Best Asia-Pacific Equity Fund: Winner

The managers of the winning Affin Hwang Select Asia Pacific (ex-Japan) Dividend Fund discuss what has worked for the fund in a tough year.

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The 2021 winners of the annual Morningstar Fund Awards–Malaysia have been announced.

The awards recognise the best of the Malaysian fund management profession, with winners selected by the Morningstar team.

The winner of the Best Asia-Pacific Equity Fund is Affin Hwang Select Asia Pacific (Ex Japan) Dividend Fund, managed by David Kong Cheong Ng. In 2020, the fund returned 31.1%, compared with a Morningstar Category average of 17.1%.

We spoke to the winning managers and asked them about their strategies. Here is an edited excerpt.

Question: How was the portfolio positioned to navigate the coronavirus-driven market volatility in 2020? What were the themes and holdings that drove the fund’s performance for the year?

Answer: During the February/March 2020 market meltdown, we raised cash to protect the portfolio. However, at the end of March, we felt that the market meltdown was overdone and believed that valuations of many stocks were becoming attractive. So, we started to accumulate stocks. That has helped us to ride on the subsequent stock market recovery.

Our heavy positions in e-commerce and cloud computing companies have helped drive the fund’s performance. This group of companies benefitted from the pandemic-induced lockdown, which has accelerated the adoption of technology.

Question: Against the backdrop of (i) the vaccine rollout, (ii) a new US administration, and (iii) ongoing monetary easing globally, what is your outlook for 2021, and how are you expressing these views?

Answer: We expect the global economy to maintain its recovery path as vaccines are rolled out, and monetary and fiscal stimulus to remain accommodative. A stronger global economy typically leads to the outperformance of cyclical sectors. We have increased our positions in the bank and semiconductor sectors. The vaccine rollout will translate to economic and social normalisation that will benefit reopening themes. We have positioned into these themes through payment, retail brand, and discount store companies.

Question: What are the top risk factors that could have an impact on your portfolio, and how are you positioned to mitigate these potential risks?

Answer: Higher-than-expected inflation and the resultant higher-than-expected bond yields are top of mind. A modest and gradual rise in inflation and bond yields reflects a healthy economic recovery. However, if inflation and bond yields rise too quickly, they may lead to stock market corrections. To mitigate the risk, we have reduced positions in highly expensive growth stocks that tend to underperform when bond yields rise. Conversely, we are increasing positions in the banking sector as it tends to outperform when bond yields rise.

Our base case remains that any correction will be modest and short-lived because we do not foresee any major crisis or recession in the next 12-18 months. In the absence of a major crisis or recession, stock market corrections rarely evolve into a protracted bear market.

Question: How is your investment team organised? 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?

Answer: Each of the equity team members typically covers a few sectors within a country. There is either one analyst or a team of analysts covering each of the Asia Pacific ex Japan countries as well as the United States. There have been no major changes in the investment team structure in 2020.

Question: Where do you feel that the investment team or the investment process can be improved upon in the future?

Answer: We are always on the lookout for talent and increasing our head count if there is a right fit and we can complement the team’s skill sets.

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