Category: Asset Management

Be on the lookout for geopolitical uncertainty, rising rates, slowing growth and election uncertainty

Smart Investor: Congratulations! Can you tell us more about your winning fund in the FSMOne Recommended Unit Trusts Awards 2022/2023?

Nor Daliya Mohd Daud: We are honoured to receive this recognition for our AIA PAM Growth Fund. This Fund, which was launched on 16 May 2013, invests in equities with a bias towards equities with potential for growth. The Fund will invest in local and foreign markets as it seeks to provide long-term risk-adjusted returns to its members by integrating rigorous fundamental research with disciplined risk management.

We incorporate Environmental, Social and Governance (ESG) considerations into the investment decision-making process as we believe ESG principles underpin proactive risk management.

Since its inception, the AIA PAM-Growth Fund has recorded a cumulative return of 57.2% as at end March 2022.

SI: What are the challenges you have faced in the past 12 months?

ND: In addition to COVID-related lockdowns within Malaysia and in other major markets which restricted movements and impacted market sentiments over the past year or so, other more recent challenges include Russia’s invasion of Ukraine, soaring commodity prices and supply chain disruptions.

Underperformance in Chinese stocks had also caused equities to decline and bond yields to rise while accelerated monetary policy and quantitative tightening by the US Federal Reserve and Bank Negara Malaysia (BNM) is now a major concern. Notwithstanding the evolving market conditions, we
will remain vigilant and adjust our investment strategies accordingly when the need arises.

Asset allocation decision remains the key driver when determining the range of portfolio outcomes amid volatile markets. We may adopt a temporary defensive strategy during adverse market conditions by increasing exposure to lower risk assets.

SI: What are the market trends that an investor should look out for in the near future?

ND: Geopolitical uncertainty. Market volatility is likely to persist in the near term given no signs of the war ending in the Russia – Ukraine conflict. The longer the war drags on, the longer sanctions will be in place with negative implications on commodity supplies and further increased inflation risks.

Rising rates. Bond yields are rising as the market has been repricing due to the number of rate hikes by the US Federal Reserve that should occur in the foreseeable future. The US Federal Reserve and other central banks are moving to normalize monetary policy to tackle inflation. Domestically, Bank Negara Malaysia’s policy measures should remain accommodative in the near term and the supply of sovereign bonds should be well-absorbed by the market. Overall, the domestic financial system liquidity remains ample, which shall remain supportive of the bond market.

Slowing growth. After a strong economic rebound in 2021, a slowdown in the global economy is expected this year amid less favourable market conditions with rising inflation, China COVID-19 lockdowns and geopolitical concerns.

Election uncertainty. There are news that the 15th Malaysian General Election will be held this year. The uncertainty in the general election outcome could trigger volatility in the market. Investors would want to see decisive policy decisions to combat inflation and a slowing economy.

FSMOne Malaysia, a multi-asset investment platform today assured Malaysian investors that unit trusts are still relevant and viable option that can help them achieve medium to long term financial goals. This assurance was reiterated at the FSMOne’s Recommended Unit Trusts Awards 2022/2023 at Pavilion Hotel, Kuala Lumpur earlier today.

The Awards, which are distinguished acknowledgements of outstanding fund managers that have produced best-in-category fund performances, saw 44 Recommended Unit Trusts from 17 fund houses, including Affin Hwang Asset Management Berhad, Manulife Investment Management (M) Berhad, Principal Asset Management Berhad, RHB Asset Management Sdn Bhd, Kenanga Investors Berhad, Eastspring Investments Berhad, and AmFunds Management Berhad, to name a few, make it to the list (see appendix for the full list).

Mr Koh Soo Cheng, General Manager of FSMOne Malaysia during his presentation emphasised that unit trusts continue to be an essential investment vehicle for all investors as they allow investors to build highly personalised and appropriately diversified portfolios to achieve their financial goals.

“From our analysis, we observed that throughout various market cycles over the years, the performances of our Recommended Unit Trusts have consistently been up to the mark against peers within the same category,” said Mr Koh Soo Cheng.

“The huge following of our Recommended Unit Trusts is a testament to the trust that our investors have on our selection methodology,” added Mr Koh Soo Cheng.

