Kenanga Investors Bhd executive director and CEO Ismitz Matthew De Alwis has taken a different approach to grow the fund house’s business. In the second part of this series, he talks about creating a balanced client base and gives his outlook on the local economy.
AS Kenanga Investors already has a three-year post-acquisition plan in place, Kenanga Investors Bhd executive director and CEO Ismitz Matthew De Alwis’ role as CEO is to see it through — to build a balanced distribution network and client segmentation, focus on products as a core thrust, and enhance customer operations and experience.
Previously a corporate fund house with predominantly institutional clients, the acquisition of retail-oriented ING Investment Management gave Kenanga Investors a more balanced client base. Last year, the retail portion of its business grew to 30% from 10%, while its institutional segment comprised 30% to 40% of its operations.
Today, the fund house has about RM5.89 billion in assets under management (AUM), of which RM3.1 billion is from the retail segment. This puts it in 10th place in terms of market share.
De Alwis says this is an improvement from the previous year’s No 17 ranking, and that its AUM grew 68% last year. He hopes to see the fund house achieve a top five position in the next three years.
“The 68% growth came from a mix of clientele last year. First, there was an increase in people coming in with lump sum cash. However, what was more exciting to us were the regular investment plans,” he says.
“After the merger, we signed up with various banks to allow for auto-debit plans, and we have seen tremendous growth here because it is more convenient. We also saw huge growth in the Employees Provident Fund member scheme as people want higher yield enhancement. But I am most pleased with the regular investment plans.”
De Alwis’ priority, though, isn’t growing the fund house’s AUM. Rather, he is looking to create a balanced client base first, and targeting the Gen Y in particular.
“I don’t look too much at the AUM alone. It is more important to have a balanced retail and corporate or institutional client base. In retail, we want to have a balance of each age segment. This is more important and will automatically translate into [more] AUM,” he says.
“People always emphasise private or premier banking, but we want to create a relationship that is from the cradle to the grave and be your preferred investment house. Malaysia has a young population, with an average age of 28, but this segment is largely ignored.”
However, De Alwis acknowledges that there are challenges in attracting those in the younger age group, as it will take more time, education and investment. “Some businesses tend to ignore it, and I don’t blame them because the return on investment (ROI) [from this group] is not immediate. But … this will give us future gratification … we want to grow with that segment of the market,” he says.
Kenanga Investors is also looking at offering funds denominated in currencies other than the ringgit, as it feels it is a more palatable option for clients. “If I am investing for my children’s education and want them to study overseas, and I feel it is a good time for me to have some currency exposure but still want to be invested in something close to my heart, I can have an Asia fund that is US dollar-denominated.”
Long-term view
De Alwis take a long-term view when it comes to the local economy. Even though Bloomberg reported this month that Malaysian corporate dollar bonds will be the worst performing in Asia this year due to the ringgit’s decline, the fall in oil prices and the 1MDB debt repayment concerns, he remains optimistic.
“No doubt we were affected by oil prices. But if you take a step back and look at emerging markets like Malaysia, our No 1 driver is domestic consumption. Despite a choppy market, we are spending,” he says.
“The next question is: Do you think oil prices will stay this low and do you think the big boys of oil will let it fall further? When will they go back to normal? I don’t think they will go up to US$100 [a barrel], but will regularise between US$65 and US$75.”
He then addresses another issue of concern — when the US will raise interest rates. The Federal Open Market Committee did not raise rates last month despite market expectations, but De Alwis is certain of its eventuality.
“On a textbook level or economic terms, the US has to raise its rates. Then, the cost of funds will get expensive and people will withdraw [from here] and go back there.
“But when anyone raises interest rates, there is always a period of consolidation. Of course, you will see some outflows when rates are raised. But things will go back and this is like a cycle,” he says.
“I don’t think people should look at it too bleakly. All these are knee-jerk reactions. But if you are in this for the long haul, don’t have a knee-jerk reaction.”
On his preferred sectors, De Alwis recommends construction, utilities, exports and information and communications technology (ICT). While a weak ringgit should translate into better earnings for exporters, construction is favoured for its earnings visibility and stability this year due to a surge in spending and key infrastructure projects in the sector.
“As for the utilities space, we believe the market will have a better appreciation of the sector’s free cash flow generation ability post-Malakoff Corp Bhd’s listing, turning the listing into a re-rating catalyst for the entire sector,” he says. “The ICT sector is interesting because not many people know that every handphone you carry has a made-in-Malaysia product in it.”
De Alwis recommends that investors also have a long-term view when it comes to investing. Allocate certain parts of your portfolio for trading if you have the instinct for it, he says, but go into unit trusts for long-term investing.
“If you like to follow the crowd or prefer trading shares, then certain parts of your portfolio should be for that. But if you are looking at the long term, you are talking about unit trusts — and that you should leave to the fund managers.”
When it comes to his personal portfolio, De Alwis says he does not invest directly in the equity market, opting for unit trusts instead. “I am in it for the long haul, mainly for my children. I have some bonds. I employ different strategies depending on what the portfolio is for.
“If it is for my kids, it will be a more diversified portfolio. Later on, I will have share classes, depending on where they want to study. For myself, I am into income, so I look at dividend-paying stocks or high-yield bonds.”
Regional partnership
As Kenanga Investors Bhd expands its reach regionally, it is establishing partnerships that will give it access to local expertise. It is currently looking at Asean and Asia-Pacific.
Its parent, K&N Kenanga Holdings Bhd, formed a partnership with Japanese investment bank Tokai Tokyo Financial Holdings earlier this month. Primarily on the investment banking level, the partnership allows the two groups to mutually supply products and services, share information and aid each other’s clients. It will also give Kenanga Investors access to Tokai Tokyo Financial’s research.
“If you notice, a lot of asset management funds are Asia-Pacific ex-Japan. I think people don’t understand the Japanese market well, because a lot of the write-ups and information is in Japanese. It is difficult to get more information unless a securities firm translates it,” says Kenanga Investors executive director and CEO Ismitz Matthew De Alwis.
“Another thing is that large-cap companies in Japan are already very strong and stagnant, so people say there is no opportunity there. However, there are tons of opportunities for small and mid caps, and that is what we want because there is value we can get out of them.”
Tokai Tokyo Financial does a lot of research on small and mid-cap companies, according to De Alwis, so this will help Kenanga Investors gain further insight into the Japanese market.
“We work a lot with small and mid caps on our Malaysian equities side, so this is the target segment we are looking at. I am not saying we avoid large caps – they are always there to form your foundation — but you also need to add value,” he says.
“I would say you can expect to see more Japanese counters, and we will have some enhancements to our Kenanga Asia-Pacific Total Return fund, as the fund will look for value in Japanese companies.”
This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 27 - May 3, 2015.
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