Country Report: Switzerland Contents Interviews, video and special reports CONTENTS INTRODUCTION SWISS VIEWS SWISS SUMMIT In their own InvestmentEurope editorial Pictet’s Mussie Kidane and 2018 EVENT words director Jonathan Boyd Prime Partners’ François highlights key aspects of Savary offer observations REPORT Speakers, video the market on the most pressing issues presentations & tweets for the Swiss market InvestmentEurope’s first from the Swiss Summit Swiss Summit 2018 CONTENTS DECLINING SELECTOR VIEWS ALLOCATOR A GROWING DYNAMICS Seven fund selectors offer PROFILE PRESENCE their views on a variety of Falling equity ETFs sales topics Reyl & Cie’s fixed income InvestmentEurope in drives weaker turnover in bets Switzerland ETFs on the SIX Swiss Exchange For best results when viewing on a a tablet, please orient your tablet in landscape mode. Images: Shutterstock.com Introduction Rock solid Rock solid It should come as no surprise that Switzerland remains a key destination for manufacturers and distributors of funds in Europe. There is a relatively well funded institutional market – as evidenced by InvestmentEurope’s own event, Pensionskassenforum Zurich 2018, which takes place 13 November, and will draw fund selectors and other financial professionals from across the country to discuss latest developments in the country’s pension system. And there is a group of significant domestic suppliers, which according to figures from the Swiss Funds & Asset Management Association includes UBS, Credit Suisse, Swisscanto, Pictet, GAM, Vontobel, Lombard Odier and Swiss Life. SFAMA suggests that industry assets overall in the past five years increased from some CHF735.9bn to CHF1,117.8bn (roughly €645bn to €980bn). This ezine presents further market views and insights from locally based fund “Switzerland remains a key destination for manufacturers selectors; highlights from our Swiss Summit earlier in 2018, an outlook on and distributors of funds in Europe” ETFs in the Swiss context, and an overview of pending events in 2019. Jonathan Boyd, editorial director of InvestmentEurope Jonathan Boyd, editorial director of InvestmentEurope and PPA Independent Publisher Awards 2017 Editor of the Year SWISS VIEWS Pictet’s Mussie Kidane and Prime Partners’ François Savary offer observations on the most pressing issues for the Swiss market ACTIVE MANAGEMENT: TIME FOR A COMEBACK? Adrien Paredes-Vanheule talks to Pictet’s Mussie Kidane In a recent interview, you said pressures on Now the industry is seeing two significant and active asset managers on fees will persist, how structural trends: first, beta is essentially a is that likely to occur? commodity and highly price sensitive. It is not Given the prevailing market environment in surprising to see investors’ enthusiasm for ETFs recent years, active managers as a group have and the asset growth therein. Investors are voting struggled to materially outperform passive with their wallets preferring cheap vehicles to gain strategies. Indeed, the quantitative easing tide has core exposure in most efficient markets where lifted all boats indiscriminately. alpha is inconsistent, if it ever exists. Furthermore, there is an element of cyclicality in Where are we now in the action against so- the alpha generation patterns of active manager’s called closet tracker funds in Europe? and I believe that we are currently rather at the The pressure on closet indexers is mounting both bottom of the cycle. from investors abandoning such strategies to the benefit of mostly passive strategies and from As monetary policy gradually normalises, we regulators, especially in the UK, forcing some asset think active managers – and by that I mean those managers to reimburse investors for misselling genuine active managers building high conviction their products as active funds. portfolios with high active shares – will be in a Mussie Kidane, global head of Fund Selection at Pictet better position to capitalise on fundamentally- In Continental Europe, the fund industry is still Wealth Management driven return dispersion that is likely to occur. not efficient enough in putting the required pressure on such funds to either live up to on a handful of mega cap stocks, which is a “There is an element of cyclicality in expectation or die. However, I do feel that closet challenge for active managers. the alpha generation patterns of indexe funds are faced with an existential threat active manager’s and I believe that although the threat may take some time to As a matter of fact, one way of outperforming the we are currently rather at the materialise. S&P 500 consistently over the last five years would bottom of the cycle” have been to create a portfolio made up of 90% of A Lyxor study has suggested an optimal Mussie Kidane, Pictet Wealth Management an ETF that tracks this index and 10% in the so- portfolio should be theoretically composed of called FAANG stocks (2 % each), and rebalance 70% passive funds and 30% active funds. What that portfolio every year. That’s how concentrated is your view