds’ holdings and investment strategies to our clients in order to help them decide if the fund is suitable for them.

‘Our customers can also go to our website to search for their desired mutual fund according to their needs in terms of risks, returns and areas of interest.’

Among the mutual funds that are most popular within his clients’ portfolios are two funds from Allianz Global Investors: the Allianz Income and Growth and Allianz US High Yield funds, both of which are managed by Doug Forsyth.

‘These funds are among the best subscribed among our customers, their track record and income payment record have both been great.

‘Asian investors typically have preferences towards dividend-paying instruments because these provide regular income while having the potential for capital growth.’

Another popular income product among his clients is the Fidelity Global Multi-Asset Income fund, which is run by Eugene Philalithis.

Although income remains an important part of his clients’ portfolios, over the past two quarters his main focus has been researching the European equity market as renewed growth and strong corporate earnings begin to rejuvenate the region.

‘There’s also still going to be a low monetary policy base which is going to be beneficial to the corporate side.

‘We see opportunities in the developed market and also in large-cap stocks. We are also seeing some opportunities emerging in small- and mid-caps, especially in the US.

‘But in Europe we are focusing on the large caps as we believe a recovery in economic growth will be more beneficial to those types of companies.’

After buying up some healthcare and biotech stocks throughout 2011, Fong says he has recently been trimming his exposure to these sectors to a more neutral, if not underweight, position after they produced strong returns.

Two of the sectors he is favouring in the current market environment are financials and the IT sector, both of which he is currently overweighting in his portfolios.

Within his fund offering, it is not just the big players that hold a prominent place among his clients’ portfolios, with Swiss boutique Pictet among the frontrunners.

‘We have been providing a number of mutual funds by boutique fund houses on our platform because of the range of alternative solutions that are offered. With these kind of fund houses, we find that they may provide funds with specialised and distinguishing investment objectives which may not be provided in funds managed by the big groups.’

The Pictet Premium Brands fund – managed by Caroline Reyl, Laurent Belloni and Alice De Lamaze – has proved a popular addition to his clients’ portfolios, Fong says.

‘This premium brand fund, which invests mainly in luxury brand companies, is very popular among wealthy personal customers because they may have a better idea of the companies in which the fund is investing.’

Asia market talent

Within his Asia allocation, one of the groups Fong says is highly rated among his clients is Principal Global Investors for their Hong Kong equity and Hong Kong dollar bond funds.

‘One of the reasons that Principal is one of our key partners is that we have a lot of opportunities arising out of the eligible funds in Capital Investment Entrant Scheme [CIES].’

CIES allows investors who put a minimum of HK$10 million into Hong Kong-based products such as mutual funds to claim residency without the need to establish or join in a business.

After seven years the applicants and their dependents will get full citizenship and can choose to redeem their assets.

‘Principal is one of the partners that offers the CIES funds and they have one of the best performance records in Hong Kong equity and Hong Kong dollar bonds.’

Value Partners is another group that Fong says is widely followed for its Hong Kong and Greater China funds.

‘The company’s chairman and co-CIO [Cheng Hye Cheah] is one of the star managers in Asia Pacific. His funds have been doing well in the past year even though the market has not been performing.

‘From what I remember over the past year when the Hong Kong equity market was performing to par his China fund gained over 15%.’

CV Jacky Fong

Born in Hong Kong, Jacky Fong moved to Canada to complete his university studies. Soon after he joined HSBC’s front-line sales team in 1996.

Returning to his home city in 2000, he joined Citibank as a personal banker where he also handled customers investment portfolios. After two years he left the group and worked for a couple of domestic banks before re-joining Citibank in 2004.

Two years later he was heading up one of its research teams and in 2008 he was named portfolio councillor for the banks’ biggest portfolio offering fund selection and investment advice.

He moved to CCB Asia in 2010 where he began the group’s investment research business in Hong Kong.

This article originally appeared in the March issue of Citywire Asia magazine