This article first appeared in Personal Wealth, The Edge Malaysia Weekly on April 2, 2018 - April 8, 2018

Hong Leong Asset Management Bhd (HLAM) stepped up its game to take home two group awards and two individual awards at this year’s edition of The Edge-Thomson Reuters Lipper Fund Awards.

The fund house clinched the top awards of Best Equity Group (Provident), which it won for the second year running, and Best Mixed Asset Group (Provident). It won the individual awards for Best Equity Malaysia Diversified (Provident) and Best Equity Malaysia Income in the three-year category.

CEO Hoo See Kheng says the strength of its funds lies in the company’s investment philosophy, which is primarily based on a bottom-up stock-picking approach. “The funds were able to perform as a result of a robust investment process that was executed by a competent investment team. A good understanding of the company’s business and its outlook, as well as a comfortable level of confidence in the company’s management ability, is necessary before the funds initiate a position in the stocks,” he adds.

“Our Hong Leong Penny Stock fund won Best Equity Malaysia in the three-year category last year. This year, we won Best Equity Malaysia Income and Best Equity Malaysia Diversified in the three-year category for our Hong Leong Dividend fund and Hong Leong Growth fund. These funds generated returns of 49.10%, 45.13% and 33.65% respectively for the three years ended Dec 31, 2017. On average, our equity funds in the Malaysia provident category gained 40% over the three years ended Dec 31, 2017.”

The fund house’s strategy includes identifying possible upside catalysts while being cognisant of potential downside risks to a stock, says Hoo. On the performance of its winning funds in the provident universe, he says the funds have sizeable positions in undervalued large-cap stocks that were expected to benefit from potential inflows of foreign funds.

“The funds were also exposed to selected consumer stocks that were expected to benefit from the recovery in consumer sentiment and potential government pump-priming,” he adds.

Hoo says many local investors tend to underestimate the returns from Malaysia-centric funds. “Efforts have to be made to convince investors that the bottom-up stock-picking approach for the local market is effective in generating returns that most investors are comfortable with.”

The fund house’s assets under management (AUM) has been growing at a compound annual growth rate of more than 30% since 2014. “Last year, our total AUM grew 38%, mainly contributed by the strong performance of our equity portfolios and new sales from our continuous marketing efforts with our institutional unit trust advisers and agency channels,” says Hoo.

“As part of the Hong Leong Financial Group, we have a wide distribution network through our related companies. This wide outreach has enabled us to offer funds to investors across Malaysia.”

On the choice of companies it invests in, he says the fund house focuses on stocks of companies that practice good corporate governance. He adds that technology has also played a significant role in driving the fund house’s success as it has brought about increased efficiency and, in general, new innovations to spearhead the entire investment landscape.

“As the industry continues to evolve, so do we. We are continually exploring new initiatives and innovations,” says Hoo. For example, the company launched a fund without front loading, commission or initial sales fee last year and it saw a good response, he adds.

However, this does not signal the doom of funds that have the front-loading component. “Investors are now savvy enough to understand the purpose and effect of fees and how they tie in with the services rendered. Each investor has different investment goals and, in consideration of the fees together with the financial advice obtained, would select the investment opportunities most suited to him or her,” says Hoo.

“While technology and robo-advisory services will keep growing over the years, we believe active management will remain in demand. The market is big enough for both active and passive types of funds to co-exist. In fact, this will act as a check and balance in the marketplace.”

He adds that this is at the core of the entire Hong Leong Financial Group. “We are aligned in this journey to continuously innovate and move forward by leveraging technology to increase our outreach.

“Financial technology (fintech) is a mainstay disruptor. Those who are not able to innovate and embrace technology will be left behind. On this front, we are able to ride the group’s tech initiatives to be at the forefront.”

The advent of more innovative offerings has not left the industry in the lurch or led to the cutting of the agency force. “We do not see our agency business as an obstacle in implementing technology. Rather, as our agency business is relatively small and growing, we find that the introduction of technology is well received as it improves speed to market and increases efficiency,” says Hoo.

He adds that the biggest opportunities for the local unit trust industry will come from the younger generation. “Our population is growing and the younger generation is even more investment savvy than before. The need to save for retirement is more widespread and this opens up more opportunities for the industry to expand the market.

“There will be a need to introduce more innovative products and services to suit the ever-evolving demand of investors. The ability to capture the trust of the new generation will be one of the largest opportunities in the market at this juncture.”

Despite an increase in volatility across the financial markets, Hoo says the fund house expects global economic growth to remain strong. “An uptick in market volatility this year compared with last year is expected as investors assess the impact of higher inflation and interest rates on capital markets and companies’ earnings growth. Investor interest in the Asia-Pacific equity markets is expected to be sustained due to expectations of higher corporate profit growth than in the developed markets.

“We view any market correction as an opportunity for the funds to add positions in stocks that we favour at attractive prices. In periods of rising volatility, it is crucial to adhere to our bottom-up stock-picking strategy and not deviate from a fund’s intended asset allocation.”

This year, HLAM is favouring selected large-cap laggard stocks that are trading at attractive valuations as it believes this segment may be of interest should there be foreign fund inflows. Hoo says its funds also have positions in selected export stocks, which are expected to benefit from the improving outlook for external demand. However, the funds are avoiding the plantation sector simply because of the unattractive valuations.

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