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

Hong Leong Asset Management Bhd (HLAM) continued its winning streak by taking home the Best Equity Group (Provident) award and nine fund awards at the Refinitiv Lipper Fund Awards 2020.

Hong Leong Asia-Pacific Dividend Fund won the award for Best Equity Asia-Pacific ex-Japan (Malaysia) in the three-year category while Hong Leong Dana Makmur clinched the awards for Best Equity Malaysia (Islamic) in the three and five-year categories. 

Hong Leong Growth took home the awards for Best Equity Malaysia Diversified (Provident) in the three and five-year categories, Hong Leong Dividend won the awards for Best Equity Malaysia Income (Provident) in the three and five-year categories and Hong Leong Penny Stock grabbed the awards for Best Equity Malaysia (Provident) in the five and 10-year categories. 

HLAM CEO Hoo See Kheng attributes the win to the investment team’s knowledge and understanding of the investee companies. “Valuations of the companies, particularly in terms of upside potential and downside risks, are taken into consideration before investing in a company. We believe in employing an active and concentrated portfolio management style to drive fund outperformance.”

It has been a challenging time nonetheless. Malaysia’s equity market is often viewed as “less attractive” than the rest of the emerging markets in the region as there is a perception that it is comparatively more expensive, says Hoo. 

“This is evident from the fact that the local equity market experienced sustained foreign fund outflows in 2019 and early 2020. Government policy uncertainties and the perceived lacklustre corporate earnings growth also dampened market sentiment,” he adds.

“The FBM KLCI was one of the worst performing equity indices last year. Against this challenging backdrop, regular engagement with a company’s management is important, given the rapidly changing political and economic climate.

“Our investment team worked hard to identify stocks that were not fully appreciated by investors and were trading below their intrinsic valuation. By following a robust investment process, the team was able to buy into fundamentally sound companies at attractive valuations. Through active fund management and not merely replicating the benchmark allocations, the funds were able to outperform their respective benchmarks.”

As the funds were invested in selected export stocks, they benefited from the potential supply chain diversion as a result of the trade war between China and the US, says Hoo. The funds were also invested in construction and consumer stocks when these sectors experienced a correction at the beginning of the year, he adds.

While the Covid-19 pandemic and the global measures to prevent its spread have thrown a wrench into the works, the fund house — using its investment process and bottom-up stock-picking approach — has been able to identify companies in the manufacturing and services sectors that may benefit from the crisis. “We believe the impact will differ among the various companies,” says Hoo.

However, the volatility is expected to persist after the pandemic ends, he adds. The  fund house will be cautious in the coming months until it is able to evaluate the full impact of Covid-19.

The coronavirus has forced a severe disruption on economic activity around the world. Governments are under pressure to focus all of their resources on protecting their economies from failing. 

Nevertheless, the crisis has presented HLAM with “some very attractive buying opportunities”. “The funds will be able to take advantage of some of the severe stock price dislocations to establish positions in well-managed companies at attractive valuations. The equity markets have the potential to stage a strong recovery once the infection rates appear to have peaked,” says Hoo. 

He adds that trends in China and South Korea suggest that there is a possibility that the infections could peak in the next three to six months. “Recently, we have seen governments around the world taking aggressive fiscal actions in response to the economic fallout from Covid-19. Central banks have embarked on very loose monetary policies to cushion a possible economic slowdown due to the pandemic. We expect the effects of these massive monetary and fiscal stimuli to eventually boost investor sentiment.”

The global spread of the coronavirus and the measures taken to mitigate its impact is unprecedented, both in scale and severity. It is currently difficult to see whether the world is headed towards a recession because both businesses and society are navigating uncharted waters, says Hoo.

“Should a global recession materialise, we expect it to be a short-lived one due to the aggressive monetary and fiscal stimuli being carried out by central banks and governments around the world,” he adds. 

In the current circumstances, high-yield stocks are expected to perform well due to the return of the ultra-low interest rate environment, says Hoo. “Some financial services stocks are looking attractive and offering generous dividend yields.”

The fund house, however, will refrain from investing in the construction sector as there is a high level of uncertainty in terms of corporate earnings. 

As the global pandemic is likely to be transitory in nature, HLAM encourages unit trust investors to stay invested. “We expect overall corporate earnings to be affected as the global economy slows down. However, the magnitude of the impact very much depends on the duration of the pandemic and how successfully the virus is contained. We still expect a rapid corporate earnings recovery once the worst is over,” says Hoo.

“We advise investors to maintain a well-diversified portfolio, particularly against the current backdrop of global economic and political uncertainties. We would like to point out that equity markets have corrected to quite attractive levels and present a good buying opportunity for investors with a longer-term view and are able to accept the near-term volatility.” 

On the challenges facing the unit trust industry, he says product differentiation is one of the biggest issues the fund house is facing. “With so many funds in the market, investors are spoilt for choice. More so for the popular asset classes such as Malaysia equity funds and Malaysia bond funds. It is also not uncommon for a fund house to have multiple funds in each asset class. 

“So, the main challenge is, how do investors decide which fund to invest in? This dilemma provides opportunities for fund managers with proven track records in providing consistent performance over three to five years to stand out. 

“It also forces industry players to focus on managing their funds well rather than product pushing. Investor education will also help on this front.” 

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