This article first appeared in Wealth, The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022

Areca Capital Sdn Bhd took home three awards at the Refinitiv Lipper Fund Awards 2022. It was the fifth year in a row that Areca equityTrust won the award for Best Equity Malaysia (Malaysia) in the three-, five- and 10-year categories.

CEO Danny Wong attributes the fund’s outperformance to its active investment strategy that emphasises an appropriate asset allocation based on changing market conditions and cycles over the mid and long term.

“The fund is managed with a top-down approach, which means focusing on identifying the appropriate levels of equity and cash in our portfolio. Cash is an essential tool, not just to manage risk but also to take advantage of market conditions at the right time,” he says.

“We then complement such a strategy with a bottom-up approach, so that we do not miss out on any stocks with good fundamentals that are not in our preferred sectors.”

The ability of a fund manager to respond quickly to various events was the main challenge last year. As economic and market cycles get shorter, it is increasingly important that investors remain agile and flexible, says Wong.

“We really had to have our eyes peeled and ears close to the ground. We had to remain very agile in managing our asset allocation.”

Being agile led to more asset allocation activities last year. As a result, the fund’s cash level fluctuated from time to time and was only deployed more aggressively into the market in the second half of the year, he says.

“We started the year being quite optimistic about a rebound in economic activities. However, the idea was turned on its head when infection cases related to the Delta variant peaked. Adding to that was the political uncertainty and subsequent change in government that further dampened market sentiment.

“We deployed our cash into the market when opportunities emerged in the later part of the year, with our cash level falling from more than 20% to 5%. And we started to take profit from our investments and raised cash levels slightly after that. Then, the prosperity tax hit the market and fears of rising inflation in the US came into focus.

“This series of events shows that we have to be ready to act fast at all times. We are not just responding to changing market conditions, but anticipating them as well.”

Wong says the fund will continue to apply the same investing formula moving forward as it has worked well in the past 15 years since its inception. “We have gone through quite a few market turbulence and crises, including the global financial crisis, EU sovereign debt crisis, US taper tantrum, China’s slowdown shock, 1MDB-related issues, Brexit and the unpredictable Donald Trump, to name a few. Yet, we have done well.”

Moving forward, the firm will focus more on bonds with shorter durations and be more selective in the fixed-income space. On the equity side, it will remain cautious while bargain-hunting.

“Certain investment themes that had been investor favourites seem to have been upended. However, we like to think that the glass is half-full instead of half-empty. Volatility in some of these themes can be opportunities for long-term investors to accumulate more shares,” says Wong.

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