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As the financial landscape of 2024 unfolds with global uncertainties, explore strategic investment insights for building a resilient portfolio in the face of market volatility and opportunities.

As we embark on the journey through 2024, investors are met with a landscape brimming with both opportunities and challenges. With a record number of elections globally, including the pivotal November US elections, and a backdrop of geopolitical tensions and lingering pandemic concerns, the year ahead promises to be one of volatility. However, amid this uncertainty, there are strategies investors can employ to build resilient portfolios and capitalise on market opportunities.

Strategic Asset Allocation
One of the cornerstones of building a resilient portfolio is strategic asset allocation. This involves distributing investments across different asset classes, such as equities, bonds, cash and cash equivalents, property and alternative investments, in a manner that aligns with one’s risk tolerance, investment goals and time horizon.

In 2024, amid the potential for geopolitical tensions and economic uncertainty, diversification across asset classes will become even more crucial. By spreading investments across various assets, investors can mitigate the impact of any single event or market downturn on their overall portfolio. For instance, while stocks may offer growth potential, fixed income can provide stability during times of market volatility, while alternative investments with a negative correlation to equities can help reduce overall portfolio risk and volatility.

Smart Diversification
Diversification within asset classes is equally important. Within the stock portion of a portfolio, for example, investors should consider diversifying across sectors, industries and geographic regions. This can help reduce the risk of concentrated exposure to any one sector or region-specific event.
Furthermore, alternative investments such as real estate, commodities and cryptocurrencies can offer additional diversification benefits. These assets often have low correlations with traditional stocks and bonds, providing a hedge against market downturns and inflationary pressures.

Ringgit Cost Averaging
In times of market volatility, emotions can run high, leading investors to make impulsive decisions that may not align with their long-term goals. Ringgit cost averaging (RCA) offers a disciplined approach to investing that can help mitigate the impact of market fluctuations.

With RCA, investors commit to investing a fixed amount of money at regular intervals, regardless of market conditions. This strategy allows investors to buy more when prices are low and fewer when prices are high, ultimately lowering the average cost over time.

Investing Beyond Borders
Investors are encouraged to venture beyond their home country for investment opportunities, recognising the risks associated with concentrating investments in a single region. Global diversification provides access to a broader range of opportunities, potentially capitalising on faster-growing economies and emerging industries.

This approach also serves as a risk management strategy, helping to mitigate the impact of currency fluctuations and geopolitical events that may affect a specific market.

In 2024, promising investment prospects can be found in countries such as the United States, Japan, Taiwan and South Korea. The United States stands out for its diverse economy, innovative companies, and robust financial market, making it a crucial element in many global investment portfolios.

Japan, despite facing economic challenges and an ageing population, remains a leader in technology and manufacturing, with opportunities in sectors like robotics, healthcare, and renewable energy. Taiwan and South Korea, home to world-leading technology firms, particularly in semiconductors, present appealing growth opportunities.

Diversifying across these geographies enables investors to tap into diverse industries, currencies, and economic cycles, enhancing portfolio resilience and potentially boosting returns.

Riding the Commodities Wave
In 2024, commodities are likely to shine, driven by a confluence of factors including supply chain disruptions, inflationary pressures and increased demand from emerging markets. The stage is set for a commodities supercycle, with metals, energies and agriculture expected to lead the charge.
Investors can capitalise on this trend by allocating a portion of their portfolios to commodities or commodity-related assets. These assets can serve as a hedge against inflation and provide diversification benefits during periods of market uncertainty.

Unlocking Crypto Potential
The crypto market continues to evolve rapidly, presenting both opportunities and risks for investors. The approval of spot bitcoin ETFs in January 2024 by the US Securities and Exchange Commission (SEC) marks a significant milestone for the industry, signalling growing acceptance and mainstream adoption.
Additionally, the Bitcoin halving event, which occurs approximately every four years and reduces the rate at which new bitcoins are created, has historically been associated with price appreciation. While cryptocurrencies remain volatile and speculative assets, they can offer diversification benefits for investors with a high-risk tolerance and a long-term investment horizon.

Another new development in Malaysia is staking approval by Malaysia’s Securities Commission (SC), allowing crypto using a proof-of-stake concept like Ethereum to be staked and being rewarded with additional crypto for helping to validate the blockchain.

