This article first appeared in Personal Wealth, The Edge Malaysia Weekly on April 20, 2020 - April 26, 2020

AmFunds Management Bhd (AmInvest) bagged the prestigious award for Best Bond Group (Provident) as well as three fund awards at the Refinitiv Lipper Fund Awards 2020. AmMalaysia Equity won the award for Best Equity Malaysia (Provident) in the three-year category while AmDynamic Bond grabbed the awards for Best Bond MYR (Provident) in the three and five-year categories.

AmFunds Management chief investment officer Wong Yew Joe says the fund house believes in being consistent with its investment approach as it has been instrumental in generating better returns. “The investment team is focused on developing core fundamental views that will form the basis of our market expectations and strategies. To be effective, the execution of these strategies need to be carried out with vigour and timing precision,” he tells Personal Wealth.

Wong says the AmMalaysia Equity and AmDynamic Bond funds are similar in that they have better flexibility when it comes to implementing investment strategies. The funds can switch dynamically between an aggressive and defensive stance.

“AmMalaysia Equity can quickly shift its focus between large, mid and small-cap stocks so that it is able to outperform its target in most market conditions. Similarly, AmDynamic Bond can quickly switch from short to long duration (or vice versa) on structure asset allocation and/or tactical trading strategies,” he adds.

AmDynamic Bond outperformed its benchmark — the BPAM Corporates All Bond Index — by 3.1%  and 3.3% over the three and five-year period respectively as at Dec 31, 2019. The fund exceeded the benchmark by 26.6% over the 10-year period.

“The outperformance was attributed to our high conviction to overweight duration in 2019. We also actively undertook opportunistic trades in some Malaysian Government Securities and Government Investment Issue,” says Wong.

With the exception of 2017, the local equity market had been lacklustre over the past three years, he adds. AmMalaysia Equity outperformed its benchmark — the FBM Emas Index — by 36.1% over the three-year period ended Dec 31, 2019. 

“[This was] mainly due to our swift asset allocation calls and execution. The outperformance was also supported by our stock selection in the mid and small-cap segments,” says Wong.

“We were defensive in 2019 due to numerous domestic and global headwinds. Hence, we positioned the fund in high-yielding stocks to anchor the portfolio. We also actively switched between alpha and beta stocks over the course of the year.

“In the earlier part of 2019, we had some high conviction alpha stock picks that performed well against large-cap stocks, and subsequently reverted to large-cap stocks as we saw more value return to these stocks.”

The global economy saw volatile market conditions last year. The volatile and unpredictable equity markets made it tough for the fund house to form a longer-term outlook, hence the challenge of setting a directional view, says Wong. 

“The US-China trade war saw numerous developments that caused global markets to swing in different directions. To generate value, we focused on stock selection to identify upside potential in the mid and small-cap segments,” he adds.

“In general, we were consistent and maintained high asset exposure for these funds for most of 2019. We focused on stock picking as we expected the market to lack direction while the bond funds overweighted duration on expectations of a declining interest rate trend.”

Given the market turmoil since the beginning of 2020, the fund house is expecting another volatile year, although lower-risk assets such as bonds should see better performances than equities. Hence, AmInvest is taking an aggressive stance for its bond funds and a more defensive one for its equity funds, at least until there is some market stability.

Wong says the ongoing concerns, arising from issues such as the Covid-19 pandemic, are leading to a weaker global economic growth for 2020. Corporate earnings are unlikely to see material improvement from 2019, if any.

“Unless these risks dissipate as quickly as they arrived, we are anticipating a lacklustre equity market. We are maintaining a similar equity strategy from 2019 to focus on stock picking to generate alpha,” he says.

“On the other hand, the bond markets will do well as global interest rates are on a decline. However, the local bond market may be perturbed by Malaysia’s materially weaker GDP forecasts, which may lead to pressure on its credit rating and subsequent potential selling pressure by foreign funds.

“Nevertheless, we believe the risk is mitigated by strong local investor support. We are maintaining our optimistic view on bonds for now.”

In line with its market expectations, the fund house seeks less volatile and higher dividend-yielding stocks. “We think the real estate investment trust, rubber and healthcare sectors are likely to outperform this year. Meanwhile, we prefer higher-quality corporate bonds in anticipation of weaker corporate earnings,” says Wong.

AmInvest CEO Goh Wee Peng says the fund house will be avoiding the tourism, hospitality, airline and oil and gas sectors as they are directly impacted by global events this year. On the home front, foreign investors are likely to stay on the sidelines while monitoring the developments in Malaysia’s new government such as its stance on various issues and its implementation of economic policies. However, these concerns are likely to be overshadowed by the Covid-19 pandemic, she points out.

“The new government has just formed an Economic Action Council. Not much has been shared other than its priority to address problems due to Covid-19 and low oil prices,” says Goh.

“The new government has introduced financial aid to help alleviate the people’s economic burden amid the Covid-19 outbreak and, more recently, the Movement Control Order to contain the virus. We do not expect major policy changes until the fear over the disease tapers off.

“The best-case scenario would see the economy have less than 0.5% impact on GDP, with the economy and markets seeing a V-shaped recovery. The worst-case scenario may see GDP dipping more than 1%, with a more U-shaped recovery.”

Goh says the biggest opportunities in the local unit trust industry include online platforms. These will be effective tools in targeting a new generation of investors and broadening the distribution channel. 

“The trend towards virtual channels, including mobile channels, have garnered considerable attention from regulators and it creates a great opportunity for growth in assets under management among industry players,” she says.

Another opportunity can be found in private retirement schemes (PRS) as Goh believes it allows youth to understand the world of investment and start investing in unit trusts. Hence, marketing strategies for PRS sales should intensify.

Finally, the growing interest in shariah-compliant or Islamic and sustainable funds provides the opportunity for industry players to increase their offerings in the shariah-compliant/Islamic as well as environmental, social and governance space, she says. 

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