Smart Investor: Congratulations! Can you tell us more about your winning funds in the FSMOne Recommended Unit Trusts Awards 2022/2023?
Lee Sook Yee: The Kenanga Growth Fund Series 2 (KGFS2) and Kenanga Shariah Growth Opportunities Fund (KSGOF) are both equity growth funds that seek to provide investors with long-term capital growth. KGFS2 follows a diversified strategy, where up to 30% of the fund may be invested overseas, with the balance invested in Malaysia. The fund invests across market capitalisations with a focus on growth.
For KSGOF, the fund primarily invests in Shariah-compliant securities with a focus on small-capitalisation segment of the market. Both funds employ a bottom-up stock picking strategy where high conviction stocks are given higher allocation in the portfolio (unless there is liquidity constraint). However, the funds may also tactically scale back equity exposure to stay defensive during periods of higher uncertainties/volatilities.
SI: What are the challenges you have faced in the past 12 months?
LSY: Equity markets globally have been especially challenging in the past 12 months, impacted by continued effects of the pandemic, rising inflation, monetary tightening and geopolitical conflict. COVID concerns still dominated headlines in the second half of last year, as new
variants prompted on and off lockdowns.
Although full re-openings started to progress across the globe in early 2022, the rebound in demand has clashed with supply shortages and triggered a rise in inflation. This was further compounded by the Russia-Ukraine geopolitical conflict. As such, inflation rose to levels which could not be ignored by central banks and as such they have responded with a strong monetary tightening policy.
Rising inflation and tighter policy are negative for asset prices, as liquidity is drained from the system and the cost of capital increases. Inflation also results in rising cost for companies and hurts demand as consumers scale back on discretionary spending. Companies in Malaysia were not spared, given their heavy export links with the rest of the world while rising risk aversion also dampens investment fund flows.
Overall we are managing the environment by currently adopting a defensive portfolio stance, with over-weights on sectors that have pricing power and will also benefit from higher interest rates. We see market weakness as a chance to opportunistically deploy capital to companies where long-term fundamentals still remain solid.
SI: What are the market trends that an investor should look out for in the near future?
LSY: Near term, key factors affecting the market will include the path of US growth and inflation, together with the corresponding response by the US FED. On the other hand, China’s market outlook is improving, as the economy re-opens and further government support is being planned to stimulate the economy. Recently, China’s central bank has moved to cut interest rates while the central government is planning to announce more infrastructure stimulus.
Our positive view on ASEAN is maintained, as growth remains strong and is driven by economic re-opening, while higher commodity prices will also benefit certain economies such as Indonesia and Malaysia. In Malaysia, global macro concerns and rising rates have weighed on the market but pockets of opportunities still exist in the manufacturing, tech and consumer sector where fundamentals still remain bright but valuations have become more attractive.