Category Winner: Best Malaysia Large-Cap Equity Fund - Affin Hwang Select Opportunity Fund
Inception Date: 2001-09-07
Total Net Assets (Mil) (2018-03-30): USD 264.29
Manager: Eng Peng Gan
M: Morningstar A: Affin
M: Can you highlight any major changes you made to the portfolio over the course of 2017? Were there any particular holding(s) that drove the fund’s performance for the year?
A: The performance came from our positioning made since 2016 and early 2017 into banks, REITs, restructuring plays and various bottom up ideas.
We were early buyers of large cap banks as we thought the selling was overdone, there was tremendous value and that broad economic activity should improve.
We took the view that the abundancy of domestic liquidity in Malaysia would force a buying of REITs and other dividend stocks, hence the portfolio had high exposure into this space.
We also followed the entry of new management into PNB group, with initial positioning into their PNB group of companies prior to their entry and heavier weights when the news was confirmed – this turned out fortuitous as the PNB restructuring story became a major theme of 2017 and into 2018 as well.
Some big bottom up ideas like an aluminium smelter company, politically connected construction company, regional F&B and tank farm operator also drove performance.
M: What is you outlook for 2018 specific to the market you cover, and how are you positioned to take advantage of opportunities and/or mitigate risks?
A: We think reading of the global macro picture will play a big role in 2018, as evident from the recent global rout. We are in a late stage of a long economic run since 2009 with massive liquidity in the system. Markets tend to give the sweetest performance at late stage rallies. We want to capture some of these returns but not to overstay.
The Malaysian election is also an important event, how funds are positioned going into it could determine many peer performance differential. Consensus strategy seems to be to de-risk when elections are called – this presumably is due to the risk of a non-status quo result. We will probably take a contrarian view by buying into any weakness with the thinking that the election results will be status quo governance. We hope to control the election outcome risk by buying into apolitical businesses that are not heavily driven by government policies.
We are shifting the portfolio towards a rising inflation environment. This should mean stronger growth, higher rates and better commodity performance. We express this view through the banks & insurance companies, which are geared to economic growth and rising rates, large cap oil & gas stocks and net cash companies.
M: Can you comment on the major risks facing financial markets, such as rising interest rates and elevated asset prices? How do these risk effect your investment decision?
A: Our key advantage in generating outperformance is to have a flexible point of view and quickness in adapting to the new environment. We are cognizant the many zig and zags of macroeconomics, geopolitical events and its impact on financial markets. We don’t believe in having a stubborn view of the future, instead, we evaluate and reposition the portfolio to the new reality as and when it changes.
Our current positioning is on the believe that equity markets still have legs as we are in the beginning of growth acceleration phase and monetary policy tightening is not severe yet from an absolute level. We will change this positioning as and when the evidence point another way.
We also recognise it is very difficult to identify risks that will derail market rallies a-prior. Most identified risks are somewhat priced into asset prices. It is the unknown risks that derail market rallies, not the known risks. The ability to evaluate and readjust quickly will drive peer outperformance.
M: How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?
A: The equity team is split into the Asian and Malaysian team. We find that it is more time efficient and focused instead of having one large equity team. We have 7 experienced fund managers and analyst covering Malaysia. We have no intention to change the team composition in the near future.
M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?
A: We are happy with the way we approach investing, which is client focused with an absolute return bent. Adapting the same philosophy and process through the years have generated strong performance. What we need to continue to do is to drive team motivation, apply the same investment philosophy for filtering and execute the investment process.
View all Morningstar Malaysia Fund Awards 2018 articles here.