Best Malaysia Large-Cap Equity (Shariah) Fund: Winner

The managers of the winning fund, Public Islamic Alpha-40 Growth Fund, discuss what worked 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 winning Large-Cap Equity Fund[JG1]  is Public Islamic Alpha-40 Growth Fund managed by Kang Pey Chiang. In 2020, the fund returned 29.43%, compared with the Morningstar Category average of 14.86%

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

Question: How was the portfolio positioned to navigate the coronavirus-induced market volatility in 2020? Were there any holding(s) or theme(s) that drove the fund’s performance for the year?

Answer: Our fundamental investment approach of selecting stocks which have resilient earnings, strong financial positions, and proven management track records has enabled Public Islamic Alpha-40 Growth Fund (PIA40GF) to navigate the challenging market conditions in 2020 amid the COVID-19 pandemic.  

The funds raised their cash levels during the market’s sell-down in the first quarter of 2020 and subsequently rebalanced their portfolios into stocks primarily within the technology, Internet, and e-commerce sectors.

The growth outlook for technology stocks providing software, Internet, and e-commerce services has been bolstered by the pandemic, as business enterprises increasingly shift to remote work policies while consumers resort to online activities – ranging from online shopping and social media to home entertainment and gaming. This trend also has the knock-on effect of increasing the demand for communications technology and data centres globally, which ultimately benefits vendors within the semiconductor and information technology hardware supply chains.

PIA40GF diversified its investments into the electric-vehicle supply chain, leveraging on the structural growth in demand for energy-efficient and more sustainable solutions.
As lockdown restrictions eased and prospects for a recovery in economic activities improved, the funds increased their exposures to recovery plays, with PIA40GF increasing its exposure to basic materials.

Question: Against the backdrop of the vaccine rollout, a new U.S. administration, and ongoing global monetary easing, what is your outlook for 2021, and how are you expressing these views in your portfolio?

Answer: Keeping in view of the positive progress in the rollout of vaccinations, PIA40GF has positioned into basic materials stocks to leverage on the projected recovery of industrial activities, while also investing in the electric-vehicle supply chain to capitalise on the increased focus on cleaner energy solutions under the new U.S. administration.

Overall, the equity markets are anticipated to continue to be supported by liquidity stemming from further stimulus measures undertaken by the new U.S. administration as well as the accommodative monetary policies globally.

Over the longer term, we continue to see growth potential in the technology, e-commerce, and Internet sectors, which will benefit from the structural changes in business operating and consumption patterns. As such, PIA40GF will continue to focus on stocks within these sectors amid the increasing digitalisation of the consumer and corporate environments as well as the continued advancement in information and communications technology.

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

Answer: Some of the potential risks include the high valuations of selected stocks, especially growth stocks, which have rallied amid elevated expectations of strong earnings growth. Another risk factor that could impact the fund’s portfolio is the potential tightening of the current easy monetary conditions should inflation pick up and become a concern.

To mitigate these risks, the funds will continue to be managed according to our fundamental investment approach of selecting stocks which have resilient earnings, strong financial positions, and proven management track records – an approach which has been key to enabling our funds in delivering consistent long-term returns.

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 future?

Answer: We currently have a team of 29 equity and fixed-income fund managers who are supported by a team of 35 research analysts covering both the domestic and foreign markets. While there have been no major changes to our investment team over the past year, we continue to 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.

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

Answer: As Public Mutual continues to launch new funds to capture new growth opportunities globally and grow in terms of assets under management, our investment team will continue to develop expertise and in-depth knowledge across the various markets and sectors, while also strengthening the appropriate investment decision-making skill sets. We also continuously look to upgrade and improve on our workflow and processes, as well as identify and employ best practices so as to help enhance our efficiency as a team.


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