The Recommended Unit Trusts were assessed on both quantitative and qualitative parameters. The quantitative parameters included Returns, Risk, and Expense Ratio while the qualitative parameters considered were the consistency of fund managers in their investment approach, stability of the management team, and the departure of key personnel, among others.

“With an increase in our client base for the past 2 years, I believe that financial literacy among our investors is now more evident than ever. Besides FSMOne Recommended Unit Trusts lists which serves as a good point of departure for new investors, they can also get investment ideas from iFAST TV. It is an investment-focused channel committed to creating relevant, informative and engaging video content which was launched last year.”

“We are committed to provide the best of wealth management all under one platform.  To that end, FSMOne Malaysia has launched stocks and ETFs trading capabilities supporting Malaysia, US, Hong Kong and Singapore exchanges last year, and will be supporting the China A-Shares exchange on 8 July 2022,” added Mr Koh Soo Cheng.

On the global economic outlook, Mr Jason Wong, Research Manager of FSMOne Malaysia highlighted that he expects global growth to slow in the second half of 2022 amid persistently elevated inflation and monetary policy tightening by major central banks around the world.

In terms of the market outlook, he expects volatility to persist as lingering risks such as slowing growth, recession fears, high inflation, aggressive rate hikes and geopolitical tensions to possibly drag on towards the end of 2022.

“That being said, the market retracement this year has dragged down global equities to much more palatable levels, which could present opportunities for long term investors to take advantage of. With a lot of the negativity priced into markets, we would not rule out a gradual rebound amidst the volatility should things turn out better than expected. Some of the potential catalysts for a swift turnaround include inflation abating, China’s reopening and the end of the Russia-Ukraine war,” Jason Wong added.

Yet, on the other hand, despite the obvious risks, he thinks that the deep sell-off in Chinese stocks could finally be on the cusp of a turnaround. He expects China to roll out more policy measures to help support the economy. In fact, the government has already been rolling out economic support measures and fighting back against plummeting confidence in recent months. Adding to his optimism is the fact that China is emerging from its worst Covid-19 outbreak in more than two years, with daily Covid-19 cases trending down nationwide in recent weeks.

“Amidst the changes in the macroeconomic environment, fund managers have adjusted their portfolios accordingly towards investments that can better weather rising inflation and interest rates. Hence, we advise everyone not to overlook this opportunity for returns that would contribute to better long term wealth accumulation,” Jason Wong elaborated further.

This is the 14th year FSMOne Malaysia hosted its FSMOne Recommended Unit Trusts Awards. FSMOne Malaysia has been established in Malaysia since 2008.

For more information about FSMOne Malaysia and their recommended unit trusts, please visit www.fsmone.com.my.

About FSMOne Malaysia and iFAST Capital Sdn. Bhd.

FSMOne Malaysia (previously known as Fundsupermart.com Malaysia) is a Multi-Asset Investment Platform under iFAST Capital Sdn. Bhd. (“iFAST Capital”), established in Malaysia since 2008.

iFAST Capital is a holder of a Capital Markets Services Licence (CMSL) and is licensed by the Securities Commission to deal in securities (includes Stocks & ETFs, unit trusts and OTC bonds), dealing in private retirement scheme, offer investment advisory services, financial planning services and fund management services in relation to portfolio management.

iFAST Capital is a Federation of Investment Managers Malaysia (FiMM) registered Institutional Unit Trust Adviser (IUTA) and Institutional Private Retirement Scheme Adviser (IPRA). It is also an approved Financial Adviser licensed by the Central Bank of Malaysia to conduct financial advisory business and also a Participating Organisation of Bursa Malaysia Securities Berhad.

iFAST Capital is a subsidiary of iFAST Malaysia Sdn. Bhd. which is wholly owned by iFAST Corporation Ltd. (“iFAST Corporation”). iFAST Corporation is headquartered in Singapore and the iFAST group of companies are also present in Hong Kong, Malaysia and China. The company was incorporated in Singapore on 10 January 2000.

iFAST Corporation was listed on the Singapore Exchange Mainboard in December 2014.

Congratulations to Kenanga Investors Berhad for winning the Best Malaysia Large-Cap Equity Fund. In a tough market last year, Kenanga manages to put in a stellar performance and outperform all others.

