This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 14 - 20, 2016.

Eastspring Investments Bhd emerged a big winner at this year’s The Edge-Thomson Reuters Lipper Fund Awards. The fund house clinched the award for Best Equity Group for the third consecutive year and won nine individual awards in the equities and mixed-asset categories. 

Eastspring chief investment officer for retail and institutional business Chen Fan Fai attributes the achievements to the team’s valuation and research-driven stock picking, which works particularly well in times of volatility.

“Our equities team is made up of valuation and research-driven stock pickers. We believe this bottom-up approach requires strong fundamental research and is crucial in our aim for a high degree of consistency in the long-term performance of all funds. This is complemented by successful teamwork,” he says.

“Our primary focus is stock selection, which at times is complemented by asset, country and sector allocation decisions. This, we believe, is particularly effective at adding value during periods of extreme valuations or sharp swings in investor sentiment towards a particular asset class.”

Portfolio rebalancing is another factor that contributed to the outperformance of Eastspring’s equity funds. Most of the funds have seen higher levels of cash holdings since last year, and more cash was deployed into the market when values and opportunities emerged.

Six out of Eastspring’s nine award-winning funds have seen higher cash levels since the beginning of 2015 and each fund deployed a different strategy. For instance, the Eastspring Investments Equity Income Fund continued to increase exposure in high dividend stocks that have been punished out of fear of interest rate hikes and a possible increase in excise duty in the later part of the year. 

Eastspring Investments Small-Cap Fund, meanwhile, increased its exposure more aggressively during the market selldown in August last year, when small-cap stocks were offloaded indiscriminately. Eastspring Investments Dana Dinamik increased its exposure in exporters and was underweight telecommunications and plantation sectors. It maintained its exposure in the technology sector. 

When it comes to achieving effective stock selection, the key is to have strong fundamental research, says Chen. “This research and valuation work focuses on understanding the long-term value drivers of the companies we follow and the near-term catalysts. Our decision-making process encompasses qualitative and quantitative considerations, relying on the judgement of the investment team. Peer reviews, with debates and challenges, are critical to the process of bringing the team’s collective knowledge to bear on all investments.”

The asset management industry faced many challenges last year. On the global front, they included plunging commodity prices, fears of an emerging market crisis led by China and uncertainties surrounding the Federal Reserve’s interest rate hike. Locally, the 1Malaysia Development Bhd issue and political infighting caused uncertainties in the market and domestic economy. “All these uncertainties, especially the fragility of global growth, were at the top of our minds,” says Chen.

Nevertheless, Eastspring mitigated the challenges with its discipline and research-driven investment style. The team’s dynamics also gave it the experience and flexibility to adapt to market curve balls when they occurred, resulting in the outperformance of its funds. 

The fund house’s assets under management (AUM) grew last year with the introduction of new products. “We saw an increase of 11% year on year in AUM for the year ended December 2015, which was driven by new fund launches in the fixed income and offshore equity categories. The funds included Eastspring Investments Target Income Return Fund 4, Eastspring Investments Asian High Yield Bond MY Fund and Eastspring Investments Japan Dynamic MY Fund,” says Chen.

“In addition, our AUM through our EPF Member Investment Scheme has grown 33% since December 2014, supported by successful retail distribution strategies to penetrate this segment.”

Chen says global monetary policy will be the focus this year. Markets are likely to remain volatile with investors trying to time policy events such as the next US interest rate hike and policy changes by the Chinese government, owing to its economy slowing down. 

The Malaysian economy is also expected to be challenging against such a macroeconomic backdrop. But the ringgit may continue to strengthen against the greenback as uncertainty is brewing over the US economic outlook. 

Looking ahead, Eastspring will adopt a more cautious stance and maintain higher cash levels to deploy into good quality companies. For instance, the Eastspring Equity Income Fund will make capital preservation the key focus of the year and will likely maintain high cash levels. Cash will be put to good use in extreme market conditions. 

The Eastspring Investments Small-Cap Fund will also hold more cash and look into good quality small-cap stocks that are expected to outperform the broader market. Eastspring Investments Dana Dinamik and Eastspring Investments Dynamic Fund may look at trimming some exporters as the ringgit could strengthen in 2016. Both funds will focus on good quality stocks, with strong fundamentals and good growth potential.