Libra Invest Bhd won two awards at the 2019 Lipper Fund Awards from Refinitiv in the Bond MYR (Provident) three and five-year categories. These were the first wins for the Libra BondEXTRA fund, which was launched in 2002.
The fund invests in ringgit-denominated bonds, with a focus on corporate bond issuers with strong financial metrics.
Fund manager Joy-Marina Choong Wai Kwin credits the success to an active portfolio management strategy, as opposed to a buy-and-hold approach. According to her, the fixed-income team constantly monitors global economic data, capital flows and movements in the equity, fixed-income and currency markets to anticipate future market directions.
“For individual bond selection, we place a strong emphasis on the credit strength of bond issuers, [including factors] such as consistent and visible cash flow, stringent bond structure and good corporate governance. We seek to diversify our investments across sectors and individual securities to mitigate the risk profile of the fund,” says Choong.
One of the most challenging situations the team faced in the last few years was when Bank Negara Malaysia restricted transactions in the offshore ringgit non-deliverable forward (NDF) markets at end-2016. The central bank governor said at the time that activities in the ringgit NDF market had negatively impacted the onshore market. This decision resulted in a decline of offshore holdings in Malaysian Government Securities (MGS).
“It subsequently dampened investor sentiment and resulted in a decline in trading volumes in the MGS and corporate bond markets. Nonetheless, the sentiment improved after Bank Negara announced a number of initiatives to improve liquidity in the domestic bond market in mid-2017, which included additional hedging flexibility for registered investors,” says Choong.
The team weathered this period by managing the fund actively. It focused on liquid, high-grade bonds with strong credit and stable long-term cash flow since buying interest for such bonds remained strong, says Choong.
In contrast, the uncertainties arising from the 14th general election last May did not impact the local bond market significantly as there was still solid demand from domestic investors. The reaffirmation of Malaysia’s sovereign credit rating by major credit rating agencies also lifted sentiment.
“Overall, the corporate bond market performed well in 2018 as buying interest for selected AAA and AA-rated bonds continued to outstrip supply amid ample liquidity in the market. Similarly, given the fund’s focus on liquid, high-grade corporate bonds, its performance over the longer term remained relatively stable,” says Choong.
In the past few years, two events influenced significant changes in the asset allocation of the fund. One was in 2016 when Bank Negara unexpectedly cut interest rates, citing risks from the UK’s exit from the EU. The team increased its holdings in selected corporate bonds to capitalise on strong buying interest in the local bond market at the time.
“Towards end-2017, we rebalanced the portfolio in anticipation that the central bank may normalise interest rates in 2018,” says Choong.
According to the fund’s fact sheet dated Jan 31, 2019, its biggest asset allocations were in power, industrial/manufacturing and transport. The allocations were guided by the challenging domestic landscape.
“We are overweight on sectors that are resilient to economic cycles such as the power sector due to its long-term, stable and predictable cash flow, steady demand for electricity and the strong credit profile of the electricity ‘offtaker’ — Tenaga Nasional Bhd. We also place strong emphasis on the credit quality of issuers, with a greater focus on consistent and visible cash flows, stringent bond structure and good corporate governance,” says Choong.
She expects the global growth momentum to moderate going forward, with the unresolved trade tensions and political uncertainties continuing to cloud the overall growth outlook. Malaysia’s growth prospects will similarly be affected by the heightened uncertainties.
“Given the uncertainties ahead, we will stay vigilant and continuously monitor market developments on both the local and global fronts while remaining flexible in managing portfolio durations to respond to changes in the market environment. We will continue to manage the fund actively and maintain a focus on liquid, high-grade bonds with strong credit and stable long-term cash flow,” says Choong. — By Tan Zhai Yun