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

Amanah Mutual Bhd clinched the prestigious  Best Bond Group award at The Edge-Thomson Reuters Lipper Fund Awards for the third consecutive year. The fund house also won three individual awards. 

The AMB Income Trust Fund won the award for Best Bond Malaysian Ringgit in the three-year and five-year categories, while the AMB Ethical Trust Fund won the Best Equity Malaysia Income award in the 10-year category.

Amanah Mutual CEO Sheila Halim says holding on to its principles and having a strong team were the keys to ensuring their winning streak. “We are firm believers that being a true blue unit trust fund manager, our investment guiding principles and strong team keep us on track to ensure that unit holders are rewarded for the long term through regular income distribution payouts and capital appreciation.”

The AMB Ethical Trust Fund adopts environmental, social and corporate governance (ESG) principles, which require the companies in which it holds shares to adhere to ethical guidelines, which promote environmentally friendly activities, healthy social values and good corporate governance culture.

While Amanah Mutual’s investment strategies differ for each asset class, the overall principal investment strategy is to invest in fundamentally strong companies, high quality and investment-grade credit issuances, consistent dividend-yielding companies and companies that have a regional presence. 

Sheila says of the two winning funds, the AMB Ethical Trust Fund is equity-centric while the AMB Income Trust Fund is a purely fixed income portfolio. They are 100% Malaysia-based assets with zero direct risk to currency volatility. 

“Although the funds are not in the same asset class, our focus has always been on managing the downside risk of the portfolio. That means looking further into the concentration, sectorial and credit risks, which naturally impact the overall volatility of the fund,” Sheila says, adding that a portfolio restructuring had to be exercised last year on the equity side to reduce the overall risk.

To be consistent in its income distribution, Amanah Mutual kept its return on investment high to ensure discipline in taking realised profit, even though 2015 was a very difficult time. ”There were just too many challenging factors facing us at one go,” says Sheila. 

Macroeconomic factors, such as record low oil prices, the ringgit falling to its lowest level since the Asian financial crisis and uncertainties in developed economies, were some of the challenges the fund house faced. It was also impacted by the recent China market meltdown. 

“Because of this, we experienced extreme volatility in our equity portfolio. And sad to say, the FBM KLCI was the worst lagging market in the region. There were also foreign fund outflows from sovereign paper in the bond market,” says Sheila. 

Despite this, and the high volatility the local stock market experienced last year, Amanah Mutual’s assets under management (AUM) remain almost unchanged. Its units in circulation (UIC) even increased by 226 million units. Sheila believes this is because its clients remained invested. 

“Our clients still view investments in unit trust funds as a risk-mitigated product, whereby the fund’s volatility factor is normally lower than that of a direct investment in stocks or bonds,” she says. 

Because of market jitters, the fund house took a conservative position by holding on to more cash towards the end of last year, while still investing mostly in equities. As at Dec 31, 2015, Amanah Mutual’s overall asset allocation was 51% equity, 22% bonds and 27% cash and cash equivalents. 

Sheila says the fund house’s asset allocation has always been balanced between high, moderate and lower-risk assets, and cash utilised to purchase riskier assets when the market stabilises. “For fixed income, we are still overweight corporate bonds over Malaysian Government Securities. While for equities, we continue to like defensive sectors such as the consumer sector and plantations for diversification purposes.”

For equity type of funds, Sheila says investors can expect high single-digit returns this year, provided they are managed using a disciplined approach, with select fundamental stocks and focus to obtain a decent return on investment for the overall portfolio. As for fixed income funds, she says the total returns should be above the prevailing 12-month fixed deposit rate to attract investors to stay long term in the funds.

The prevailing ringgit rate against the US dollar could provide further demand for plantation companies. Sheila sees the plantation, construction and industrial products sectors performing positively and will focus on them. 

Amanah Mutual also remains invested in the manufacturing and consumer sectors, which are in expansion mode, either in capacity or markets, rather than just depending on the benefit of a stronger US dollar against the ringgit. 

This year, the fund house hopes to see its AUM increasing with the launch of new products, new client segment and improvement in portfolio performance. It anticipates new international clients by introducing shariah-compliant funds in foreign markets.

“The shariah space in the unit trust industry is growing impressively [apart from the established sukuk market] relative to conventional funds. We should be cognisant of this and be able to fill the gap and when possible, explore outside of Malaysia to improve our reach,” says Sheila.

“On top of this, we will continue to promote our premier and bellwether funds to our institutional clients, and also through our esteemed business channels, who believe in our products, which have been proven to produce respectable returns and decent dividend payouts through the creation of new units.”

Sheila expects the stock market to be better this year than last year if the market liquidity is healthy and high. She believes strong economic fundamentals will prevail. Therefore, any imbalance in asset price will be neutralised with good monetary and fiscal policies. “With the right policies, most countries including us, should command investment-grade sovereign ratings,” she says.

In the light of the economic outlook, Amanah Mutual will stay cautious but still look for trading opportunities, as some stocks have reached attractive price levels, with some trading below their average sectorial price-earnings ratio. The trading gains, says Sheila, would offset some current holdings in negative territory while waiting for the market to rebound from an oversold position.

 “We [will] stay vigilant on macroeconomic issues, be it locally or globally, to ensure that portfolio holdings are not taken off guard by changes in policies affecting the capital markets,” she says. 

Sheila says the fund is focused on maintaining its position in local corporate bonds to provide yields better than other fixed-income instruments in the medium to long term following the divergence in monetary policy seen in developed markets, especially by the US and European Central Bank. “We think it will be sustainable for long-term investors in search of assets with less risky exposure.”