We spoke to Lee Sook Yee, Chief Investment Officer of Kenanga Investors Berhad to share more about their secret for success.

Key Factors Behind The Success Of This Fund?

We are honoured to have received this award from Morningstar. This award reflects our team’s dedication and perseverance to continuously go above and beyond for our clients.

As a bottom up stock picker, our investment is underpinned by comprehensive fundamental research combined with a relative value approach to create superior risk adjusted returns.

In formulating a company’s investment thesis, we usually run channel checks on the company’s competitive advantages and also attempt to model out the growth drivers. Some of the key areas we look at include management quality, sustainable business model, industry dynamics and balance sheet strength.

By consistently applying this strategy, our funds have achieved continuously outperforming returns throughout the last 3,5 and 10 years.

Strategies To Maximise The Chance Of Success For The Fund

Half recovering from the pandemic-stricken crisis, 2021 presented both challenges and opportunities. One of the biggest challenges was having to grapple with the lingering impact of the pandemic, as persistent waves of Covid resurgence triggered intermittent lockdowns and containment measures, which when happened pulled the markets down with them.

Although such corrections became less intense as vaccination gathered pace, new sources of fear took shape in the form of worries over rising inflationary pressure attributed to severe supply chain disruption, talent and component shortage, power rationing which impacted our investments in varying degree.

We navigated through these speed bumps by constantly reviewing our investment theses to make sure they stayed relevant, identified the “relative winners” from sectors which were deemed resilient, consistently-growing and reasonably priced. Tech sector was one key sector which ticked most boxes and contributed immensely to our outperformance last year.

Can We Expect New Investment Products By Kenanga Investors?

We look forward to expanding our Kenanga Sustainability Series, a suite of multi-asset class products rooted in sustainability considerations to advance long-term financial growth for investors and to generate social and financial value for surrounding communities, in 2022. We introduced the first fund under this series in 2021 which was the Kenanga Sustainability Series: Frontier Fund. It provides investors with a range of opportunities in boosting not only the future development curve through the reduction of carbon emissions, new medical discoveries that may propel patient empowerment, and greater societal benefits while driving sustainable returns.

Congratulations to Public Mutual for another double win for the second successive year. It is no easy feat to achieve, considering the tough market in 2021.

On hand to share more insights on their success, we spoke to Chiang Kang Pey, Deputy Chief Executive Officer of Public Mutual.

Key Factors Behind These Two Wins?

Our key strategy behind both wins is our adherence to a fundamental investment approach of focusing on companies with sustained earnings, strong financial positions and proven track records. Despite the elevated levels of market volatility in 2021, the portfolios of our winning funds – PB Asia Equity Fund (PBAEF) and Public Islamic Alpha-40 Growth Fund (PIA40GF) – were rebalanced accordingly in line with the changing trends in the respective markets, sectors and industries that the funds were invested in.

Steps Taken For Best Chance Of Continued Growth?

In 2021, PBAEF, which focuses its investments in the Asian markets, locked in profits from selected growth stocks and positioned in semiconductor-related stocks within the Asian region which benefitted from the shortage of chips amid supply chain disruptions and China’s localisation trend. In addition, the fund’s performance was lifted by its holdings of North Asian technology and electric vehicle-related stocks which ride on the structural trends of digitalisation and the increased focus on cleaner energy solutions.

Meanwhile, PIA40GF, which focuses its investments in the domestic market, continued to capitalise on technology and basic materials stocks which stood to benefit from the long-term digitalisation trend as well as the strength in commodity prices. The fund also locked in gains from selected technology stocks at the end of 2021 amid concerns over the potential rise in global interest rates.

To ensure the long-term growth of our funds, we constantly assess and monitor the long-term prospects of our investee companies’ business models and strategies – including their pricing power, market dominance, growth potential as well as the competitive landscape. These strategies have proven to work well for the performance of our funds.

Strategies That Have Shifted In Line With Market Forces?

