[Awards Q&A] Best Malaysia Large-Cap Equity Fund - Public Strategic Growth Fund

To help our readers better observe what makes a successful fund house, we sent out questionnaires to the winning 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.

Morningstar Editors 25.03.2020
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Winner of Best Malaysia Large-Cap Equity Fund - Public Strategic Growth Fund

Key Stats
Inception Date: 2014-12-08
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 Strategic Growth Fund (PSTGF) is an equity fund focusing on growth stocks in the domestic market. The Malaysian equity market experienced challenging trading conditions in 2019, with the FTSE Bursa Malaysia (FBM) KLCI registering a 6.0% decline. To  navigate  the elevated market volatility, the fund was strategically positioned in stocks with resilient earnings growth prospects, healthy balance sheets and proven track records within the consumer, healthcare and technology sectors.

This allowed the fund to generate a positive return of +4.3% in 2019. The fund’s performance was lifted mainly by its investments in the aforementioned sectors which benefitted from sustained  consumer  spending as well as trade diversion arising from the U.S.-China trade dispute. For the 3-year period ending 31 December 2019, the fund  registered a total return of +24.2%.

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?

For 2020, we continue to see opportunities in companies which have diversified revenue streams across the regional economies within the consumer, healthcare and technology sectors. Consumer spending will remain supported by the region’s population growth, rising disposable

income and increasing urbanisation. The outlook for the healthcare sector remains underpinned by an increase in the greying population alongside rising demand for private healthcare services. Meanwhile, the increasing adoption of automation, the Internet of Things (IOT), artificial intelligence and 5G smartphones will continue to drive spending and investments in the technology sector.

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.

We will remain vigilant in monitoring the above-mentioned risk factors and in rebalancing the fund’s portfolio accordingly in efforts to weather the market volatility.

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, PSTGF will generally maintain a diversified portfolio across various sectors, focusing on stocks that are poised to benefit from favourable demographics, rising consumer spending and the trend towards increased digitalisation in the domestic and regional markets. To mitigate the impact of potential volatility in the markets, the fund will focus on stocks with proven management track records, solid fundamentals and resilient earnings.

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.

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