This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Dec 7 - 13, 2015.

The wild gyrations in the global markets mean that investors will get hit regardless of the asset class they have put their money in. The key to consistent returns is achieving the right level of diversification based on the investor’s risk appetite, says AmInvest CEO Datin Maznah Mahbob.

TODAY’s economic volatility makes it important for investors to diversify their portfolios. This applies not just to the average retail investor but also sophisticated and high-net-worth investors, says AmInvest CEO Datin Maznah Mahbob. 

“The volatility has created more apparent nervousness and discomfort, even among fund managers and institutional investors. Even high-net-worth individuals who were so sure of their bets are now uncertain about what to do. They don’t know where to put their money because even if they get it right, they will still be hit by the volatility,” says Maznah, who has been in the fund management industry for 28 years and at the helm of AmInvest for 14. 

Global markets went into a tailspin in the second half of this year, wreaking havoc in many economies and asset classes. In August, the Chicago Board Options Exchange (CBOE) Volatility Index, which measures market expectations of near-term volatility, registered at 40.74, the second highest level in the past five years.  The highest was 42.96 in September 2011. 

Asset classes across the world have delivered mixed returns to investors. For the year to Nov 30, the MSCI World Index provided returns of -0.55%, while the MSCI Emerging Markets Index saw returns of -13.59%. During the same period, spot gold prices provided a negative return of 12.83% and US Treasury notes saw a yield of 9.14%.

Maznah says investors’ objective is the same in any market condition — to get consistent returns. A diversified portfolio will help investors achieve their objective. “By investing across different asset classes, whether equities or bonds, they are more likely to get consistent returns. Even with a particular asset class, every dynamic tactical strategy enables a smoother return. This is evidenced by the fact that our active bond funds were able to provide double-digit returns during periods of volatility.”

Since each asset class carries a degree of volatility, the key is not to have a view but to achieve the right level of diversification suitable to each investor’s risk appetite, says Maznah. “If you are savvy, you can perform your own dynamic rebalancing. Alternatively, you can buy a fund with dynamic strategies across multiple assets.”

As at September, AmInvest’s total assets under management stood at RM37.9 billion. Of this, RM7.2 billion comprised shariah-compliant assets.

In response to the challenging market conditions, the fund house employed mixed-asset and equity strategies to weather the volatility, says Maznah. “We began using multi-asset strategies and even pure equity strategies based on certain techniques to deliver consistent returns.” 

One example is the AmDynamic Allocator fund, a fund-of-funds that invests in global mixed assets. Launched in April 2012, it has returned 17.02% over a one-year period and 32.69% over a three-year period (as at Nov 20). At end-October, the fund held more than 80% of its assets in foreign exchange-traded funds (ETFs) across various asset classes.

Evolving with the times 

AmInvest has grown in tandem with the growth of the fund management industry. Maznah, who has been in the industry for the past three decades, remembers how the local unit trust sector took shape in the early days.

“Back then, the only investments available were listed stocks and cash. Slowly, the industry started to introduce unit trust funds to retail investors, mostly through the agency channel. In its infancy, the industry regulated itself. The Securities Commission only came into existence after the industry had developed.

“At first, the industry introduced vanilla-type products that focused on Malaysian stocks either for growth or dividends. In the 1990s, more sophisticated strategies were introduced.” 

Maznah says the 1990s was a good period to be in the stock market. “The 1990s were the heyday of liberalisation when we saw the big 1993 bull market in Malaysia. Many investors were invested in the stock market, while those who were less confident of stocks would buy into unit trust funds. 

“The awareness grew out of that because so many were making money in the stock market during the boom. While investments were largely still in stocks, we saw different strategies like more growth stocks, income stocks and dividend stocks. There were market-timing type of funds, but at a simpler level.”

Then the Asian financial crisis hit in 1997, sending regional markets into a spiral. At the end of that year, the local bourse had lost more than 50% of its value. Many institutional and retail investors were burnt and risk adversity was heightened. To create financial stability, the central bank imposed capital controls, including asking investors to repatriate all ringgit held offshore and barring offshore banks from trading in ringgit-denominated assets. It was during this time that the bond market began to develop.

“The introduction of capital controls and high interest rates set the tone for the development of the bond market, which was practically non-existent before beyond a few government securities,” says Maznah.

“Today, the Malaysian debt market is among the deepest in Asia and of course that provided a lot of opportunities for us at AmInvest. We began to provide the whole spectrum of low-risk investment solutions for risk-averse investors, such as cash funds, money market funds, short-term bond funds, medium-term bond funds, close-ended bond funds and dynamic aggressive bond funds.”

Maznah says the high interest rate environment signalled the start of huge bond rallies at home, in line with the rest of the world. “It was a bond story. We grew to become the biggest bond house in Malaysia. What was deemed as adversity became an opportunity instead.” 

In the mid-2000s, the capital controls were relaxed. This meant retail investors could now buy into unit trust funds that invested in non-ringgit-denominated assets. AmInvest began working with international fund management partners to quickly introduce diverse asset classes with low correlation to investors’ local investments. 

“We started introducing property sector funds, global bond funds, European equity funds, commodity funds and precious metal funds. We developed funds that met the criteria for portfolio diversification which we felt investors would want, such as consistent returns with lower volatility,” says Maznah.

Although there are more choices today, it has also been challenging to produce the same kind of returns that were seen in those days. “Back then, although there weren’t many choices, our economy was an emerging market. Most investments would do reasonably well — in other words, a rising tide would lift all boats.” 

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