Category Winner: Best Malaysia Large-Cap Equity Fund - Kenanga Blue Chip
Inception Date: 2004-04-23
Total Net Assets (Mil) (2019-03-28): USD 5.12
Manager: Chee How Liong
M: Morningstar K: Kenanga
M: Can you highlight any major changes you made to the portfolio over the course of 2018? Were there any particular holding(s) that drove the fund’s performance for the year?
K: 2018 performance could be attributed to asset allocation and sector positioning. In view of a volatile and challenging year in 2018, the invested level for the portfolio was defensively positioned at around 75%-80%. Our sector positioning of underweighting telcos, overweighting consumer and increasing weighting in banks had helped portfolio performance. Post GE14, government’s decision to cut broadband prices lead to correction of the telco sector while the GST free period drove valuation re-rating of the consumer sector. Meanwhile 2018 banks earnings were generally in line with expectation which resulted in stable share prices in 2018.
M: What is your outlook for 2019 specific to the markets you cover, and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
K: We have a more constructive view on the domestic market following weak market performance in 2018. Investors were jittery and confused after the new government came into power due to flip flopping policies, delays of new policies roll out and speculation over introduction of new taxes to raise revenue. We expect the government to roll out more pro-growth policies in 2019 following the review of mega projects and various cost rationalisation measures. The negotiation with China on the East Coast Rail Link (ECRL) is still on-going and could be a re-rating catalyst for the construction sector if the project is resumed with higher local participation. The Pan Borneo Sabah highway project is another project where investors are closely watching for potential work packages award in 2019. We also expect property sales to improve in 2019 after poor sales in 2018. Post GE14, most potential buyers are waiting for government to introduce affordable housing polices and other friendly policies to assist first home buyers and the mid-low income group. We expect property sales to gradually improve as government works together with the private sector to provide more affordable housing and more incentives to buyers. Meanwhile, consumption should be well supported by Bantuan Sara Hidup (BSH) and other assistance provided to agricultural sector and lower income group. We are positioning our fund in these sectors. Apart from investing in growth sectors, we also invested in Real Estate Investment Trusts (REITs) in view of the stable interest rate environment. REITs provide consistent dividend yield to the fund and help to reduce volatility of the fund.
M: How have financial market risks, such as the ongoing trade war between the United States and China and tightening monetary policies in major economies, impacted your recent investment decisions? What are some underreported risks that could surface in 2019 or beyond?
K: We had adopted a defensive stance for the fund by keeping high cash levels of about 20%-25% in 2018. Going into 2019, US-China trade tension has receded while the Federal Reserve is turning more dovish. Given the receding external risks and our more constructive view on the domestic market, we are increasing our investment levels in 2019. Most of the risks such as trade tension and slower global growth are well flagged since last year. For the domestic market, we think the underreported risk could be the change in political landscape. Senior politicians’ health could be a concern for political parties/coalition. Any abrupt change in the political leadership may trigger a market correction.
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?
K: Our investment team is made up by fund managers and analysts. Regardless of seniority, everyone in the team is allocated sectors and stocks for fundamental research. The team conducts comprehensive analysis by visiting companies, engaging with management and sector specialists. Our investment team has been very stable and growing the past few years. We are continuing seeking talents to join us and will continue to expand our multidisciplinary.
M: Where do you feel that the investment team or the investment process can be improved upon in the future?
K: We pride ourselves on our detailed bottom-up stock analysis which has been the key driver for our funds’ consistent outperformance over the years. Our investment process premised upon seeking for sustainable investment that fulfill our stringent selection criteria, are well-thought out and understood by each member of the investment team. Nonetheless, portfolio construction, trading/execution decisions and reporting are left to each respective fund manager, which at times, lead to guided variance of fund performances over time. Whilst this is inevitable especially taken into consideration different mandate requirements, we aim to ensure performance variance among fund managers to fall within a certain acceptable range over time, by subjecting everyone to the same disciplined approach to investing.
View all Morningstar Malaysia Fund Awards 2019 articles here.