Tapping into REITs
Real Estate Investment Trusts (REITs) have faced headwinds in recent years due to factors such as interest rate hikes and stagnating market prices. However, for investors with a long-term perspective, REITs can still play a valuable role in a diversified portfolio, offering steady dividends while looking forward to the next property market recovery cycle.

REITs offer exposure to income-generating real estate assets such as commercial properties, residential complexes and infrastructure projects, including logistic hubs and data centres. Despite short-term challenges, REITs can provide stable cash flows, inflation protection and potential capital appreciation over the long term.

Building a resilient investment portfolio requires careful planning, diversification and a disciplined approach to investing. By following these strategies and staying attuned to market trends, investors can navigate the opportunities and challenges of 2024 with confidence and build a foundation for long-term financial success.

ABOUT THE WRITER
Stephen Yong is an Executive Director at Wealth Vantage Advisory, driving strategic growth. He also actively promotes financial literacy to help Malaysians simplify and grow towards financial freedom.

In this exclusive interview, Morningstar’s newly appointed Managing Director for Southeast Asia, Shihan Abeyguna, discusses how the awards have underpinned investment excellence in Malaysia, Morningstar’s growth plans for Southeast Asia, and the company’s diverse range of products and services.

As investors navigate 2024’s mixed market conditions, insights from research powerhouse Morningstar are more valuable than ever. In a wide-ranging interview, newly appointed Managing Director Shihan Abeyguna provides an in-depth look at key trends shaping Malaysia’s asset management industry, Morningstar’s growth strategies for Southeast Asia and the company’s diverse product and service offerings designed to empower investors.

Discussing 2023’s Malaysian fund award winners, Abeyguna highlights exemplary funds that succeeded despite last year’s lacklustre domestic equities. He also examines broader asset management trends including sustainability, alternative, global diversification and personalisation.

Detailing plans to expand Morningstar’s data and research coverage, Abeyguna emphasises the company’s commitment to equipping investors and institutions to build holistic, customised portfolios aligned with financial objectives and personal values.

Shihan Abeyguna
Managing Director, Southeast Asia, Morningstar

SmartInvestor (SI): Tell us more about this year’s winners in Malaysia and how Morningstar assessed their investment approaches.

Shihan Abeyguna (SA): Our approach to recognising excellence in fund management is multifaceted, focusing not just on past achievements but also on future potential. This holistic methodology involves analysing risk-adjusted returns with a qualitative overlay to gauge a fund’s ability to serve investors’ best interests going forward.

Quantitatively, we assess both recent and medium-term performance for each fund. A winning fund must have ranked in the top half of its peer group in 2023 as well as posted strong results for investors over the past three years. Qualitatively, we conduct checks on the accessibility of each fund to local retail investors and lead management stability, among other factors.

The winners of this year’s awards in Malaysia demonstrated exceptional skill in navigating the market conditions of 2023. Malaysian equities faced a challenging 2023, but our domestic equity fund winners prevailed.

Malaysian large-cap equity category winner Maybank Malaysia Ethical Dividend and Malaysia large-cap equity (Shariah) category winner PMB Shariah Tactical, for example, benefitted from overweight positions in information technology, the best-performing sector domestically in 2023. Notably, the PMB fund returned a whopping 24% (in MYR terms) in 2023. Meanwhile, Asia Pacific equity category winner PB Asia Pacific Dividend was overweight in financials and energy, which benefitted from stylistic tailwinds as value sectors outperformed in the region.

The Malaysian bond market exhibited greater resilience in 2023, and our winning fixed income funds provided extra cushioning for investors amid equity market fluctuations. Malaysia bond category award winner AmDynamic Bond gained 8.3%, ranking in the fifth percentile of peers in 2023. AmanahRaya Unit Trust, meanwhile, gained 5.5% and won the Malaysia Bond (Shariah) category for the fourth consecutive year.

SI: Following the recognition of this year’s award winners, could you discuss the key trends currently shaping the asset management industry in Malaysia?

SA: Last year marked a remarkable rebound for the global financial markets, a turnaround from the gloom of 2022. Morningstar’s Global Market Index delivered over 20% in 2023, but this is just an aggregate picture. The regional performance for Asia was mixed. There were positive performances from markets like Japan, Korea, and India and underperformance in China, Hong Kong and Thailand. Malaysia’s market showed minimal movement in 2023.

Even though the overall markets did well last year, investors were sitting on the sidelines. This is supported by our fund flow data, where most fund flows in 2023 went into money markets and fixed income products. This risk off sentiment was no surprise considering the turbulent markets in 2022 and the higher yields.