on this? the market leadership has been in the US over that I believe that there is definitely room for both What has been your equity allocation recently? period! active and passive strategies in any given At this point in the cycle, we are more comfortable portfolio. The proportion, however, may depend with equity risk rather than credit where many Any particular theme played? on investors’ investment objectives, their sectors are priced for perfection. Thus, we are With regard to thematically driven investments tolerance for relative performance risk, the overweight equities especially in developed such as robotics, we do have exposure and we do investment horizon, etc. markets. it through the products managed by Pictet Asset Management, which is a prominent and highly If the case for equity ETFs is crystal clear, I remain We think the macro environment is supportive, performing player in this segment. For instance, very sceptical about passive investments in the company fundamentals are sound although the Pictet Megatrend Fund provides our wealth fixed income space. Take credit for instance: the valuations seem demanding especially in some management clients a broad and well-diversified endgame is more about avoiding torpedoes rather sections of the US market for instance. exposure to these multi-year themes or trends. than picking the winners. Why would then investors willingly accept lending more money to Talking about the US equity market, it has been What about your current fixed income stance? the companies with the largest debt burden very challenging for active managers to Fixed income is probably the most challenging simply because they have higher weights in the outperform consistently the S&P 500 index. In area right now, especially for euro and Swiss index? It is utterly counterintuitive. terms of market leadership, it’s been concentrated franc-based accounts. Valuations in most sectors are quite stretched and in some cases such as is how we measure their performance. If we European high yield outright expensive. We expect these products to match directional believe that investors are not fully compensated strategies’ performance in an upmarket, we will today to take excessive risk either by going down surely be disappointed. With the exception of one the credit quality ladder or by extending the fund, we are very happy with our absolute return duration of their portfolios. We think there is a fund selection as they have matched if not time for offence and a time for defence and in, exceeded their stated return objectives. fixed income, we think it is time to scale back risk. The inclusion of ESG criteria in long only funds Do you use unconstrained fixed income funds? seems on the rise, is it a trend you are Yes, we do. In the context that I mentioned earlier, monitoring? Summit Highlights these products make much sense. We believe that Yes, we are. Not surprisingly, most asset managers well-managed, unconstrained fixed income have already taken measures to integrate ESG The InvestmentEurope Pan-European Summit strategies should be able to better navigate the consideration in their investment processes, with Lausanne 2018 took place at the Beau Rivage prevailing market environment. more or less significance and intensity. At this Palace in Lausanne. stage, what’s important to us is to assess who is What is your view on absolute return funds doing what in this field. Participating groups included Acadian Asset that some of your peers find disappointing in Management, Baillie Gifford & Co, Brandes terms of performance? Looking forward, in which asset classes are you Investment Partners, Candriam Investors I think it is unfair to pass a collective judgement looking to focus or strengthen fund research Group, Eurizon Capital, Fiera Capital, Invesco on an entire segment. Granted that there are over coming months? PowerShares, Investec Asset Management, Old products that have disappointed big time but We have been busy in streamlining our approved Mutual Global Investors, Origen Asset there are also a significant number of funds that list of funds. Our primary objective is to reduce Management (a boutique of Principal Global have achieved their stated return objectives. rather than add to our current offering. However, Investors), Tokio Marine Asset Management, we continue to look into some areas where we and Wellington Management. The main discrepancy with absolute return funds have gaps such as real estate. A lot of foreign asset managers are seeking entry Swiss differentiation to the Swiss market. But they must focus on a few products with a clear strategy and management Integration of sustainability into style. The offer should exhibit a differentiation for investments of Swiss asset managers the investor as the supply of products is already is booming. Ridhima Sharma reports quite important. ESG INTEGRATION According to a number of metrics, the Swiss The number of Swiss institutions implementing market has remained positive through the course ESG has grown over the years.