The report looks at the views of managers in Asia about why clients are putting money into bond funds and those with deposit-like qualities. The big swings in the stock market this year are driving some of this behaviour.

A majority of wealth managers in Asia recently polled by Cerulli Associates think that bond funds, as well as deposit-like investment products will become more popular this year particularly if equities struggle even after recovering from their spring lows.

2019 was tough for many fund houses in Southeast Asia because investors put money into lower-margin, lower-risk assets such as fixed-income and money market funds. Bond funds, in particular, saw strong inflows in Malaysia and Vietnam, while deposit-like MMFs led inflows in Indonesia and the Philippines, the report said. (The full report is called The Cerulli Edge - Asian Monthly Product Trends, May 2020 Issue.) 

“The trend, if it continues this year, could hit inflows into higher-margin products such as equity funds and affect the profitability of asset managers, especially those that focus mainly on equities,” the report said. “Although most distributors initially expected a rebound in global equities this year, the conviction has wavered following the market turmoil and economic fallout caused by the coronavirus pandemic in the first quarter of this year.”

The Cerulli report said that in 2019, bonds were the only asset class that saw net new flows into feeder funds in Southeast Asia ex-Singapore, reversing the trend in 2018, when only equity feeder funds saw net new flows. Bond feeder funds also saw a 3 per cent increase in their market share of feeder fund assets in the region in 2019, while both equity and mixed-asset feeder funds saw slight declines in their market shares.

In the region, all three countries that allow feeder funds - Thailand, Malaysia, and the Philippines - saw a slight increase in feeder fund assets in 2019. Thailand led with $13.4 billion, followed by Malaysia ($4.2 billion) and the Philippines ($400 million).

Despite the uncertainty caused by the global spread of coronavirus, local managers in Southeast Asia ex-Singapore continue to express interest in seeking partnerships with foreign managers to launch new products, the report said.

The report said managers want to form new product partnerships for global equities, global fixed income, and sectoral equity strategies such as healthcare and technology. 

There are plenty of opportunities for foreign asset managers - particularly those without an onshore presence - to work with local managers in the region, especially within the fixed-income space, Cerulli said. It gave the example of Malaysia, which saw the launch of feeder funds that feed into global fixed income and MMFs earlier this year. In January 2020, RHB Asset Management partnered with AllianceBernstein to launch the RHB American Income Fund, to give one case.

“The coronavirus pandemic may impact prospects and attractiveness of certain asset classes, and investors might take a more conservative stance this year,” Shannen Wong, a senior analyst at Cerulli, said. “With heightened volatility and uncertainty surrounding global economies and markets, asset managers should reassess their priorities and be more selective of the types of products they plan to launch this year.”

(Editor's note: An interesting question is how investors - assuming that the Cerulli report fully reflects behaviour on the ground - are happy to put money into such funds even though their yields are tight. In a world of very low interest rates, or even negative ones in real or nominal terms, holding cash-like products, or bond funds, does not provide all that much insurance for wealth. But it also shows how nervous some investors have become still holding such assets. To some extent this shows how highly prized forms of liquidity are - people want to get cash fast if necessary. Also, these words are being written as Asia appears to be leading the rest of the world out of the COVID-19 lockdowns, possibly catching the first wave of whatever investment bounce may exist. Asset allocators have some interesting choices to make.)