Lunt Capital operates in a segment of the investment business known as ETF Strategists. This growing group of managers approach the investment challenge in unique and different ways, but the common connection between us all is our predominant use of ETFs in our portfolios. ETF Strategists believe that ETFs provide targeted, transparent, traded exposures to specific asset classes, geographies, themes, or factors. Because ETFs are the building blocks of our portfolios, we are always eager to talk with the ETF providers to ensure we have a solid understanding of their products and their approach.
State Street Global Advisors is one of the largest ETF providers in the world, so it’s not surprising that they have an operation in Singapore. I had the opportunity to meet with Sunny Leung at SSgA’s office in Capital Tower in Singapore. My meeting with Sunny was facilitated by Matt Camuso and Mike Durrant on the US side of SSgA. Both Matt and Mike really embraced the goals of our Investment Trek and have been wonderfully helpful in connecting us with their colleagues around the globe.
As I sat down with Sunny, we started connecting the dots within the ETF space and a “7 degrees of separation” type of discussion ensued. We barely had to dig at all before we found a common connection. Sunny has worked in the ETF area for over 8 years and has worked for some of the largest names in the space, including Vanguard and SSgA. Sunny worked with Dan Draper (who now heads Invesco PowerShares) in an earlier iteration. I find it fascinating that most strategists are just a few connections away from knowing nearly everyone else within the ETF space.
We spent some time talking about the investment business in Singapore. Sunny noted that markets are fragmented in Asia because of varying currencies, rules, exchanges, customs, etc. He also explained that it’s a “pay to play” model that is entirely commission driven. There are no fee-only providers or offerings in Singapore at this point. Independent financial advisors are beginning to pop-up in Singapore, but banks are the primary conduit through which capital is funneled into discretionary investment portfolios. Banks do not have any incentive to promote ETFs in the current environment because they can’t earn a commission when selling them. Banks will occasionally use ETFs that have a local or regional theme or that are focused on real estate, but that’s about it at this point.
Institutional money managers are alive and well in Singapore and are focused on the big pools of institutional money such as pensions, insurance, etc.
The Asian mindset when it comes to investing are: 1) real estate, 2) savings, and 3) speculation or risk capital. Sunny explained that multi-asset funds focus on yields, yields, and yields. Yield matters, so most ETFs can’t keep up. For those intrepid souls in Singapore looking for capital appreciation, they’re expecting returns north of 20%... so they’re taking on a great deal of risk. There appear to be two general investment approaches – income or high risk, and not too many viable options in between at this point.
The views from our conference room window at SSgA were impressive. Sunny quickly pointed out that the grey building to our left was CPF (Central Provident Fund) and the purple building to our center right was MAS (Monetary Authority of Singapore). He said that those two entities are the 800-pound gorillas in the investment landscape in Singapore. CPF controls the retirement savings for those in Singapore. From the brief description Sunny shared, it sounds like CPF could be described as a hybrid of our Social Security and pension programs in the U.S. Workers can contribute additional funds and have the ability to select from a handful of investment options. Sunny also noted that contribution rates are very high given the “savings” mentality of many in Singapore. Like our retirement programs, the money is restricted until an investor reaches the age of retirement, currently around 65 years old. CPF offers some guaranteed rates of return in the 3-4% range, so investment managers seeking to win clients away from the established investment option face that performance hurdle right out of the gates.
Our conversation covered several additional topics, including Hong Kong and MAS. As a native of Hong Kong, Sunny was a little more moderate in his opinions about the roles of both Singapore and Hong Kong on the global financial stage. He noted that Singapore is very innovative and focused on growing the financial services sector. Governmental support for this growth (through MAS) is a key differentiator in Singapore. The industry will continue to grow and thrive in the foreseeable future because of the significant focus on it and direct support for it.
Thanks again to the SSgA team for their time and support of our Investment Trek. I learned a lot from my discussion with Sunny.
Special thanks to Brennan Staheli, Joshua Cooper, and the Lunt Capital team for their contributions to this report.