Principal Asset Management Bhd took home the Best Malaysia Large-Cap Equity (Syariah) Fund award at the 2020 Morningstar Fund Awards Malaysia for its Principal DALI Equity Fund (formerly known as CIMB Islamic DALI Equity Fund).
Smart Investor speaks with chief executive officer Munirah Khairuddin on the fund’s performance and how Syariah-compliant funds are gaining traction with investors.
Despite the strong headwinds buffeting the equity markets, Munirah sees opportunity in adversity, adding that Malaysian equity evaluation is already cheap. While taking a defensive stance, she says Principal Asset Management will take the opportunity to accumulate selective stocks within the plantation, construction, and oil and gas, and healthcare sectors.
Smart Investor: Congratulations on your win! What were the major changes made to the portfolio in 2019? What key factors drove your winning fund’s performance?
Munirah Khairuddin: Thank you! I believe the right asset allocation strategy has helped the fund’s performance in 2019. As you may know, the fund consists of 70% Malaysia and 30% Asia Pacific markets, and we manage the fund based on our proprietary top-down FTV and bottom-up FMV Research Process.
We adopted the Barbell Portfolio structure approach that emphasises on capital preservation and/or growth and have a rigorous portfolio optimisation process that focuses on the Beta, Active Share, and Sharpe Ratio. On top of that, we also run continuous data analytics to ensure that the portfolio is been managed within the optimum risk parameters.
Are Shariah-compliant funds like Principal DALI Equity Fund gaining traction with investors?
Yes, we are seeing Islamic Asia Pacific funds gaining traction with investors. This is part of the asset allocation/risk diversification strategies that we are advising investors to consider.
Historically, Islamic investments are less volatile than their conventional counterparts, especially during periods of uncertainty. During the subprime crisis in 2008, Islamic investments were not as greatly impacted compared to the conventional investments. The Islamic financial markets do not rely on the subprime assets or excessive leverage which caused difficulties for many conventional institutions in the past.
What are the major risks or challenges facing the financial markets in 2020? How do these risks affect your investment decisions?
We are in a unique situation in Malaysia. Our markets have been impacted by the Coronavirus outbreak and the US-China trade war. However, for the right investor, we believe there is an opportunity to invest in Malaysian equities and fixed income products because of the value.
In terms of equity, Malaysian equity valuation is already cheap. We are taking a defensive stance and focusing on stocks which are resilient to the expected slowdown in the domestic economy and/or not exposed to domestic political and regulatory uncertainty. We prefer sectors that benefit from interest rate cuts and are USD earners. This would include stocks in the consumer staples, healthcare, energy, plantation and the REITs sectors.
On the fixed income side of things, the impact of the Coronavirus outbreak may result in growth in 1Q2020 softening to below 4%. As a conservative move, our fixed income funds are taking a neutral view on benchmark duration. If government bond yields start to rise, we may take advantage of it to extend duration at an opportunistic level.
Given the current headwinds, which sectors do you see as resilient and can thrive, and how would you position your funds to take advantage of opportunities and/or mitigate risks?
As I mentioned earlier, we prefer sectors that benefit from interest rate cuts and are USD earners. This would include stocks in the consumer staples, healthcare, energy, plantation and the REITS sectors.
As always, we advise investors to consider their long-term financial goals and risk tolerance when it comes to investing. Our investment team has recommended the following based on our asset allocation mix (as of Feb 2020):
Malaysian equity valuation is undervalued, making it attractive. It’s a great time to take advantage of the opportunity to buy low. We will continue to buy Malaysia on weakness and keep our barbell approach on high yield stocks. We’ll take the opportunity to accumulate selective stocks within the plantation, construction and oil and gas sectors.
When it comes to the Covid-19 outbreak, we will look at sectors impacted by this event. We’ll tactically underweight the aviation sector, while taking opportunities to trade the glove and healthcare sectors.
Asia Pacific Region
A market sell-off during an event like the Coronavirus outbreak usually offers great buying opportunities. Much like Malaysia – it’s a great opportunity to buy low.
We are taking advantage by buying into structural names with good management and strong business models. We also like companies that are emerging as the key players in the fourth industrial revolution.
Even though e-commerce may be a relatively more resilient sector with Chinese consumers choosing to spend more time at home and online shopping demand may increase, stocks of these companies are likely to also be sold off indiscriminately in a knee-jerk reaction. We will also be taking the opportunity by adding companies that are capable to lead in the growing consumption space in China.
By Bernie Yeo
Please click here to read the full article in the digital edition of Smart Investor (April 2020 issue).