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

Public Mutual Bhd marked its return to the top by clinching the coveted Best Overall Group (Provident) at The Edge-Thomson Reuters Lipper Fund Awards 2018. This is the first time the fund house has won the top award since 2011.

Public Mutual also clinched 13 individual awards in various categories. CEO Yeoh Kim Hong says the group wins are due to its fund management philosophy, which incorporates fundamental research and analysis with the objective of delivering superior and consistent returns to its unitholders over the long term.

“We adopt a stringent selection process, where the stocks held in our portfolios have to meet various criteria. This includes earnings resilience, management track record and valuations. The strategy enabled our winning funds to outperform in periods of volatility across various market cycles,” says Yeoh.

After the equity rally last year, the most challenging situation that the fund house faced was navigating the volatile market conditions in the second half of the year. At end-November, the local and some regional markets corrected sharply before recovering at the end of the year.

The PB China Asean Equity, PB China Pacific Equity and Public Tactical Allocation funds outperformed their peers by a significant margin last year. Yeoh says this is because the funds’ investments are focused in North Asian markets, which are experiencing an improving economic environment, apart from being positioned in sectors exhibiting growth or earnings recovery such as technology and financial.

“The funds’ holdings of ‘new economy’ stocks benefited from China’s continued transformation from a manufacturing-driven and export-led economy to one underpinned by services and domestic consumption. PB China Asean Equity’s investments in Asean also helped boost the fund’s performance on the back of a robust economic outlook, accommodative monetary policies and resilient corporate earnings growth in the region,” she says.

On continuing its winning streak next year, Yeoh says Public Mutual’s regional and global conventional equity funds — Public Global Select, Public Tactical Allocation and Public Far-East Alpha-30 — as well as the China-focused regional equity funds will continue to pay attention to sectors with resilient earnings growth such as technology, financial and consumer.

Meanwhile, the funds’ Islamic counterparts — Public Islamic Asia Leaders Equity, PB Islamic Asia Strategic Sector and PB Islamic Asia Equity — will continue to invest in the technology, e-commerce and consumer sectors to leverage the structural growth of internet usage and rising consumer spending in the region.

Last year, Public Mutual’s net asset value grew to RM81.45 billion — an RM11.16 billion increase from the previous year. According to Yeoh, the growth was largely driven by its equity funds on the back of fund inflows and higher stock prices in tandem with the upward trend in the domestic and global markets.

At the beginning of this year, financial markets around the world kicked off on a firm note. However, some markets saw a sharp correction in early February amid concerns over rising inflationary pressures in the US, which could lead to faster-than-expected interest rate hikes. Although the markets subsequently rebounded and recouped part of their losses, Yeoh expects conditions to remain volatile this year due to tightening liquidity conditions in the light of rising interest rates.

“To ride out potential market volatility in the year ahead, our equity funds will generally hold diversified portfolios across various markets in terms of asset allocation. Selected funds will also hold higher cash positions to capitalise on investment opportunities amid potential market volatility. In terms of stocks, we will continue to focus on companies with solid business franchises, resilient earnings and strong balance sheets that can sustain earnings in various market cycles,” she says.

On fixed income, Yeoh says Public Mutual’s bond funds will maintain moderate-duration portfolios throughout the year, given the uncertainties over the pace of the interest rate hikes and new administration, fiscal and trade policies in the US.

Market conditions that could adversely affect the fund house’s investment strategy this year include a broad decline in the financial markets on the back of a faster interest rate hikes and rising geopolitical tensions. However, Public Mutual’s funds should be able to ride them out by focusing on companies with strong fundamentals and holding diversified portfolios, says Yeoh.

The fund house considers sectors that will benefit from a reflationary environment, such as financial, attractive. It also favours sectors with positive secular growth trends that are able to increase sales by gaining market share such as technology and healthcare.

Companies that are able to increase sales by gaining market share or introducing new products and sectors that benefit from the changes in lifestyles, demographics and technological trends are also expected to perform well this year.

Public Mutual will be cautious on companies that are highly geared or do not have resilient operating cash flows due to the potential increase in interest rates. “We will also be selective when it comes to interest-sensitive sectors such as utilities, telecommunications and real estate investment trusts,” says Yeoh.

She adds that investors are becoming increasingly sophisticated. So, fund houses such as Public Mutual have to ensure that their products are able to meet the needs of these investors. It is keen on capitalising on the Asean Collective Investment Scheme framework, which will allow it to broaden its offerings for investors in the region.

“The streamlined authorisation process has cut the bureaucratic red tape that comes with cross-border fund offerings, allowing a shorter time for launching funds in regional markets. While we may look to offer products within the region in the future, all our funds are currently managed and offered domestically,” says Yeoh.

“In 2018, we will continue to introduce new funds to enhance the range of products offered to investors. Given investors’ rising awareness of the importance of environmental sustainability, social responsibility and corporate governance, we may also introduce funds that meet the environmental, social and governance criteria in the future.”

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