From left: Ng, Ooi, Tan, Lim.
Affin Hwang Asset Management Bhd (AHAM) had a haul of six awards at the Refinitiv Lipper Fund Awards 2020. Affin Hwang Select Income won the award for Best Mixed Asset MYR Conservative (Malaysia) in the five-year category while Affin Hwang Select Opportunity won the award for Best Equity Malaysia Diversified (Provident) in the 10-year category.
Affin Hwang Select APAC ex-Japan Dividend MYR won awards for Best Equity Asia-Pacific ex-Japan (Provident) in the three and five-year categories. Affin Hwang Select APAC ex-Japan Balanced MYR took home awards for Best Mixed Asset MYR Bal — Global (Provident) in the three and five-year categories.
AHAM senior portfolio manager Lim Chia Wei says the fund house’s two-pronged strategy of focusing on stable dividend-paying companies and high-quality growth companies were key to driving the outperformance of its Affin Hwang Select APAC ex-Japan Dividend MYR fund.
“[To us] high-quality growth companies are those with a strong business moat, balance sheet and long-term growth prospects. Our positions in China’s internet sector and Asia’s semiconductor sector were among the key contributors in 2019.”
AHAM senior portfolio manager for fixed income Ooi Phee Lip says the investment team took the opportunity to increase its position in some of its conviction calls at discounted levels, given the widening of credit spreads in 2018, for the Affin Hwang Select Income fund. “These investments paid off when the credit spread tightened significantly in 1H2019.
“Another strategic move was that we lengthened our portfolio durations in 2H2019 when the US Federal Reserve changed its monetary policy stance from tightening to easing by cutting the key policy rate three times to 1.75%. Lower US treasury rates coupled with a tightening of credit spreads drove bond prices higher, especially investment-grade sovereign and corporate bonds. We also increased our positions in local currency bonds (such as the rupiah) for better carry, given the low-yield environment then.”
Overall, the firm maintained discipline in its investment approach, which is based on the belief that investment returns must commensurate with the level of risk being taken on, says AHAM deputy managing director and chief investment officer David Ng. “This is underpinned by our absolute return philosophy, and not to merely outperform the benchmark. Our research-driven process focuses on countries, sectors and companies with improving credit fundamentals and ratings.
“Avoiding potential problem credits and minimising credit losses are a critical function of our credit assessment. Thus, we invest according to our convictions and seek to deliver the best risk-adjusted returns, which encompass our fixed-income securities selection that is guided by fundamental,
valuation and technical factors.
“Similarly for equities, we adopted a disciplined approach in our investment process to select assets with sound fundamentals and were guided by valuation and technical factors.”
This year started strong and was largely driven by the improved trade rhetoric and strong technical support as investors looked for opportunities to deploy their funds, says Ng. Nevertheless, the gains were erased when the outbreak of Covid-19 sparked fears globally.
“Investors fear over an uncontrolled spread of the coronavirus, compounded by the breakdown in cooperation between Opec and Russia [in early March] has battered global credits, especially in the energy and resources sectors. Not only have the favourable technical factors disappeared very quickly, but the high-yield [bond] market is now implying a higher share of defaults,” he says.
Ooi says 2019 was an exceptionally good year for Asia’s bond markets, given the
monetary policy stimulus by key central banks and favourable market technicals. Declining returns have caused a search for yield, resulting in tighter valuations.
“As a result, bonds were no longer cheap towards 4Q2019 and markets were not pricing in the rising downgrade or even default risk. Adding to that, headwinds of slowing global growth persisted with the trade tensions causing more uncertainty and volatility, making investment decisions difficult. Nevertheless, we remained guided by our investment process and did not take on excessive risk unnecessarily,” he adds.
Ooi says liquidity is critical now and thus, the firm remains defensive and is seeking shelter in low-beta credits. A portion will be allocated to cash and short-term investment-grade bonds (such as cash proxy) while government bonds will act as insurance to ride through the current risk-off environment.
“Credit-wise, we still like some of the perpetual bonds of strategically important China state-owned enterprises (SOEs) with high callability rate and favour Chinese property issuers with good fundamentals, cashflow visibility and strong accessibility to multiple funding channels,” says Ooi.
AHAM senior portfolio manager for equities Angie Tan says stock prices were volatile last year and what made it more challenging was how fast the rallies and pullbacks were. “We decided to be defensive in such an environment. For Affin Hwang Select Income, we maintained a minimum asset allocation of 70% to fixed income and the balance to equities. For Affin Hwang Select APAC ex-Japan Balanced, we maintained a 50:50 allocation to fixed income and equities.”
On her outlook for equities, Tan says companies that are able to show resilient earnings will likely outperform in this period, when economic growth is increasingly uncertain. “This would be sectors such as telecommunications and consumer staples.
“We remain defensive on the equities side as well, preferring companies with sustainable earnings and cash flow as well as a strong balance sheet. It is important that the companies we invest in can survive this crisis.”
Lim says the Affin Hwang Select APAC ex-Japan Dividend MYR fund’s long-term strategy remains the same in the current market conditions, which is to focus on stable dividend stocks and high-quality growth companies. “In this challenging environment, we have a healthy cash buffer to reduce downside risk. But we remain open to buying stocks that have fallen excessively due to the indiscriminate sell-off and that fit into our long-term strategy.”