On the importance of diversification and being cautious in the face of uncertainty
The global market faced a lot of uncertainties over the past few years. Just when we thought the worst was over after COVID-19 cases have subsided, then comes the Russia-Ukraine conflict, which has caused energy and other commodity prices to skyrocket. These are just some of the risks associated with the global market, shares Gerald Ambrose, Chief Executive Officer, of abrdn Islamic Malaysia Sdn Bhd.
The fund house changed its name from Aberdeen Standard Islamic Investments (M) Sdn Bhd to abrdn Islamic Malaysia Sdn Bhd in July last year. According to its group website, the new brand symbolises the “transition underway to bring a clarity of focus, renewed sense of purpose and drive for sustainable growth for shareholders, clients and colleagues.”
Read more below on the insights and challenges faced and the market outlook for the near future.
Gerald Ambrose: Firstly, thank you for selecting abrdn Islamic World Equity Fund (AIWEF) as one of FSMOne’s Recommended Unit Trusts for 2022/2023. This is a testament to all the hard work that the team behind the Fund had put in to deliver an investment solution which has been very
well-received by investors in Malaysia. AIWEF is a global equity fund which was incepted on 6 February 2013. It invests in an international portfolio of Shariah-compliant equities and equity-related securities which offer good growth prospects.
The Fund is benchmarked against the MSCI ACWI Islamic (Shariah) Index and seeks to offer investors capital appreciation over the long term. It is well- diversified from a country and sector perspective, providing investors an “all-weather” core portfolio comprising a balance of growth and resilience.
The Fund uses a bottom-up stock selection approach backed by extensive research and analysis from our global equities team and Sustainability Institute to select high-quality companies with qualities such as strong cash flows, healthy balance sheets, sustainable business models and sound corporate governance principles. With a track record of almost 10 years, the Fund’s investors have enjoyed an annualised return of10.3%* p.a. since inception.
* Annualised return is gross of fees. Past performance is not a guide to future results.
SI: What are the challenges that you have faced in the past 12 months?
GA: While the Fund delivered a very strong return of 26.8%* in 2021, market conditions in 2022 have proven significantly more bearish. The global economy continues to face multiple headwinds to asset performance. The challenge has been sentiment and macro factors driving market movements rather than company fundamentals. The rotation of the market towards value stocks has meant stocks with high-quality fundamental characteristics have not been recognised or factored into share prices despite many companies reporting solid operational results.
Instead, concerns over conservative guidance and lower expectations have overshadowed them. Amidst times of market volatility, our focus is on the process of identifying quality businesses that have enduring business models.
This current market has been challenging for short-term performance, however, we have been using this as an opportunity to build positions in high conviction names at lower relative prices. We remain disciplined and committed to the equity process.
*2021 calendar year return is gross of fees. Past performance is not a guide to future results.
SI: What are the market trends that an investor should look out for in the near future?
GA: We would remind investors of the importance of diversification and urge caution in the face of uncertainty. Fund managers are worried about
several key tail risks – soaring inflation and monetary policy, a global recession and geopolitical worries. We see parts of the world still navigating lockdown disruptions – for instance, China and its zero-COVID policy. Geopolitical issues, especially Russia-Ukraine and its knock-on inflationary
effects on oil and commodity prices have continued to cause supply chain shortages.
Global inflation is running significantly higher than pre-pandemic levels, requiring tighter monetary policy from central banks to tame it, raising concerns over a potential global recession. Our strategy for AIWEF remains consistent with our global equity process of investing for the long-term in quality businesses with reasonable valuations and robust business fundamentals.
The Fund boasts a high conviction portfolio of diversified businesses and a balance of defensive and cyclical elements. We believe that the Fund is well-positioned to take advantage of future growth and it benefits from solid underlying structural drivers.