Pacific Mutual Fund Bhd had a good showing at The Edge-Thomson Reuters Lipper Fund Awards 2018, where it won four individual awards after a three-year hiatus.
CEO and executive director Teh Chi-cheun says the Pacific Premier Fund bagged the awards for Best Equity Malaysia Income in the three and five-year categories because the investment team maintained a good balance between growth and dividend-yielding stocks.
“The team adopts a systematic and consistent portfolio construction method for the fund, starting with a top-down approach to identify the favourable sectors, followed by bottom-up analysis to pick winners within the industries. The fund’s performance benefited from the thorough analysis and diligent follow-up on its stock holdings,” he adds.
Disciplined asset allocation and strong stock picking are the main contributors to the performance of the Pacific Select Balance Fund, says Teh. The fund won the award for Best Mixed Asset MYR Balanced in the 10-year category. Its holdings include blue chips and mid to small-cap stocks.
“Over the years, the fund adopted a disciplined approach to portfolio construction and credit selection, which resulted in the creation of diversified portfolios that best meet the investment objectives of the funds,” says Teh.
He attributes the stellar performance of Pacific AsiaPac Income, which is the best fund in the Mixed Asset MYR Balanced — Global three-year category, to external fund manager Lion Global Investors Ltd (formerly known as Lion Capital Management Ltd).
“Our offshore award-winning Pacific AsiaPac Income fund was largely invested in Asian ex-Japan equities, with cash kept below 5%. Reinvestment activities were mainly targeted at yield enhancements while credit risks were prudently managed,” says Teh.
“The fixed-income allocation of the fund was maintained in the range of 45% to 50% throughout the year and the fund adhered to its strategy of having a diversified portfolio while maintaining a sufficient level of liquidity.”
According to Teh, there was generally market scepticism about the earnings recovery story of Asia in 2017 because investors were bogged down by growth jitters in China and currency devaluation risks from the year before. “Our sense then was that earnings could surprise positively in 2017, considering the depressed expectations. And more importantly, the leading global economic indicators were supportive of growth. This led us to prefer cyclically exposed areas, which typically benefit from operating leverage,” he says.
The biggest challenge, however, was the persistent market volatility, particularly during key geopolitical events such as the devaluation of the renminbi, the UK’s referendum on exiting the European Union and Donald Trump’s surprise win in the US presidential election.
Teh says the most significant rebalancing exercise was in 4Q2017, when the FBM KLCI fell from an intra-month high of 1,793 points on Sept 13 to a low of 1,708 points on Dec 5. “The domestic economy remained buoyant with GDP growth of 5.7% for the first nine months of last year. Despite net foreign fund outflows amid substantial Malaysian Government Securities maturities of RM27.5 billion in September and October, the ringgit stayed firmly on an upward trend,” he adds.
“Additionally, crude oil prices bottomed out from their low in July and staged a strong rebound. Against these positive developments, market valuations looked very attractive. The funds raised equity exposure that benefited from the strong year-end rally.”
With the global economic conditions improving, the overall macro environment remains favourable for Asian equities, says Teh. “While valuations appear close to long-term averages, relative to developed markets, Asia continues to look attractive, particularly since earnings prospects are positive. While inflation risks appears to be rising (mostly out of the US at this stage), interest rate hikes in the current economic cycle are typically supportive of equity market performance.
“For fixed-income investments, the duration of the funds will be actively managed with the capacity to take opportunities if volatility increases. The potential impact on the market due to changing central bank positions and global capital flows will be closely watched as more central banks move slowly towards policy normalisation.” By Pathma Subramaniam