Thursday 28 Mar 2024
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This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 14 - 20, 2016.

 

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Pheim Asset Management Sdn Bhd took home the award for Best Mixed Asset Group and three individual awards at The Edge-Thomson Reuters Lipper Fund Awards 2016. Dana Makmur Pheim won the awards in the 3, 5 and 10-year categories.

pheim_chart_pw_1101Pheim Asset Management chief strategist Dr Tan Chong Koay says it was the team and its investing strategy and approach based on its philosophy and criteria of value that resulted in the wins.  

Last year, undervalued stocks with good earnings growth potential, sound management and strong balance sheet were scoured. “Our strategy was to selectively invest in export-oriented technology, wood-based building materials, alternative energy [solar cells] and rubber glove stocks. We were underweight on the oil and gas sector,” he says. 

Tan says the team trimmed or increased its equity exposure when it believed the market was overstretched or undervalued “to either lock in return on investment or to preserve capital”.

The biggest challenge for the team was to remain rational in the volatile and bearish market last year, which was marked by several significant events on top of the persistent slide in commodity prices and currencies, particularly in Asean.

“Last year was indeed a challenging one for Asian markets on the back of China’s economic slowdown, dampened commodity prices, renewed worries over Greece’s debt situation and the continuous capital outflows triggered by the Federal Reserve’s interest rate lift-off,” says Tan.

“In US dollar terms, the worst-performing market was Malaysia (-21.83%), followed by Thailand (-21.61%) and Indonesia (-21.35%). The Dow Jones Industrial Average was down 2.23%, while the Nasdaq was up 5.73% over the year.”

As these were difficult market conditions, Pheim decided not to reinvest in the oil and gas sector. Instead, it invested in companies that benefited from the lower oil prices and/or weaker ringgit.

“We selectively invested in companies with strong and improving fundamentals that were undervalued to weather the volatile market conditions ahead,” says Tan.

Consistent with its investment discipline and approach, Pheim did not remain fully invested throughout the year. By the second half of 2015, however, it had scaled down its equity exposure to the lower 40% range until August. 

Following the emerging-market selldown owing to the depreciation of the renminbi in the second half of last year, the team recalibrated its investment strategy by raising its equity exposure to close to 50% in December. Tan believes that its stock selection also played a part in the fund’s performance last year.

“Pheim’s assets under management increased 14.6% to RM1.07 billion last year despite the challenging market environment,” he points out.

Tan says the macroeconomic outlook remains uncertain in 2016 and suggests that investors look for undervalued companies with strong management and improving fundamentals as they could potentially be outperformers. He also advises investors to remain invested. 

The biggest threat for the global economy, according to him, is the lack of growth drivers. “China is transforming into a services-based economy and there are risks with any transition. The recovery in advanced economies is slower than expected while the emerging markets are affected by the slump in commodity prices.”

Tan cautions that “more earnings downgrades and disappointing economic data will lead to a market correction”. Nevertheless, Pheim views the slump in stock prices as good buying opportunities for long-term investors as the fund’s current equity exposure is at a moderate level.

He believes that market volatility will persist in the first half of this year amid the global economic slowdown, slumping commodity prices, diverging monetary policies — all of which could potentially trigger further outflows — and currency fluctuations in the emerging markets.

Thus, Pheim will be keeping a positive watch on the oil palm plantation and property sectors. Contrary to popular views, he believes the weak sentiment and challenging outlook have already been largely priced in. However, it will remain underweight on the oil and gas sector.

“Oil prices will continue to fluctuate in response to geopolitical and economic factors. We are unlikely to see a sustained and material rally in oil prices in the short term, given the difficulty in reaching an effective and binding consensus among suppliers,” says Tan.

Moving forward, although Pheim does not plan to launch any new funds, it sees more balanced funds being introduced in the market as investors are becoming more risk-averse.  

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