While Asian fund selectors and asset managers rank fund performance as the most important criterion for fund selection, in practice, it is not necessarily the sole determinant of fund selection and removal from distributors' shelves.
Fund selectors tend to be more rounded in their fund assessments, giving their attention to other factors such as investment philosophy and the wholesaling capabilities of a fund house.
These are some of the key findings in Cerulli Associates' inaugural Asian Fund Selector 2014 report. The publication covers research in Asia ex-Japan's largest mutual fund markets-China, Taiwan, Hong Kong, Korea, and Singapore. Collectively, Cerulli has met or surveyed Asian fund selectors who are responsible for an estimated US$2 trillion of assets under management in Asia.
It may surprise many asset managers that poor fund performance does not equate to immediate removal from a buy list. In fact, fund selectors rank underperformance as the third most important criterion for fund removal. Inadequate risk control and lack of transparency rank ahead of underperformance.
"Most selectors understand that funds go through periods of underperformance and are moderately tolerant toward it," notes Shu Mei Chua, a senior analyst at Cerulli who led the report.
The golden rule to staying on a buy list is knowing that fund selectors do not like surprises. As such, asset managers must try to make the lives of fund selectors as comfortable as possible.
"When things go wrong, fund selectors want to know before others, and preferably first-hand," says Yoon Ng, Asia research director at Cerulli.
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