Thursday 28 Mar 2024
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This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 14 - 20, 2016.

 

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CIMB-Principal Asset Management took home six awards at The Edge-Thomson Reuters Lipper Fund Awards 2016 — five individual awards and one group award. The fund house won the highly prized Best Overall Group award for the third time. It won the coveted award in 2008 and 2012.

Ken Goh, acting chief investment officer for Asean, attributes the win to its investment process, which allowed the company to identify fundamental changes early and deliver absolute returns that were consistently ahead of the market. 

“We foster an environment that encourages team members to openly express non-consensus views. Given our due respect for the market, alpha generating ideas come from views that arise outside of market consensus,” he says.

“Our investment approach is primarily based on bottom-up stock selection. We have worked very hard and managed to find the right stocks to remain fully invested over this period. The bottom-up focus also allows us to develop unique insights and thought leadership in our top-down analysis and macro views.”

Goh also attributes the win to the company’s excellent teamwork, which is built on passion, focus and trust. The team has been relentlessly focused on delivering consistent returns to investors, regardless of market conditions. Its expertise and fund performance have stood the test of time. 

On the challenges the fund house has been facing, Goh says global equity markets have been significantly more volatile since the Federal Reserve announced in 2013 that it would end its asset-buying programme. 

“Previous periods of lower volatility created elevated valuations and intensified worries of misallocation of capital into inefficient or non-performing assets. All these have caused markets to swing wildly,” he adds. 

goh_chart_pw_1101“With the surge of the US dollar against all major currencies over the years — which we expect to level off for now — Asia ex-Japan unfortunately lagged in the past few years as capital flows shifted out in favour of developed markets. This elevated level of volatility really tested our longer-term convictions and fundamental view.”

In 2015, the fund house’s regional funds were underweight commodities as oil prices continued to come under pressure due to oversupply. It also reduced its exposure to China in tandem with the devaluation stresses against the renminbi. 

“In anticipation of further turmoil in China, our regional funds increased their cash holdings in August and favoured hard currency countries. Our global funds continue to favour Europe and Japan because their central banks will continue to ease,” Goh says, noting that 2015 saw market volatility rise to global financial crisis levels.

The fund house saw flat to negative returns from all asset classes in US dollar terms in 2015. It became very challenging to pick the right securities given the macro headwinds and elevated volatility. 

“Fortunately, given the weakness of the ringgit, our investors benefited from the strong returns of our global and regional equity funds last year,” says Goh. 

Despite the global market gyrations last year, the fund house ended up with more than RM60 billion under management, compared with RM50 billion at the start of the year. 

Goh believes 2016 is likely to continue to experience slow economic growth, low inflation and low interest rates. Fund managers expect volatility to remain high and the US dollar strength to have peaked, as it appears that the Fed was premature to hike the interest rate in December 2015. 

“This should lead to less pressure against emerging market currencies and the renminbi. Given the sluggish outlook, we expect flattish returns from local and global financial markets this year. We prefer international over local markets given the structural challenges and currency weakness that the Malaysian economy faces,” he says.

Goh adds that with the US manufacturing sector shrinking for the second straight month in December, concerns that the Fed may have raised interest rates prematurely are surfacing. “With the Bank of Japan and European Central Bank signalling intent for more drastic monetary stimulus, the Fed is likely to put its rate hikes on hold. However, central banks in Asia have the option of cutting interest rates to boost growth.”

Goh says Indonesia has cut rates without causing weakness to the rupiah. Thailand, the Philippines, Singapore, India and South Korea are expected to ease their monetary policies this year. 

“China’s growth has weakened, but the growth forecast is relatively impressive at 6% to 7% for the year. As the government’s reforms wend their way through the economy, we expect the People’s Bank of China to address economic imbalances while aiming for a soft landing, and minimising collateral shocks,” he adds.

“We expect volatile swings to be more frequent and extreme. Given the uncertain market environment and heightened earnings risk, we stay risk-averse and careful in our investment decisions,” says Goh.

The fund house is neutral on Asian equities as they are likely to remain range-bound as long as the renminbi is not allowed to depreciate meaningfully (to its fair value range of 7.20 to 7.50). 

“Overall Asian corporate earnings in 2016 have a bit more downside to go and our bottom-up analysis suggests zero growth versus consensus estimate of +3%. After the large correction in January, we are selective in the technology and financial sectors as they appear to have been overly punished, and continued portfolio outflows will remain a headwind during the year,” Goh says, adding that the fund house is avoiding commodities as it expects supply and demand imbalances to worsen in the coming years. 

Fund managers will continue to be cautious on value and cyclical stocks as there is overcapacity and overleverage in many industries, he says. The portfolios will remain fully invested and defensively positioned. 

Goh says the fund house expects another good year for its portfolios as it continues to improve and strengthen its investment process. “We have positioned our portfolios defensively for the coming year, and diversified across sectors and countries. Given all known global market issues still persisting from the previous year, any external shocks to the global markets where asset correlations would approach unity will have an adverse impact on our strategy. Elevated market volatility has us focusing on low beta stocks that should provide modest returns — realistic returns of 5% to 10% per annum — in the long term.”

He says its funds will also focus on absolute returns in the long term as opposed to having a short time horizon to ride out market volatility. “By doing so, we expect market fundamentals to prevail while we are proactive in minimising downside risks. Losing less in the short term and gaining more in the long term is the investment guideline we pursue. 

“We focus on companies that have cash flow certainty, such as airports, healthcare and utilities, and growth plays that are tailored to solid investment themes, for example, goods and services that cater for the ageing population’s demands and lifestyles.”

Going forward, the fund house plans to launch some new products, including more complex funds with wider exposure, Renminbi Qualified Foreign Institutional Investor (RQFII) funds and funds with a hedging mechanism.  

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