Investing: Capitalising on volatility


  • If our fund managers stick to the process — if they are disciplined, not swayed by market movements and cut losses when there is a need to — our funds will continue to sustain their performance. > Najmi
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This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on January 9 - 15, 2017.

 

Last year was tough and this year is expected to be even tougher. But despite the grim prognostications of most fund houses in their market outlook, PMB Investment Bhd CEO Najmi Mohamed thinks the savvy investor will be able to find specific opportunities.

For starters, he says, investors not only need to diversify their portfolios but also rebalance them from time to time, using fundamental and technical analysis.

For instance, there are opportunities in US assets. “We expect US growth to increase and we anticipate a Federal Reserve rate hike. Most fund managers will probably pull out of the rest of the region and park their funds there. So, investors could probably look for opportunities in US equities,” says Najmi.

They can also diversify into commodities, he adds. “Commodities are making a comeback. Crude palm oil is averaging at RM3,000 per tonne from a low of RM2,300 per tonne. Investors can include this in their portfolios, but it is crucial that they understand the risks involved first.”

PMB Investment is a boutique asset management company. It offers investments in shariah-compliant equities, sukuk and Islamic money market instruments, or a combination of any of these three asset classes.

Najmi thinks this will be an especially challenging year. The economic outlook remains murky with both the International Monetary Fund and World Bank reducing their growth projections in the face of the uncertainty following the election of Donald Trump as US president.

But amid the gloom, there have been some bright spots, such as the turnaround in the plantation sector. A possible general election is also expected to boost the local market.

Najmi believes that you can capitalise on volatility because any slight improvement in the stock market will result in a huge improvement in the performance of funds. “If the market goes up by 5%, for instance, the funds will grow by three to four times,” he says.

“We have a strong team of fund managers and I believe they have good stock-picking as well as management capabilities. I am confident of our portfolio model, which has been successful for the last five years. If our fund managers stick to the process — if they are disciplined, not swayed by market movements and cut losses when there is a need to — our funds will continue to sustain their performance.”

PMB Investment is focusing on companies that generate income in US dollars. This includes companies in the semiconductor, glove and petrochemical sectors. But it is avoiding companies that have costs in US dollars but earnings in ringgit, such as the media and automotive sectors.

 

Plans and managing expectations 

Formerly known as ASM Investment Services Bhd, PMB Investment took on its current name in February 2014 to reflect the name change of its parent, from Amanah Saham MARA Bhd to Pelaburan MARA Bhd. 

The products offered by the fund house were made completely shariah-compliant two years ago and it subsequently received approval from the Securities Commission Malaysia (SC) to change its regulated activity to Islamic fund management. 

This year, PMB Investment is planning to launch two more products to its range, which currently comprises 14 equity unit trust funds and two wholesale funds. The first product — a domestic sukuk fund — will be launched in the first quarter of the year while the second — its first regional equity unit trust fund — will be launched in the second quarter, says Najmi.

“For the regional equity unit trust fund, we hope to tap the Asean market and leverage the growth of those countries. Hopefully, with the launch of these funds, we can realise our goal of becoming a one-stop centre for all shariah-compliant investment needs,” he says. 

Last May, the company launched the PMB Shariah Small-Cap Fund. It invests primarily in Bursa Malaysia-listed shariah-compliant companies with a market capitalisation of between RM250 million and RM1 billion that have good businesses and strong potential growth. As at Nov 30, 2016, the fund size stood at RM2.31 million and its top five holdings were Ajinomoto (M) Bhd, Lii Hen Industries Bhd, Thong Guan Industries Bhd, SCGM Bhd and Oriental Interest Bhd. 

PMB Investment is also planning to increase its activities in the wholesale market. “The SC is trying to expand Malaysia’s capital market and has come out with tax exemptions on the profits generated from it. There are plenty of opportunities here, which I feel we should tap into,” says Najmi.

The fund house currently has RM1.25 billion in assets under management and aims to reach RM2 billion by the end of this year. It has embarked on an extensive expansion campaign to achieve this target, including increasing its unit trust consultants to 1,000 by the second half of this year from 300 currently.

“Although we are an established Islamic fund management company, it is important that we gain more exposure in the market. That is why we are increasing the number of our unit trust consultants as they are the ones who interact with the public, showcase our best-performing funds and see whether the funds meet their risk profile,” says Najmi.

Its top five funds — the PMB Shariah Aggressive Fund, PMB Shariah Growth Fund, PMB Shariah Premier Fund, PMB Shariah Cash Management Fund and PMB Shariah Dividend Fund — are the Employees Provident Fund-listed funds and are among the top 10 in various categories of the Lipper Table. 

Its top performing fund, the PMB Shariah Aggressive Fund, even won the award for Best Equity Malaysia Islamic Fund in the three and five-year categories and Best Equity Malaysia Fund in the three-year category at The Edge-Thomson Reuters Lipper Awards 2016. 

According to Lipper data, as at Dec 2 last year, the fund delivered a return of 15.23% over a three-year period and 83.29% over a five-year period. The average return of funds in the Equity Malaysia category was 2.95% over a three-year period and 33.06% over a five-year period. In the Equity Malaysia Islamic category, the average return was 1.41% and 29.83% respectively. 

Its other funds, however, are not performing well. For example, three of its equity funds — PMB Dana Al-Aiman, PMB Dana Mutiara and PMB Dana Bistari — were all giving negative returns for the one-year and three-year periods. 

