Winners of the Morningstar Fund Award are recognized as funds that have added the most value within context of a relevant peer group for investors over the past year and over the longer-term.
To help our readers better observe what makes a fund a winner fund, we sent out questionnaires to the winning fund teams earlier and asked them to shed lights on their team structure, how various risks have affected their investment decisions, and the major portfolio changes over last year, etc.
Category Winner: Best Islamic Malaysia Equity Fund - Hwang AIIMAN Growth Fund
Key Stats
Inception Date: 2002 Oct8
Morningstar Rating (as of 2014-02-28):
Total Net Assets (Mil, as of 2014-02-28): 93.54 USD
Manager: David Kong Cheong Ng / Akmal Hassan / Esther Keet Ying Teo
Manager Start Date: 2002 Oct8 / 2009 Apr1 / 2011 Jun30
M: Morningstar D: David Ng, Chief Investment Officer of Hwang Investment Management Berhad (HwangIM)
M: Could you highlight any major changes you made to the portfolio over the course of 2013? Were there any particular holding that drove the fund’s performance for the year?
D: On the equity side, we were selective in our stock picking given the challenging environment in 2013. Our philosophy is to invest in companies with good fundamentals, strong business models and proven management teams. Active asset allocation is pursued to protect the funds from the volatile markets. In terms of country allocation, we reduced exposure in the Asean TIP (Thailand, Indonesia, Philippines) markets during the second half of last year given the more challenging environment. Conversely, we increased the allocation for North Asia, mainly through China, as we positioned for a gradual global economic rebound. We remained overweight in Malaysia after the general election in May 2013 in selective sectors with clear and visible growth stories such as oil and gas, plantations and utilities.
For the fixed income segment, we actively managed the portfolio duration and adopted the bottom-up approach when investing in credit papers without taking excessive risk. Over the course of 2013, we have shortened duration on expectations of quantitative easing (QE) tapering. This was evident from the Federal Reserve’s (Fed) US$10 billion reduction in monthly bond purchases effective January 2014 and a subsequent similar decline to US$65 billion from February 2014 onwards. We participated actively in the primary issuances for both offshore and Ringgit bonds for better yield pickup where we find good opportunities.
Stocks that propelled fund performance were Allianz Malaysia Berhad and Dayang Enterprise Holdings Berhad. Expectations of the former winning a major contract will propel earnings growth in the next few years. We like Dayang’s solid execution track record and strong balance sheet. Likely to hold the stock for now as valuation is still decent and an improving cash flow profile could raise dividends in the future. We bought Allianz for its good quality management team which has been successful in increasing market share for both the life and general insurance segments. We are looking to hold onto this as the rise in interest rates should benefit Allianz due to asset liability mismatch.
M: What is your economic outlook for 2014 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
D: As for the 2014 outlook, markets are expected to be volatile in the near term given the lingering concerns on emerging markets (EM) and Fed’s QE tapering. Funds are still flowing out of EM despite an already strong outflow last year. China’s economic slowdown will be an added pressure on markets. However, we are positive on equities in the longer term due to a synchronised global economic recovery led by developed countries. A more sustainable uptrend will probably only be seen as the EM crisis subsides, fund flows stabilize and as the Chinese economy shows signs of recovery. While Malaysia will not be spared from world developments, the strong domestic liquidity will provide some support to the market and it is traditionally seen as a relatively safer haven amidst the external volatility.
In terms of positioning, we believe bottom-up country selection and selective stock and credit picking strategies are essential in 2014 to outperform the market. For equities, we are looking to re-deploy the cash holdings when we see clearer catalysts on the external front. We will put more money offshore when the time is right given that valuation is more attractive. We believe export oriented markets like North Asia, Malaysia, and Thailand will do well as they are geared towards global growth.
QE tapering would be less impactful on bond markets as it is fully priced-in now. We expect the Fed’s tapering to run its course until the end of 2014, implying that the major adjustments in bond yields have been done. In Malaysia, the high foreign holding of Malaysian Government Securities (MGS) is something we are watching closely. We could witness some foreign outflows if EM bond funds continue to see outflows from the Asian region. However, the MGS yields have risen quite substantially and we believe the large pool of local funds is able to cushion the rise in yields.
M: Can you comment on the risks facing the global economy, including the tapering of bond buying in the US and the growth headwinds facing the emerging world? How do these risks affect your investment decisions?
D: Fund outflows on the back of the EM and currency crises will continue to be the biggest challenges in 2014. As global growth improves and the withdrawal of QE liquidity continues in 2014, we expect to see continued fund outflows. As such, right country and credit selection is crucial in managing portfolios this year. We also expect the US Dollar (USD) to outperform Asian currencies during the first quarter of 2014. So, we would hold more USD positions in our portfolios.
In terms of event risk, there could be further risk aversion to EM equities, potentially higher oil prices, and possible economic sanctions in the short term arising from the present Ukrainian conflict. The sharp devaluation of the Argentinean Peso and Turkish Lira in end-January 2014 raised the issue of contagion to the whole EM financial system due to the deteriorating economic fundamentals of these countries.
Over in Asia, the economic slowdown in China and credit concerns (in the shadow banking sector – with the recent China Credit Trust default) will lead to an increase in country and regulatory risks, though already known to the market. The lack of catalysts in China is also a challenge given its economic dominance, and we are holding a fair amount of cash in light of this.
Apart from that, markets will be gauging the strength of DM recovery. There are also concerns over the pace of implementation of fiscal reforms in Malaysia. We are monitoring these developments closely, and will remain cautious in the short term.
M: How is your investment team organized? Have there been or do you anticipate any changes to the investment team or structure over the course of the year? Do you anticipate adding to the team in the near future?
D: Our investment team currently comprises three portfolio managers each for the equity and fixed income groups, assisted by three research analysts. We do not foresee changes to this structure at the present moment. However, we will look to add more personnel in the near term as we broaden and deepen our market coverage.
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