Smart beta strategies allow investors to uncover hidden value to reap better risk-adjusted returns.

By Lee Min Keong

Affin Hwang Asset Management Bhd’s (Affin Hwang AM) newly-minted smart beta exchange traded funds (ETFs) offer investors an innovative investment option that potentially exploits market anomalies and uncover hidden value to reap better risk-adjusted returns. 

The asset manager marked a new milestone with the debut of its smart beta ETFs on Bursa Malaysia’s Main Market on 15 July. 

The smart beta ETFs – the TradePlus MSCI Asia ex Japan REITs Tracker and the TradePlus DWA Malaysia Momentum Tracker – seek to combine the best of both active and passive strategies by investing in companies based on a series of objective factors. 

“As we continue to build our name in the ETF industry, we are proud to introduce another new ETF solution for investors to grow their wealth,” Affin Hwang AM managing director Teng Chee Wai says.

This is also in line with the regulator’s revised guidelines that allow for greater product innovation within the ETF landscape through the introduction of smart beta strategies, he says.

“With its low-cost advantage, smart beta ETFs are ideal building blocks for investors to pile on different strategies such as dividend or momentum factors to construct a diversified portfolio.”

What are smart beta ETFs?

Smart beta ETFs are innovative forms of ETFs that apply objective factors when selecting its component companies. These companies are then ranked and weighted according to specific factors such as earnings growth, price momentum or dividend yield.  

This approach provides an alternative strategy compared to traditional market-cap weighted ETFs which are biased towards larger-cap stocks because they constitute a heavier weight in an index.  

By complementing their portfolio with smart beta strategies, investors can potentially exploit market anomalies and uncover hidden value to reap better risk-adjusted returns. 

This approach essentially helps overcome the main disadvantage of plain-vanilla ETFs which are biased towards larger-cap stocks because they constitute a larger weight in an index.    

Dividend-yielding REITs and price momentum

The TradePlus MSCI Asia ex Japan REITs Tracker seeks to provide investors access to the highest and most consistent dividend-yielding REITs in Asia (excluding Japan) through the smart beta selection of the index. 

Against a backdrop of high volatility in the market, investors can add a measure of stability in their portfolios through consistent dividend pay-outs from REITs. The strategy has historically provided an average annual dividend yield ranging between 4% to 5% p.a.

The TradePlus DWA Malaysia Momentum Tracker, meanwhile, aims to provide investors exposure to local stocks with the highest price momentum as its smart beta factor. 

Being the country’s first momentum strategy on Bursa, investors can potentially reap higher returns by capturing stocks with the most upswing momentum to ride the recovery in the local stock market. 

Units of the smart beta ETFs trade under the following stock code: 

Investors can buy and sell units throughout the trading day like any other publicly-traded shares, with a minimum board lot size of 100 Units. 

The TradePlus MSCI Asia ex Japan REITs Tracker was launched at an initial issue price of RM1 per unit, while the TradePlus DWA Malaysia Momentum Tracker was also launched at an initial issue price of RM1 per unit.  

Collaboration with partners

Nasdaq Dorsey Wright (NDW) is the index provider responsible for the methodology behind Malaysia’s first momentum strategy. 

Its head of Research and Client Engagement Jay Gragnani says, “TradePlus DWA Malaysia Momentum Tracker offers turnkey access to relative strength strategy, empowered by NDW’s global technical research. 

“The underlying index is an effective tool to track momentum for adopting disciplined investment solutions. Our work with Affin Hwang AM expands strategic options for the investing public in Malaysia and the entire APAC region,” he adds.

Sylviane Carot, executive director at MSCI says, “We are very pleased to work with Affin Hwang Asset Management to help address their clients’ need for smart beta strategies. At MSCI, we are committed to provide indexes, data and tools to help investors build and manage better portfolios.”

With its six current ETF offerings, the latest listings would bring the company’s total ETFs to eight, making Affin Hwang AM the largest ETF provider in Malaysia (in terms of number of ETFs listed) as it continues to expand its product suite.  

About Affin Hwang Asset Management Bhd

Affin Hwang Asset Management Bhd was incorporated in Malaysia in 1997 and began its operations under the name Hwang-DBS Unit Trust Bhd in 2001. In early 2014, the company was acquired by the Affin Banking Group. 

Additionally, Affin Hwang AM is also 27% owned by Nikko Asset Management International Ltd, a wholly-owned subsidiary of Tokyo-based Nikko Asset Management Co Ltd, a leading independent Asian investment management franchise. 

Affin Hwang AM’s Shariah investment solutions are made available through its wholly-owned subsidiary and Islamic investment arm, AIIMAN Asset Management Sdn Bhd. 

As at 30 June 2020, the total assets under administration (AUA), comprising in-house unit trust funds as well as corporate and discretionary portfolios stood at approximately RM60.6 bil (combined AUA of Affin Hwang AM and AIIMAN).