He is now going to run a team of four senior investment professionals and a few supporting analysts, transferring to Hong Kong because it is an easier location from which to run a regional unit.
Ken Itaba has joined the firm in Tokyo from Mercer Global Investors to replace Lee as senior portfolio manager in Japan. He will be responsible for managing global style blend accounts on behalf of Japanese investors.
AllianceBernstein has also hired Li Song, a Guangdong province native who has worked in the United States for over eight years, most recently at Deutsche Asset Management in New York. Li is now being trained at AllianceBernsteinÆs New York headquarters but will transfer to Hong Kong in August, to handle client accounts in Greater China and Singapore.
The firm is seeking an additional hire to be based in Australia.
Separately, it is also putting a value equity investment team in place in Hong Kong. Bernstein, the firmÆs value management half, has investment teams based in New York, London, Tokyo and Sydney, and is now putting four analysts on the ground in Hong Kong. They will be led by Stuart Rae, who has been a value analyst at the firm in Australia. The growth half of the organisation, Alliance Capital, already has an investment team in the region, primarily in Singapore.
ôWe see the asset management industry is changing before our eyes,ö says Lee. ôItÆs being created across Asia and we want to be a part of it.ö
The style blend unit emerged out of the 2000 merger of Alliance Capital and Sanford C. Bernstein & Co, when clients with mandates at both firms suggested the mandates also be combined. The firm has since found that putting value and growth strategies together can increase returns and lower risk over time. Clients may hire the firm for single investment styles, a blended strategy, or for both growth and value strategies that the client mixes itself. The firm keeps fees the same.
But does style matter? Interviews with equity portfolio managers in the United States showed that the spread between the cheapest and the most expensive companies (proxies for value and growth stocks) have narrowed to a point where other factors, such as capitalisation, matter more (see AsianInvestor magazineÆs July edition for the analysis).
Lee concedes that today spreads between the two styles have compressed to a low. But he argues that spreads between styles also go through cycles. ôWeÆre now in an environment where spreads are narrow, which all but guarantees theyÆll become wider. Should you abandon style now just as the cycle is about to change? That doesnÆt sound like a good idea.ö
Rather, he says the fact that correlations have risen between value and growth returns means managers must change their portfolios. In this kind of low-spread situation, with no clear distinction in prices, value investors have to be cautious and diversify their portfolios, avoiding ôdeep valueö companies. Growth investors, on the other hand, should aggressively pick up names they like, because they are now at a discount versus value plays.
In wide-spread environments, when the prices of the most expensive stocks are far above those of the cheapest, it is reversed: growth investors have seen their story play out and should become defensive, while value investors can go chase plenty of obviously cheap companies.
The style blend team does not pursue tactical asset allocations between the firmÆs growth and value managers. Lee says there is no tool out there to assure his team could consistently get those calls right; while he can see that spreads must widen, he canÆt time the market. Instead the style blend team automatically rebalances the portfolio based on parameters agreed with clients. ôYouÆre always buying low and selling high,ö he says.
For growth to return, Lee believes economic growth must trail off, and more volatility return to the markets. ôSpreads have narrowed because the environment has been so benign,ö he says. ôInvestors arenÆt distinguishing between those quality companies from the rest. We think investors will begin to gravitate more to large-cap growth companies.ö
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