This article first appeared in Wealth, The Edge Malaysia Weekly on March 27, 2023 - April 2, 2023

Principal Asset Management Bhd clinched four awards in the Asia Pacific ex-Japan space and another award in the Equity Global category at the Refinitiv Lipper Fund Awards 2023.

Principal Asia Titans Fund won Best Equity Asia Pacific ex-Japan (Provident) in the 10-year category, while Principal Islamic Asia Pacific Dynamic Equity won the same award in the Islamic universe in the three-, five- and 10-year categories. Principal Global Titans MYR won the Best Equity Global (Malaysia) award in the five-year category.

Christopher Leow, CEO and chief investment officer of Principal Asset Management Singapore, says the firm’s outperformance stems from its investing philosophy that focuses on early identification of fundamental change.

“This focus drives us to do primary research, think independently and position our investments ahead of the market. Over time, the philosophy allows the funds to deliver consistent, low-risk and high-return performance.”

Not unlike its peers, the biggest challenge the firm faced last year was the very difficult environment in which the prices of almost all risk assets, including stocks and bonds, fell in tandem. That was caused by a confluence of several factors, including the outbreak of war in Ukraine, China’s weak economy, higher than expected inflation and aggressive monetary policy tightening in the US and Europe.

It was during such trying times that Leow and his team did their best to ensure their investments were sound enough to withstand the stormy days.

“Our team combed through each investment we owned by stress-testing them. Where appropriate, risks were reduced. We were especially cognisant of highly indebted, highly valued stocks that had previously performed well. We avoided these stocks,” he says.

“At the same time, our team focused on quality stocks. These companies were usually lightly indebted. They were market share gainers and able to do well in the high inflationary environment. In other words, our portfolios were dynamic and unconstrained by any index. We shifted dynamically to defensive and quality stocks.”

As such, the firm’s focus over the last year has been investing in quality companies such as Singapore banks that could navigate the tough environment. Singapore banks are well regarded for their prudent management.

“While rising interest rates were headwinds for most industries and companies, this was not necessarily the case for Singapore banks. Rising interest rates were a tailwind for margins. In addition, Singapore banks were not suffering from rising delinquent loans as the regional economy was riding on reopenings and stronger commodity prices,” notes Leow.

Another sector the firm favoured last year was oil and gas. “Oil prices surged to a record high following the Russia-Ukraine conflict, which was a key driver of high inflation last year. Over the years, there was also underinvestment in the energy industry. This exacerbated the supply-demand imbalance as economies reopened from the pandemic and oil prices surged to record highs following the Russia-Ukraine conflict,” he says.

“The energy stocks would serve as a hedge against high inflation and geopolitical risk while central banks were aggressively tightening monetary policy.”

Some of the firm’s best calls last year were made in these two sectors, he adds.

As Leow and his team invest over the long term, they avoid making high-frequency changes unless there are better opportunities in the market that ride on structural trends or there are better choices available for them to reduce the overall risk of their portfolios.

“Our investment process focuses on absolute return. Cash is a residual of our top-down macro view and bottom-up stock selection process. Throughout the year, we were able to find stock ideas and have remained fully invested,” he says.

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