Posted inFRENELUX

Market Insight 2011 Q1 Belgium

Belgian private banks and pensions are naturally risk-averse, a situation which of course became exacerbated in 2008 and 2009.

They are now creeping back into risk assets on the back of general confidence in the recovery.
Interviewees were generally positive about using global investors with asset allocation abilities rather than narrowly focused investment experts in small regions or sectors.

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This general view that macro calls are becoming more important counts especially in the emerging markets, where there is general worry about a correction.

The Belgian market for cross-border funds, more than most, is dominated by private banks and those private banks give more investment freedom to the relationship manager than most. There is a general tendency to get high net worth clients more directly involved in the decision-making process for portfolio construction and the client/banker relationship is therefore more powerful than elsewhere.

 

News Roundup
• Belgium has been without a government since April 2010 because of the ongoing friction between Flanders and Wallonia. A leaked note by a royal media – tor indicates that Belgium may become one of Europe’s most decentralised states.
• According to the National Bank of Belgium, the government debt ratio is projected to continue rising in 2010 and 2011. In their Economic Review December issue it was highlighted the rise would be at a much more modest pace than in the two previous years. In 2011 it will probably rise to 99.8 % of GDP (from an estimated at 97.6 % in 2010).
 Hot Topics
What everyone is talking about
• Emerging Markets – is it time to look at frontier markets instead?
• Absolute Return products remain on top of everyone’s interest.
• US – time for a recovery?
• European equities – where to find most value
• Sophisticated Ucits – can they live up to expectations?

Key points of the four biggest interviews

Fund Selector, large private bank
• Belgium portfolios remain defensive
• Sector investing is interesting
• Absolute Return remains important
Fund Selector, private bank
• 100% open architecture is very important
• EM remains interesting, but may be getting a little expensive
Head of Product Management, international private bank
• US and European equities will perform well
• Keen on CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa)
Fund of fund manager, large private bank
• Keep risks low – use flexible managers
• Global trends, not just regional

Investment strategies

Responsible investing CSR –ESG – SRI
Socially responsible investment continues to grow in importance. The EU is reviewing options to make SRI a compulsory part of annual reporting, which should keep the trend strong. In particular financial institutions have realized the importance of looking responsible!

Open architecture
Following the private banking lead, retails banks have recently begun to also include external funds on their platforms. Interviewees outlined how most of these platforms are 100% open to any funds bar any legal constraints.

Third-party funds
Private banks in Belgium mostly offer a wide range of third-party funds to their clients. Some have even gone so far as to limit the number of their in-house funds that they are allowed to put on their white lists.

Funds of funds

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Discretionary portfolios run by private banks can invest in any fund in the world but retail offerings are limited to Belgian- domiciled funds. To bridge this gap, private banks have been creating funds of funds (which can invest in anything) as a route to making their favourite investments available to the retail market.

 

Asset Classes

Emerging Markets
Despite the previously-mentioned concern about an EM correction, no one is pulling out, but on the equity side investors are starting to explore more frontier markets – Colombia, Indonesia, Vietnam, etc.

EM debt remains popular as a higher- returning and fundamentally reasonably secure alternative to Western government bonds.

Absolute Return
The recent interest and investment in absolute return strategies remains strong.

European Equities
Interview partners are generally positive on equity investments in Europe. They feel comfortable about investing in a market they know and believe it offers opportunities for the near future. Both the small cap market for M&A activity and the large caps that benefit from the weaker euro when it comes to exports are to be attractive.

Sophisticated Ucits
UCITs III-compliant funds with hedge fund strategies are getting more attention from Belgian investors. The quality of regulation in these funds has yet to be proven by a big blow-up, however, and so they are generally regarded as more suitable for high net worth clients.

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tom@ybc.tv

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