Despite the decline in the severity of symptoms for the newer Covid-19 Omicron variant, the evolving nature of this virus could mean that potentially new and unpredictable variants may emerge. Nevertheless, barring unforeseen circumstances, the global economy is anticipated to continue on its path towards recovery amid the easing of movement restrictions and the re-opening of international borders as governments increasingly transition towards policies to ‘live with Covid’.

Tightening monetary policies by global central banks, global supply chain disruptions as well as sanctions triggered by the current geopolitical conflict between Russia and Ukraine have also led to elevated levels of volatility in global financial markets this year.

That said, the domestic and Asian markets – which PIA40GF and PBAEF focus their investments on – are less exposed to the geopolitical risks in Europe. As such, both funds will continue to invest in selected recovery plays within the local and regional markets such as the financial, energy and commodities sectors, as well as selected consumer discretionary and leisure stocks.

The funds will also continue to position for the long-term growth potential of the technology sector which will benefit from the increasing adoption of digital products and services as well as the rise of automation, online shopping and hybrid/ remote working arrangements.

Upcoming Trends For Investors?

Global markets may continue to experience volatility and uncertainties in the short term amid the normalisation of monetary policies by major central banks in response to elevated inflation levels, as well as the current Russia-Ukraine conflict which has exacerbated global supply chain disruptions and inflationary pressures. Meanwhile, the performance of the China stock market will depend on whether the Chinese government will continue to implement policies on sectors such as technology and real estate which may impact their profitability or earnings visibility.

In addition to the recovery plays which will benefit from the re-opening of international borders and the lifting of social-distancing restrictions, investors are expected to focus on sectors that are more defensive such as utilities and consumer staples amidst the uncertainty surrounding the global economic outlook. Sectors that will benefit from the impact of high inflation such as the commodity, basic materials and energy sectors which have staged a strong performance compared to the broader markets thus far this year may also continue to outperform if inflationary pressures remain elevated.

Over the longer term, sectors that possess structural growth prospects such as those driven by the trends of digitalisation and the push towards greener energy solutions are also expected to do well. The rising adoption of cloud computing, artificial intelligence, cybersecurity, e-commerce, electric vehicles and lower-carbon solutions is expected to drive sustainable earnings growth for companies in these segments in the years ahead. The valuations of such growth-oriented stocks have also fallen on profit-taking activities amid higher bond yields; thus providing buying opportunities for investors who have a longer-term investment horizon.

Plans And Strategies For 2022?

We will remain committed to our fundamental-based approach and long-term investment strategies which have served us well in delivering consistent returns to our unitholders over the long term. Given the volatile markets amid uncertainties surrounding the Russia-Ukraine conflict and its impact on global growth and inflation, we have adopted a portfolio comprising growth and value stocks.

We will continue to monitor developments in the global markets so as to re-deploy our funds’
cash holdings when opportunities arise.

KUALA LUMPUR, 7 April 2022 — Morningstar Asia Limited, a subsidiary of Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, has announced the winning funds for its 2022 Morningstar Fund Awards Malaysia.

The annual Morningstar Malaysia Fund Awards recognise retail funds that have added the most value for investors within the context of their relevant peer group in 2021 and over longer time periods. Morningstar selects the winners using a quantitative methodology, along with a qualitative overlay. Weightings to one-, three-, and five-year risk-adjusted performance are factored into the methodology.

Wing Chan, Morningstar’s Head of Manager Research, Europe and Asia Pacific, remarked: “Our 2022 winners have proven themselves to be excellent stewards of investors’ capital. They have demonstrated their abilities to navigate through market volatility and deliver excellent returns over the longer term. We applaud all winners for their outstanding achievements.”

The 2022 Morningstar Awards winners in Malaysia are:

Methodology

The Morningstar fund category awards are based on Morningstar fund data as of 31 December 2021. The awards methodology emphasises the one-year period, but funds must also have delivered strong three- and five-year returns after adjusting for risk within the awards peer groups in order to obtain an award. In selecting winners, fund returns are adjusted for risk using the Morningstar Risk, a measure which imposes a higher penalty for downside variation in a fund’s return than it does for
upside volatility. For the full methodology, please click here. The full methodology for the awards is available here.

Morningstar Asia Limited is a subsidiary of Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately US$265 billion in assets under advisement and management as of Dec, 31. 2021. The Company has operations in 29 markets.

For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

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