Playing it safe

Investec rides the latest retail investment trend in Hong Kong: guaranteed funds.

Stewart Aldcroft, managing director at Investec Asset Management in Hong Kong, says that since September, Hong Kong retail investors have bought $600-700 million worth of guaranteed fund products. That number excludes any guaranteed products in Mandatory Provident Fund master trust schemes, he notes.

Although he doesn’t have details about how much of this is new money versus money switched out of other funds, Aldcroft says anecdotes suggest much of it is new. For example, in November, Investec launched its first-ever guaranteed fund, which raised $48 million in Hong Kong. One of his bank distributors reported that 70% of customers were first-time fund buyers.

Given that only around 5% of Hong Kongers have ever owned a mutual fund, the possibility of a massive uptake of a guaranteed product is significant. Aldcroft notes that there are 1900 authorized funds in Hong Kong. “There’s too much choice, so people get confused and don’t buy,” he says. Those who do, tend to treat them like stocks and speculate, rather than try to accumulate assets.

Investec senses there is growing appetite for mutual funds because falling interest rates are destroying what value exists in bank deposits. But investors are wary of equities, particularly in these post-tech bubble days. Hoping to continue attracting first-time investors, therefore, Investec yesterday launched its second guaranteed product, which markets in Hong Kong until 12 April.

This new fund guarantees 100% of the capital upon maturity in three years’ time, with no front- or back-end load, provided the investor doesn’t redeem until maturity. For every $100 put in, $85 goes to zero-coupon bonds with a low notional yield guaranteed to give back $100. The other 15% goes to call options in an existing fund, the Investec Global Privatization Fund, for a kicker. Investec selected this fund because it has a 12-year track record of outperforming the MSCI World Index; it’s managed out of Guernsey by Jeremy Podger.

The firm is hoping to raise $100 million from Hong Kong investors with this new product, which is aimed at inexperienced investors looking to begin mutual fund investments without risk. Standard Chartered Bank, CITIC/Ka Wah Bank and Bank of America are among the distributors.

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