“We realise that some of the funds are not performing optimally. Although the PMB Shariah Aggressive Fund is ranked the first in the five-year Equity Malaysia category, it is underperforming slightly in the three-year category,” says Najmi. 

“This may be because of the volatility, which has hit equity assets hard across the board. The funds were hit by the fluctuation in oil prices, weak demand of our commodities, as well as the financial repercussions of Brexit and Trump’s victory in the US presidential election, on top of internal influences such as 1MDB. However, we will do our best to overcome these challenges and hopefully give better returns to investors.” 

 

Strengthening its presence

A fund house must have a strong presence to grow. As an Islamic fund management company, its biggest challenge is gaining traction as investors tend to compare the performance of shariah-compliant funds with that of conservative funds. 

“People always ask whether our funds can perform. I tell them yes, we can. In fact, the PMB Shariah Aggressive Fund is outperforming the average in the Equity Malaysia conventional funds three-year and five-year categories and we even managed to win multiple awards. They can look at our history and know that we are at the forefront of equities in Malaysia, not just in the Islamic category,” says Najmi.

To strengthen its presence and gain traction, the fund house has been actively trying to attract millennials. “Millennials are a third of the current population and are the next wealth generators. They are tech-savvy, adventurous, entrepreneurial … and they do not want to be stuck in the office from nine to five. They also want to give back to society,” he says.

“Therefore, we are trying to foster good saving and investing behaviours among the millennials, which is increasingly important especially since the EPF recently came out with statistics saying that 68% of members at the age of 54 had less than RM50,000 in their accounts. This is a problem that needs to be addressed and we feel there is a need educate millennials and get them to actively take part in making investments.”

PMB Investment has initiated campaigns such as Arif Labur, has conducted roadshows across the country and frequently advertises in print and digital media. Local fund management companies are actively embracing the emerging financial technologies (fintech), says Najmi. 

“We will definitely embrace fintech to tap the tech-savvy generation. Technologies such as robo-advisers are both an opportunity and a threat to us. For investors, it is cheaper and easier for them to invest via robo-advisers. Even the SC is coming up with regulations for this space. Therefore, we feel the need to embrace it as quickly as we can,” he says.

The company has been approached by a few local fintech players, which are offering services to help it approach investors more easily. Najmi says there is a possibility that the company will have a strategic partnership with fintech players to provide its back-end and promotional needs.  

He also says the company will continue to strengthen its presence to realise its vision of becoming the preferred shariah-compliant fund manager in Malaysia. “Our first unit trust was launched in 1967 and since then, we have been through turbulent times. We have been in existence for the last 50 years and I think we will carry on for the next 50. There will definitely be some changes or improvements, but we are confident we will be able to do so.” 

 

Taking the helm at PMB Investment 

 

It has been three months since Najmi Mohamed was appointed CEO of PMB Investment Bhd, replacing Ameer Ali Mohamed. He brings with him 13 years of experience in fixed-income trading and eight years in asset management. 

Najmi says his passion for trading was what led him to his current position. “I started at Perdana Merchant Bankers Bhd, where I was in treasury for about five years, assigned as the money market dealer. There, I managed to go through the highs and lows of treasury, especially during the height of the Asian financial crisis.”

As he wanted to be part of a larger set-up, Najmi left to join RHB Bank, where his first assignment was as a corporate foreign exchange dealer. After a year doing that, he was moved on to the trading team for another four years. He was given RM500 million to trade and it was here that he acquired the relevant experience in fast-moving markets.

“One day, I got a call from Datuk Khatijah of KAF Investment Bank, telling me that it had secured a licence for principal dealer trading. Under her stewardship, I learnt a lot about trading in sukuk, which was a different ballgame for me. Thankfully, trading-wise, it was still the same thing. I headed the principal dealer desk and was given a big limit to trade. I stayed there for about two years,” he recalls.

After a short stint at Bank of Nova Scotia as chief dealer in fixed income, Najmi moved to Amanahraya Investment Management Bhd. Although he was unsure of how different his role would be, he soon found out that there was no major difference except that asset management is more structured. 

“Amanahraya was a turnaround for me because I had to turn around some less optimal funds there. In 2009, due to the global financial crisis triggered by the subprime housing loans in the US, the overnight policy rate was reduced to about 2% and that was the point where we managed to exceed the fixed income’s benchmark every year. This was when my trading skills really came in handy,” he says. 

Five years later, the then CEO of Muamalat Invest Sdn Bhd gave Najmi an opportunity to set up a fixed income desk for the fund house. For 3½ years, he was in charge of managing portfolios that comprised fixed income instruments, cash management and equities before finally moving to PMB Investment.

“When the opportunity came, I decided to give it a go. It was quite a long process, taking about seven months from the first interview. So now, after three months, I have managed to adapt. I find that the PMB ecosystem is very mature and self-sustaining,” he says. 

But it has not been plain sailing in his career, especially when he was attempting to turn around the portfolios. “The market is so dynamic. Ideally, it would have been very good if I had caught the wave, bought low and sold high. But in reality, it does not work that way. So, I just had to manage what I had and follow the process. Thankfully, my experience has definitely benefited me in my current position.”

With his extensive experience in the investment banking industry, Najmi is confident that he will be able to take PMB Investment further, especially in tackling the “herd mentality” problem among fund managers. “I believe that with the expertise I have honed over the last 21 years, I will be able to elevate the company and hopefully, we will be the fund house of choice for those looking for shariah-compliant investments,” he says.