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

Manulife Asset Management Services Bhd’s Investment Al-Fauzan fund won the award for Best Malaysia Equity Income in the three-year category at The Edge-Thomson Reuters Lipper Fund Awards 2016. 

Head of equities Tock Chin Hui says the success of the fund was mainly due to teamwork and the fund house’s investment philosophy. “The winning fund focused on growth and income stocks at reasonable valuations. We invest in companies with solid and scalable business models, good earnings potential, steady cash flow, solid balance sheet and that are backed by strong and driven management teams.”

In view of the market volatility and uneven global economic recovery, she says, the team’s investment strategy was to focus on growth and income. “In growth, we look for earnings momentum, driven by capacity expansion and growing demand. In income, we look for earnings sustainability and strength in balance sheet or cash flow, translating into dividends for shareholders.”

Tock notes that last year’s market was impacted by volatile oil prices and currencies. Other factors included weakening consumer sentiment post-Goods and Services Tax, rising costs as subsidies were rolled back and the anticipation of higher interest rates in the US. 

“Last year’s equity market performance was characterised by oil price and currency volatility. The anticipation of the first US interest rate hike since 2007, [fluctuating] oil price movements, the struggling economies of the eurozone, China and Japan, and surprise devaluation of the renminbi were some of the major factors that resulted in the market volatility,” she says.

The local equity market retreated 3.9% year on year, reflecting the sentiment on the impact of the weak ringgit and oil prices on the economy. Under such circumstances, the team remained fully invested in pure equity funds and did not take asset allocation positions. 

Tock says the economy is still driven by short-term uncertainties and the fund house remains focused on growth and income strategy. “We believe global recovery will eventually drive corporate earnings. Nonetheless, given that growth remains relatively subpar versus its historical context, the focus will be bottom-up stock picking.”

Themes that are on the fund house’s watch list are the beneficiaries of lower energy and commodity prices, technology and the Internet of Things revolution and industry leaders with a strong market presence. These will cushion the portfolios with a base of dividend-yielding stocks to provide the income, says Tock. 

“We like defensive sectors with growth potential, which is in line with our income/growth strategy. Our preferred sectors include power and utility, which will benefit from low commodity prices; transport or logistics for the exposure to the boom of e-commerce and rebound in global trade; and manufacturing. 

“Sectors to avoid will be banking and finance, given the shrinking liquidity and tapering growth. We see risk in increasing pressure on non-performing loans, going forward. We will also avoid the telecommunications sector due to intensifying competition and the consumer retail and discretionary sector as weaker consumer spending is expected to drag on,” says Tock.