The 2022 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 Malaysia Large-Cap Equity (Shariah) is Public Islamic Alpha-40 Growth Fund. In 2021, the fund returned 5.34%, compared with the Morningstar Category average of 0.46%.
We spoke to the managers and asked them about their strategies. Here is an edited excerpt:
How was the portfolio positioned to navigate the market volatility in 2021? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?
Our fundamental investment approach of focusing on companies with sustained earnings, strong financial positions, and proven track records has enabled PBAEF and PIA40GF to navigate the elevated levels of market volatility in 2021. We rebalanced our portfolios accordingly amid the changing trends in the respective markets, sectors, and industries that the funds were invested in. During the year, PBAEF, which focuses its investments in the Asian markets, locked in profits from selected growth stocks and positioned in selected semiconductor-related stocks within the region which benefitted from the shortage of chips amid supply chain disruptions and China’s localization trend. The fund’s performance was also underpinned by its investments in selected technology and electric vehicle-related stocks in the North Asian markets which capitalized on the structural trends of digitalization and the increased focus on cleaner energy solutions. Meanwhile, PIA40GF, which focuses its investments in the domestic market, continued to capitalize on technology and basic materials stocks which stood to benefit from the long-term digitalization trend as well as the strength in commodity prices. The fund also locked in gains from selected technology stocks at the end of 2021 amid concerns over the potential rise in global interest rates.
Against the backdrop of the (i) ongoing pandemic, (ii) talks of rising interest rates, and (iii) geopolitical tensions, what is your outlook for 2022, and how are you expressing these views in your funds?
Although symptoms of the covid-19 omicron variant appear to be less severe than the earlier Alpha, Beta, and Delta variants, healthcare systems in selected countries continue to be overwhelmed by patients who require treatment in hospitals. Furthermore, despite the decline in the number of new infections in certain parts of the world, the unpredictable nature of the coronavirus may mean that new variants could still emerge. Nevertheless, barring unforeseen circumstances, the global economy is anticipated to register moderate growth this year amid higher vaccination coverage and the gradual lifting of pandemic restrictions – in line with the strategy to live with covid-19. Tightening monetary policies by global central banks in light of inflationary concerns, as well as the current geopolitical tensions between Russia and Ukraine, have also led to elevated levels of volatility in global financial markets. That said, Bursa Malaysia and other Asian markets are less exposed to the geopolitical risks in Europe. As such, both PBAEF and PIA40GF will continue to invest in selected recovery plays within the local and regional markets such as the financial, energy and commodities sectors, as well as selected consumer discretionary & leisure stocks. The funds will also continue to position for the long-term growth potential of the technology sector which will benefit from the increasing adoption of digital products and services as well as the rise of online shopping and remote working.
What are the top risk factors that could impact your portfolio, and how are you positioned to mitigate these potential risks?
The key risk factors include the pace of monetary policy tightening by global central banks as well as the emergence of new covid-19 variants which could disrupt the global economic recovery. Meanwhile, the current conflict between Russia and Ukraine has also led to price adjustments and supply chain disruptions in the commodity markets, particularly in grains and energy. Going forward, we will continue to monitor and assess developments within the economic and financial markets so as to proactively manage the exposure of our investments to the aforementioned events. At the same time, we will continue to seek investment opportunities which may arise from periods of market weakness, and adopt an active portfolio rebalancing approach to ride through market cycles and near-term market fluctuations. PBAEF and PIA40GF will also look to focus their investments on Bursa Malaysia and other Asian markets which are less impacted by the Russia-Ukraine conflict. We believe our adherence to fundamental research and long-term investment strategies will continue to serve us well in delivering consistent returns to our unitholders over the long term.
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 30 equity and fixed income fund managers who are supported by a team of 36 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 will 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.
With the increasing awareness and demand for ESG investing, how have you been incorporating ESG considerations into your investment process?
Demand for ESG, or Sustainable and Responsible Investing (SRI), has grown rapidly in recent years, especially among institutional and millennial investors. Cognisant of the importance of ESG investing, Public Mutual has established an SRI Framework whereby ESG considerations are incorporated into our investment process. Our investment approach to stock selection for our unit trust and private retirement scheme (PRS) funds incorporates an assessment of various governance aspects, which include a review of the investee company’s management track record and business strategy, as well as an analysis of its financial results/performance. In tandem with the demand for SRI funds, we have launched – and currently manage – two SRI-focused funds. In addition to the aforementioned governance factors, environmental and social factors are also considered to ensure that the investments of our SRI funds are consistent with the funds’ sustainability objectives. Our SRI funds invest in qualified securities which are component stocks of established ESG indices as well as stocks that are assessed as ESG-qualified by index and data providers. As institutional investors play an important role in the corporate-governing process, we exercise our shareholder voting rights in accordance with our voting guidelines. This is to ensure that investee companies held by our funds uphold good standards of corporate governance, which ultimately enhances long-term shareholder value.
