Southeast Asia is home to a rapidly evolving, dynamic fund management industry. This is driven by a combination of demographic trends, economic growth as well as increasing investor sophistication. Amid this backdrop, fund managers need to be cognisant of these trends, together evolving with the ever-changing landscape.

Shihan Abeyguna, Morningstar’s managing director for Southeast Asia, notes that the fund management industry in the region is distinguished by its diversity, reflecting the varied demographic and economic landscapes across different markets.

With a population of over 600 million, some markets within the region face challenges with ageing populations and the associated need for retirement savings, while other markets confront an emerging middle class, broadening the investor base and investment needs.

“Irrespective of investors’ stages, whether in accumulation or decumulation phases, there is a pronounced demand for digitised experiences to effectively manage personal finances and monitor investment performance vis-à-vis individual goals,” Abeyguna highlights.

In markets like Malaysia and Indonesia, for example, values-based investing particularly adhering to Shariah-based principles remains prevalent among investors. Furthermore, Morningstar sees institutional investors integrate environmental, social and governance (ESG) risk factors into portfolio construction across the region.

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Abeyguna says there is a continued emphasis on the “E” part of ESG, with Asia accounting for more than 50% of global greenhouse gas emissions. As such, there are elevated engagements from investors with investee companies on climate transition.

Additionally, there is a discernible uptick in demand for alternative investments among accredited and institutional investors, indicative of a broader diversification strategy within portfolios as well as increased access.

Reiterating the challenges of singular characterisation of the asset management industry in Southeast Asia, Abeyguna highlights the varying trajectories across the different markets. Singapore, Thailand and Malaysia, for example, stand as the region’s largest markets by assets under management (AUM). As at the end of 2022, AUM in Singapore, Thailand and Malaysia stood at $4.9 trillion, THB3.82 trillion ($140.7 billion) and RM906.46 billion ($259 billion) respectively.

“In Malaysia and Thailand, the industry expansion has been fuelled by catering to a burgeoning pool of mass affluent and wealthy investors, offering diversified investment opportunities beyond domestic asset classes. Conversely, Singapore has reaped benefits from the expansion of its offshore wealth segments.”

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Meanwhile, despite having smaller AUM bases, Vietnam, Indonesia and the Philippines exhibit promising growth, he adds.

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From left: Abeyguna and Gisbert. Photo: Morningstar

Concurring on the industry innovation and efficiency alongside the proliferation of new products for investors, Abeyguna notes that the ultimate winners in the asset management industry are the ones that can either scale or provide differentiated products to the market. Efficiency, particularly enabled by technology and artificial intelligence, is pivotal for firms seeking to expand their capabilities and reach, he further points out.

In terms of products, alternatives such as private equity, private credit, and infrastructure will play a larger role in investor portfolios amid the cyclical rotations seen in traditional asset classes due to monetary policy levers.

“Beyond asset classes, I would expect sophisticated investors to see more choices in how they would want to execute a strategy whether it is separately managed accounts, unit trusts or active exchange-traded funds (ETFs).

“Amid competition, too many product choices can also result in choice paralysis, which is one of the reasons why capital allocators entrust the independent research and data from Morningstar,” he concludes.

Evaluating funds

Morningstar is The Edge Singapore’s knowledge partner for Best Funds Awards 2024. The investment research and management provider has partnered with both The Edge Singapore and The Edge Malaysia for several years, sharing knowledge on mutual funds and sustainable investment expertise.

“Morningstar is honoured to be the official knowledge partner of Best Fund Awards 2024 by The Edge Singapore, providing the publication with data, analytics and knowledge to perform and rank selected lists of funds, based on criteria such as performance, risk and ESG factors,” says Nicolas Gisbert, Morningstar’s head of strategic partnership, Asia.  

“Morningstar is delighted to be a part of this event as we believe that these awards shed light on the best practices in the industry, reaching a wide audience of investors and industry practitioners. Through the partnership with The Edge Singapore, we look forward to empowering investor success in the region,” he adds.

The methodology of the awards takes into account Morningstar Medalist Rating and Morningstar Sustainability Rating, among others. These are core to the firm’s intellectual property, providing investors with a comprehensive set of investment metrics to help them evaluate funds.

For instance, Morningstar Medalist Rating is the summary expression of Morningstar’s analysis of its forward-looking analysis of investment strategies based on three pillars — people, process and parent. The rating system uses a combination of both qualitative analysis and algorithmic techniques that mimic analyst decision-making. The rating uses a scale of five tiers: Gold, Silver, Bronze, Neutral and Negative.

On the other hand, Morningstar Sustainability Rating helps investors measure portfolio-level risk from ESG factors compared to category peers, a consistent approach to assess material ESG risk. For each fund that is eligible for a Morningstar Sustainability Rating, the rating is expressed as one to five “globes”, whereby a higher number of globes indicates that the portfolio has lower ESG risk.

“In an era where ESG factors play an increasingly significant role in investment and portfolio construction, investors need reliable information on ESG strategies and performance. Leveraging Sustainalytics’ company research, Morningstar’s fund ratings are a valuable tool for investors to use and provide transparency on the sustainability credentials of funds.

“For example, these ratings (Morningstar Medalist Rating and Morningstar Sustainability Rating) are used by distributors, retirement pension funds and asset owners to select and monitor funds,” Gisbert explains.

That said, retail investors can also access these ratings on retail websites in Singapore such as FundSingapore.com, a joint initiative between the Investment Management Association of Singapore and the Life Insurance Association Singapore, which offers extensive information on unit trusts and investment-linked life insurance products available in the country.

The importance of recognising outperformers

As Morningstar celebrates its 40th anniversary this year, the firm takes pride in the diverse range of investor solutions it has developed over the past four decades. Gisbert says Morningstar’s unwavering goal has always been to empower investor success.

“Our comprehensive data coverage, combined with our commitment to maintaining high-quality standards and conducting extensive independent research, enables investors to access a wide range of options and exercise flexibility when selecting investments and constructing portfolios,” he says.

Morningstar now caters to global investors in six significant domains — data and software, wealth solutions, research (funds, ETFs, equity and credit), retirement solutions, ESG solutions, indexes capabilities as well as private equity research.

The firm had also recently announced the winners of Singapore’s Morningstar Awards for Investing Excellence 2024. Abeyguna points out that continuity in management stands out among the winning funds, contributing to the stability of their investment approaches.

For example, Fidelity Global Dividend Strategy, which is the category winner for best global equity fund, has been led by Dan Roberts since its inception in 2012. Similarly, the Schroder Asian Equity Yield which is the category winner for best Asia equity fund has been helmed by King Fuei Lee since 2004. Lastly, Andrew Balls and his team have steered the PIMCO GIS Global Fund — which is the category winner for best global and Asian bond fund — for nearly a decade.

Each strategy benefits from robust supporting teams, bolstering their overall resilience and effectiveness, says Abeyguna. “At Morningstar, we are also driven by a similar focus on helping our partners continue their investment journey with confidence. We are an organisation driven by a steadfast mission to empower investor success, rooted in democratising investing so that a broad spectrum of investors can forge their own investment paths,” he concludes.