2017 Awards Winners - Best Malaysia Bond Fund - AmDynamic Bond

Key Stats
Inception Date: 16 September, 2003
Morningstar Rating (as of 2017-02-28):
Total Net Assets (Mil, as of 2017-03-29): 22.16 USD
Manager: Goh Wee Peng
Manager Start Date:  Since Inception Date

M: Morningstar P: Goh Wee Peng, Deputy Chief Executive Officer & Chief Investment Officer, AmInvest

M: Could you highlight any major changes you made to the portfolio over the course of 2016? Were there any particular holding(s) that drove the fund’s performance for the year?

P: The portfolio participated in selective primary issues with good valuation and of high grade bonds.This partly contributed positively to the performance in 2016.

M: What is your outlook for 2017 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?  

P:

• Investors are still digesting the larger impact of President Trump’s economic policies. The impact of President Trump on the economy is likely to be mixed, the positive effect of tax cuts, infrastructure spending and regulatory overhaul will be constrained by his administration’s protectionist tendencies.
  
  Nevertheless, in spite of the challenging global outlook, Malaysia’s economy continues to display resiliency, as shown by a higher than expected third quarter of 2016 Year-on-Year (YoY) Gross Domestic Product (GDP) growth of 4.3% which is a reversal fromfive quarters of decelerating growth. Moving forward, private consumption is expected to continue to underpin 2017’s GDP projected growth of 4.3%¹. In particular, key infrastructure projects such as the ongoing RAPID, Pan Borneo Highway, Klang Valley MassRapid Transit 2 (KVMRT2), Light Rail Transit 3 (LRT3) and the newly announced East Coast Rail Link will likely provide positive spin-off effect to the economy.
  
  Bank Negara Malaysia (BNM)’s decision to hold interest rates steady in January was widely anticipated given that it had already implement a pre-emptive rate cut in June 2016. Going forward we expect BNM to hold rates steady given that inflation in 2017 is not likely to be as benign as it was in 2016. Oil prices have been trending up in recently months following the Organisation of the Petroleum Exporting Countries (OPEC) production cut which has led to a more than 20% increase in Malaysian fuel prices. Worldwide there is likely to be reflation which China has snapped out of its factory price deflation, stronger Chinese factory prices will be exported throughout the world.
  
  Investors should adopt a long term investment horizon to ride through market volatility.
  
  Source: ¹ Data extracted from World Bank.

• We like defensive sectors such as toll roads (both green and brown fields), power producers (both green and brown fields) and selective on construction, consumer, telecommunication and plantation.Corporate balance sheet is key which we focus on strong balance sheet and cash flow generation capacity.
  
  

• We will avoid oil and gas and property sectors.Oil and gas sectors remain affected by poor capex outlook, weak sales and poor balance sheet.For the property sector, sales have remained sluggish and we do not expect to see significant turnaround given the ongoing administrative measures, banks’ cautious lending attitude and increase of housing supply in general.

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?

P: Specific to political risk abroad, in the United States (US), the Trump administration is pushing ahead with its policies more aggressively than anticipated. Although it remains to be seen whether all the policy changes will ultimately be implemented, these initial steps are already creating market volatility. Investors are positioning ahead in response to tweets and newsflow rather than waiting for actual laws and regulations to be passed following confirmation offered by economic data points.

Meanwhile, the European Union (EU) has a very active political calendar over the next six months:

1.United Kingdom’s (UK) Article 50 consultation on 31 March 2017

2.French Presidential elections on 23 April 2017 and 7 May 2017

3.German parliamentary election in September 2017

4.Italian election expected in June or September 2017

Although the outcomes are uncertain, most economists are not expecting these events to be a booster to economic growth.

We are equally watchful of event risk in Malaysia, with the possibility of the fourteenth General Election being held early. Two possible dates are bandied about: July and September/October 2017. Separately, we have witnessed markets reacting to new regulations such as the Central Bank’s Supplementary Notice to its Foreign Exchange Act announced on 2 December 2016.

In volatile markets which are moved by newsflow, initial flight-to-safety trades are followed by reversals as such positions unwind following disappointments or data points confirming overreactions. The value proposition of emerging markets would re-emerge and be even more attractive after such sell downs. 

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?

P: Our investment team consists of analysts and fund managers deploying both active and passive strategies across asset classes. Over time, we built-up our in house talent for the management of passive strategies and have succeeded to become the largest Exchange Traded Funds(ETF) manager in terms of assets under management/fund size in Malaysia.²

There will be no additional change in the near term as we are still focusing on expanding both our active and passive capabilities as well as coverage.

Source:² Data extracted from Lipper for Investment Management by Lipper, a Thomson Reuters company, 28 February 2017. Data extracted 2 March 2017. 

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

P: Being focused played a big role in bringing success to our investments. We will continue to embark on system upgrades or enhancements to further improve and automate investment processes in order to make it more robust. 

Click here to read other winners' Q&A.