Principal Asset Management Bhd - ONE FUND AWARD

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

Our strategy was to stay invested in the market. We believe we will weather these uncertainties and the stocks that we continue to hold will pay off nicely over the longer term. > Munirah

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Principal Asset Management Bhd (formerly known as CIMB-Principal Asset Management Bhd) took home a fund award at the Refinitiv Lipper Fund Awards 2020. CIMB-Principal Equity Income won the award for Best Equity Asia-Pacific ex-Japan (Provident) in the 10-year category.

CEO Munirah Khairuddin says the firm’s investment process, coupled with its global expertise and investment team’s deep understanding of regional markets, were key contributors to the fund’s outperformance. “An advantage of having a regional team is that we leverage each other’s local insights for channel checks. There is the cross-fertilisation of investment ideas within the team. We also apply the FMV (fundamental, momentum and value) model to improve the fund’s performance.”

Munirah is proud of the FMV model implemented by the firm across various regions as it has led the fund house to identify a variety of investment ideas. Company culture is another essential factor that has driven the outperformance of the award-winning fund, she says. “The key to our win is our culture of working as a team with open-minded discussions and having trust in one another.”

The main challenge the firm faced last year was the US-China trade war that impacted global trade and economic growth. Political uncertainties on the home front also caused volatility in the local market.

However, the fund house did not undertake a significant rebalancing exercise last year. It invested 48% to 49% of its cash in the local market and 42% to 43% in Asia ex-Japan for most of last year, says Munirah.

“Our strategy was to stay invested in the market. We believe we will weather these uncertainties and the stocks that we continue to hold will pay off nicely over the longer term,” she adds.

Going forward, the firm will take a more cautious stance, considering the ongoing market turmoil. The markets’ fear of the Covid-19 pandemic is hurting companies’ fundamentals, says Munirah.

She adds that Covid-19 is a global issue. Each country is dealing with it differently at different times and has yielded varying results. “For instance, the number of new cases in China has peaked and is falling rapidly. But outside China, we are seeing an acceleration in the number of people affected, especially in Europe and the US. In countries like South Korea, there has been a deceleration.

“There is a high degree of uncertainty over how this event will develop. However, we prefer Asian equities to those in developed markets as the risk posed by Covid-19 to these countries is lower. Valuations in Asian markets are also cheaper. Our strategy is to look for good quality growth stocks with reasonable valuations.”

In view of the rising market risk premium, the firm has downgraded Malaysia to “neutral”. “As for portfolio strategy, we will be tilting our barbell approach to capital preservation bias from growth bias. We will maintain our high asset allocation strategy but lower the beta range. The sectors in focus will be those with defensive and high-yielding qualities such as utilities, telecommunications, consumer and real estate investment trusts,” says Munirah.

The fund house’s asset allocation strategy is to have equal weightage between equities and fixed income. “For Malaysia, our sector exposure is skewed towards dividend-yielding securities and the technology sector. We are also invested in stocks that will benefit from infrastructure spending,” says Munirah.

“For the rest of Asia, we will stay invested in large-cap, defensive quality companies in which we see strong earnings visibility for the next several years. These include selected Chinese internet companies and other leading semiconductors with a technological edge.”