This article first appeared in Wealth, The Edge Malaysia Weekly on April 19, 2021 - April 25, 2021

Areca Capital Sdn Bhd bagged four awards at the Refinitiv Lipper Fund Awards 2021. This was the fourth time in a row that the fund house was taking home the awards for Best Equity Malaysia in the three-, five- and 10-year categories. It also achieved a first by clinching the award for Best Equity Malaysia Income in the three-year category.

Areca equityTrust provided investors with a return of 33.84% over one year. In the last three and five years, it generated a return of 68.72% and 141.83%, respectively. Areca Dividend Income, launched in February 2017, recorded a return of 72.64% for the three-year category. The defining factor that contributed to ­Areca Capital’s outperformance is its agile investment approach and accurate anticipation of market conditions.

Danny Wong, CEO of Areca Capital, says the firm started to sell down its equity holdings in January last year and raised its cash position before the Covid-19 pandemic wreaked havoc on global economies and markets, much earlier than some of its peers.

“We decided to react swiftly to the conditions. We temporarily raised our cash level when the pandemic had not yet raised alarm bells in the broader investing community,” he explains.

Wong says that was not the first time the firm had acted decisively to cut market exposure by raising cash levels. Areca Capital had done the same in other uncertain times, such as the 2008 global financial crisis, 2011 European sovereign debt crisis and 2014-2016 commodity price shocks. The firm adjusted its funds’ equity exposure during these periods to way below its average level of 50%.

“We then saw a very steep selldown in March last year, during which the price of every asset class just fell off the cliff. In hindsight, raising cash earlier was one of the right calls we made. 

“We only started to deploy cash after prices fell drastically and we raised our invested cash level to about 90%. We also picked the right sectors that turned out to be the winners last year, including technology and healthcare,” he says.

Technology plays an important part in managing clients’ expectations, leading to the outperformance of its funds.

Wong says some investors tend to want to redeem their units and withdraw cash from their funds when markets are down. But Areca Capital relied on technology to quickly reach out to its clients, providing them with market updates and convincing them to stay invested. 

“Even if fund managers reduced exposure to the market by selling down and raising cash levels, they could be restrained by how much cash they have when clients start redeeming their units, thus creating continuous outflows from funds.

“This is where technology came in useful. We quickly issued updates to our investors via WhatsApp, Zoom webinars and phone calls. We also issued video recordings to our investors within the first day or two when the market sell-off started. This way, we managed to convince them to keep their money with our funds.” 

The fund house’s investment philosophy is based on the premise that the price movements of financial assets are driven by a combination of liquidity, risk appetite and the intrinsic value of the underlying assets. In addition, it seeks to optimise its investment results based on the interplay of these factors. 

Areca Capital also pursues an active investment strategy that emphasises the appropriate asset allocation for fast-changing market conditions and market cycles.

“Moving forward, we will continue to apply the same investing formula that we have been using. We have gone through crises, and our investment approach has been proven to work well,” states Wong.

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