Winner of Best Asia-Pacific Equity Fund - Public Far-East Alpha-30 Fund
Inception Date: 2010-04-06
Morningstar Rating (2020-02-29): ★★★★★
Manager: Kang Pey Chiang
Q1) Can you highlight any major changes you made to the portfolio over the course of 2019? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?
Public Far-East Alpha-30 Fund (PFA30F) is a regional equity fund which invests in a concentrated portfolio of a maximum of 30 stocks.
In 2019, the fund generated a return of +19.9% to outperform the regional equity markets, as proxied by the MSCI All Country Far East ex-Japan Index, which rose by 15.2% (in Ringgit terms). 2019 was a relatively volatile year for the regional markets, with sharp corrections of close to 10% in May and 5% in July/August.
PFA30F started 2019 with its top holdings focused on the technology and Internet sectors. The fund continued to increase its weighting in the technology sector in 1Q2019, but subsequently reduced its holdings towards the year-end as the fund adopted a more defensive stance by reducing its exposure to China amid uncertainties surrounding the U.S.-China trade negotiations. Apart from China, the fund also reduced its exposure to Hong Kong and Singapore banking stocks amid lower interest rates globally.
On an overall basis, PFA30F’s performance in 2019 was driven mainly by the strong rebound in regional technology stocks.
Q2) What are some specific opportunities you have identified for 2020, and do you expect your 2019 outperformers to persist in 2020? What are the top risk factors that could impact your portfolio, and how are you positioned to mitigate these potential risks?
We expect technology hardware stocks, especially those leveraged to the 5G rollout which outperformed in 2019, to continue to perform well in 2020.
Due to the increasing adoption of digital products and services globally as well as the rising trend in online shopping, e-commerce stocks should continue to provide good investment opportunities in 2020. Meanwhile, the semiconductor and technology supply chains will be underpinned by sustained demand for electronic components amid the structural growth trends in artificial intelligence and cloud computing.
Some of the potential risks that could impact the fund’s portfolio include slower growth in domestic and regional economies, disruption to global supply chains and growth caused by the ongoing Covid-19 outbreak as well as further U.S.-China trade tensions. The sharp fall in oil prices following the Organization of the Petroleum Exporting Countries’ (OPEC) move to hike oil production despite weak global demand is also expected to affect the revenues of oil-exporting countries as well as oil & gas companies.
In view of the elevated market volatility, the fund has adopted a more cautious position in cyclical sectors within the region such as banks, energy, real estate and consumer discretionary. Currently, the fund is also holding a higher level of cash and would be looking for buying opportunities, especially in stocks with good management track records and sustainable earnings growth.
Q3) In which areas do you think risk is over/understated with respect to (i) the outcome of the US Presidential election, (ii) persistently loose monetary policies by major economies, (iii) Coronavirus impact on global growth, and how are you expressing these views in your portfolio?
(i) We believe market participants are generally expecting a de-escalation of U.S.-China trade tensions ahead of the U.S. presidential election in November 2020. However, market sentiment could turn more cautious in the run-up to phase two of the U.S.-China trade negotiations post the U.S. presidential election.
(ii) Amid the continued challenges posed by the U.S.-China trade dispute and the Covid-19 epidemic to global economic momentum, coupled with the prospect of lower inflation following the drop in oil prices, the central banks of major global and regional economies are anticipated to maintain accommodative monetary policies. This should help provide liquidity and underpin the performance of the financial markets.
(iii) We believe investors are having differing views on the magnitude of the negative impact of the Covid-19 outbreak as companies are unsure of how to quantify its impact on their businesses in their financial guidance at this juncture. Going forward, there could be an increase in the number of companies issuing negative guidances and hence, further revisions in economic and corporate earnings forecasts, especially if the Covid-19 epidemic persists longer than expected.
In view of the above, PFA30F is currently underweighted in cyclical stocks within the banking, energy, real estate and consumer discretionary sectors.
The fund is also holding a higher level of cash and would be looking for buying opportunities, especially in stocks with good management track records and sustainable earnings growth.
Q4) 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?
We currently have a team of 29 fund managers who are supported by a team of 36 research analysts covering both the domestic and foreign markets. There have been no major changes to our investment team over the past year. We evaluate our headcount on an ongoing basis to ensure that we have adequate resources to undertake the management of our funds, and will look to make additions when necessary.
Q5) Where do you feel that the investment team or the investment process can be improved upon in the future?
Members of our investment team seek to constantly improve themselves through continuous learning and development of their skill sets.
We also continuously look to upgrade and improve our workflow and processes as well as identify and employ best practices that will help to improve our efficiency as a team. To expand the scope of markets under our coverage and also to deepen our insights within the respective markets, we will continually look to strengthen the team with individuals who possess the appropriate skill sets.
View all 2020 Morningstar Fund Awards Malaysia articles here.