In terms of trends, a few I would like to highlight are sustainability, alternatives, global diversification and personalisation. On sustainability, even though we have seen tempered flows into broad based ESG products, we have seen a steady increase in fund flows into climate solutions. Asia accounts for more than 50% of global greenhouse gas emissions, and I believe there will be continued emphasis on the ‘E’ part of ESG led by institutional investors. On alternatives, with the continued convergence of public and private markets, private equity and credit will serve as important diversifiers in investor portfolios.

Considering the muted performance of Malaysian markets, I believe investors will continue to demand globally diversified portfolios from asset managers. No trend discussion is complete without addressing the impact of technology and generative AI. The recent developments in technology will only accelerate investment solutions to be more personalised, not only to deliver financial outcomes but also to incorporate investor preferences and values.

SI: As the newly appointed Managing Director for Southeast Asia, what are your plans to grow Morningstar’s presence here?

SA: One of our primary strategies for this region is to meet the needs of the evolving investors’ portfolios, whether it is global access or varied investment vehicles. Morningstar has built its brand by providing insights on unit trusts, but over time we have expanded our data and research sets so that we can provide deeper insights on multiple asset types such as equities, ETFs, fixed income, structured products and alternatives.

We will continue to add or partner with third party data providers to expand our data sets so that investors can holistically analyse their portfolios. Our goal is to be an enabler with independent research and insights for institutions to personalise investor portfolios.

Even though we saw a reduction in global fund flows into ESG products in 2023, it is no less popular with investors who have taken the time to understand ESG. We believe in this secular trend because the need is clear. Large amounts of private capital are needed to mitigate and adapt to man-made externalities. Morningstar Sustainalytics is an elite brand in the ESG research space among academics and institutional investors. Our plan is to continue to innovate and provide leading ESG investor insights to capital allocators in the region.

There were multiple factors that led to the growth of private markets after the financial crisis. The growth may have slowed with increased yields, but private equity has held up well. We have also seen an increase in private credit, with traditional lenders looking to de-risk their balance sheets. Pitchbook, a Morningstar company and a leading provider of data and research on private markets, has recently set up Singapore as its Asia headquarters to serve the needs of the region.

SI: How does Morningstar assist investors in identifying and selecting the right fund managers while also guiding them on the significance of staying invested rather than trying to time the market perfectly?

SA: Our research demonstrates the pitfalls of attempting to time the market, primarily the risk of missing out on the market’s best days, which can significantly impact long-term returns. Instead, we advocate for a disciplined approach to investing, focusing on long-term objectives rather than short-term market fluctuations.

We have both quantitative and qualitative research to help investors identify fund managers who can beat their peers. For quantitative metrics, one of the primary indicators that we provide is the Star Ratings, which are based on risk-adjusted performance rankings for similar funds. We also have over 110 research analysts who qualitatively evaluate the funds based on factors such as fees, the fund’s investment process, the portfolio management team, risk management practices and the overall investment strategy.

Morningstar also provides educational resources and research articles to help investors understand the principles of successful long-term investing. Through articles, videos, webinars and podcasts, Morningstar educates investors about the benefits of staying invested over the long term and the pitfalls of attempting to time the market.

SI: Morningstar is known for its diverse products and services, including Mo, PitchBook and Sustainalytics. How can these support investors here, and what role do you envision them playing in the region’s evolving financial landscape?

SA: Our range of products and services is designed to cater to a wide spectrum of investors, addressing varying objectives, experience levels and interests in specific assets or sectors. For instance, Mo, Morningstar’s AI-powered digital research assistant, harnesses the Morningstar Intelligence Engine to make our equity research, managed investment research and editorial content readily accessible. This tool is particularly invaluable for investors looking to navigate the vast amounts of information available and make informed decisions quickly.

As the financial landscape in Southeast Asia evolves, tools like Mo, along with insights from the Morningstar suite like PitchBook and Sustainalytics, will play a pivotal role. They empower investors to build diversified portfolios across asset classes that not only align with their risk tolerance and investment goals but also allow them to personalise portfolios based on investor preferences or value.

Methodology: The Morningstar fund category awards are based on Morningstar fund data as of 31 December 2023. The awards methodology emphasises the one-year period, but funds must also have delivered strong three-year returns after adjusting for risk within the award 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.