2016 Awards Winners - Best Malaysia Bond Fund - RHB Bond Fund

Key Stats
Inception Date: 10 October, 1997
Morningstar Rating (as of 2016-02-29):
Total Net Assets (Mil, as of 2016-02-29): 11.40 USD
Manager: Hoe Cheah How
Manager Start Date: 17 May, 2013

M: Morningstar H: Hoe Cheah How, CIO of RHB Asset Management

M: Could you highlight any major changes you made to the portfolio over the course of 2015? Were there any particular holding(s) that drove the fund’s performance for the year?

H: We strongly believe long term outperformance can be achieved through the adoption of a holistic “Top-Down + Bottom-Up” investment approach  in constructing portfolios of well managed companies with solid fundamentals. We make high conviction duration positioning by taking into account in-depth global macro outlook and trend assessment. Overall, with an active portfolio management style without taking excessive risks, we aim to deliver consistent outperformance that exceeds expectations within the specific risk-return parameters for the portfolio. We seek to outperform our peers and beat their benchmark by buying mispriced or cheap securities. Throughout the year in 2015, our high portfolio duration strategy has turned out well and all the bond holdings in the portfolio performed well where we see declining bond yields hence the additional return from capital gain.

M: What is your outlook for 2016 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?

H: On the macro outlook front, we opine overall global growth to still remain positive though the risk for further growth slowdown is increasing. This is amid the inevitable growth slowdown in China while the other developed economies are entering a period of maturing growth with both fiscal and monetary policies exhibiting diminishing effectiveness in spurring true economic activities. Emerging economies, on the other hand, are adjusting to this slowdown in external demand while the overall stretched corporate and household balance sheets may weaken the internal consumption growth pillar.

Against such backdrop, 2016 is expected to be a yet another challenging year for financial markets globally as investors adjust to the persistent negative news flows in an already quite fragile investment climate/environment. Perhaps, after a few years of growth divergence, 2016 will be the year where growth trend is more aligned globally, that is, a more synchronised slowdown across economic blocks. With this view in mind, investors are advised not to expect the high market returns witnessed post the GFC 2008 and winners in the past few years may turn out to be the underperformers in 2016 as market players turn more realistic about the effectiveness of governments’ stimulus rolled out in the past few years as well as corporate earnings delivery amid a tougher macro economic backdrop. Furthermore, volatility of market price movement is projected to increase and remain high.

On the local financial markets, we continue to expect volatile trading patterns as investors digest both the internal and external news flows. On bond market,  yields in general are expected to grind lower amid a slower overall growth trajectory and also better demand-supply dynamics coming from lower fiscal deficit target. The positive outlook is further supported by the still benign inflation reading and a possible downwards adjustment in OPR should growth outlook worsen further.              

M: Can you comment on the macro risks facing the global economy, including the US rate hikes, weaknesses in commodity prices and the significant headwinds facing the emerging world? How do these risks affect your investment decisions?

H: Biggest macro risk being the sharper than expected growth slowdown in China and the associated rising corporate default risk. The probability of next Fed Fund Hike in March has already plunged to near zero level due to the heightened financial market volatility since the start of 2016. An outright quantitative easing from the Fed seems unlikely at this juncture but we are of the view that Fed will remain accommodative this year. On oil prices, we opine that it will stabilise in the next few months but with a yearly average that is still below that of 2015. The stabilised oil prices may lift sentiment on Ringgit. Furthermore, barring any unforeseen circumstances, we expect the resolution of the few non macro issues to increase Ringgit attractiveness and hence our more positive view (relative to consensus market forecast) on Ringgit performance in 2016.

Against such backdrop, the strategy has been to continue investing in companies with strong balance sheets that possess competitive advantages that should enable them to outperform their peers over the economic cycles and under-weighed the vulnerable sectors (commodities and property sector). Portfolio duration has been increased in line with our overall outlook of declining bond yields throughout 2016.

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?

H: We organized both the fixed income and equity investment team to work very closely together to exchange market view / strategy. We have no plan to change any of the investment process in place as it has worked well for the portfolios under management. We would not constraint ourselves in expanding the team should there be need to do so to accommodate changes in the future funds under management.    

M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?

H: We have an experienced investment team and all the team members have been working well together. Investment processes are well in place and have been working well for all the portfolios under management.   

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