Smart Investor Malaysia

Interview with Principal Malaysia, Winner Of The FSMOne Recommended Unit Trusts Awards 2022/2023

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Smart Investor: Congratulations! Can you tell us more about your winning funds in the FSMOne Recommended Unit Trusts Awards 2022/2023?

Munirah Khairuddin: Principal Asia Pacific Dynamic Fund Growth invests primarily in the Asia Pacific excluding the Japan region, such as companies that are domiciled in, listed in, and/or have operations or businesses that focus in the Asia Pacific ex Japan region. With effect from 14 May 2021, the Fund may also invest up to 20% of its NAV in companies that are listed globally with some operations or businesses within the Asia Pacific ex Japan region to capture growth opportunities.

Principal Islamic Asia Pacific Dynamic Equity Fund: The Fund is predominantly an equity fund which invests through securities of companies domiciled in, listed in, and/or have significant operations in the emerging and developed markets of Asia Pacific ex Japan. Significant operations translates to major businesses of the company. For example, the Fund can invest in a company with significant business and/or operations in Thailand but listed on the New York Stock Exchange.

Principal Asia Pacific Dynamic Mixed Asset Fund: The Fund is managed with the aim to provide investors with income and capital appreciation over the medium- to long-term through investments in the Asia Pacific ex-Japan region. The Fund seeks to achieve its investment objective through a diversified portfolio investment in equities, debt securities, money market instruments and/or Deposits.

Principal ASEAN Dynamic Fund: The Fund is managed with the aim of achieving stable and positive investment returns over the medium- to long-term through investments in the ASEAN region regardless of market conditions. The companies invested in must be domiciled in, listed in, and/or have significant operations in the ASEAN region. The Fund has the flexibility to adjust its investment exposure to equity and/or debt securities
and money market instruments depending on market conditions.

Principal Greater China Equity Fund: The Fund is a feeder fund that invests at least 95% of the Fund’s NAV in the Schroder ISF Greater China, a fund of the Schroder International Selection Fund, an open-ended investment company registered in Luxembourg. The Target Fund invests primarily in equity securities of the People’s Republic of China, Hong Kong SAR and Taiwan companies; hence, investment risk is expected to be higher than a
globally diversified fund.

SI: What are the challenges you have faced in the past 12 months?

MK: The biggest challenge last year was still very much the pandemic which continued to cause widespread concern and economic hardship for consumers, businesses, and communities across the globe. Our firm spent the bulk of our time responding to the effects of the global pandemic on our workforce and business continuity. One of the challenges we faced is to operate both safely and economically at the same time and we have been able to do so through the means of technology.

We continue to ensure our clients are handheld by establishing ongoing communication through educational materials, online webinars, relationships call and social media.

SI: What are the market trends that an investor should look out for in the near future?

MK: In Asia, we have a slight preference for equities over bonds. The outlook for Asian equities is turning more positive since China has reopened, internet regulation is turning more benign and PE multiples have de-rated. Our conviction in risk assets would rise after we go through the current round of earnings downgrades, the first month of Quantitative Tightening and inflation shows some signs of peaking. Within bonds, we prefer local and regional to global developed market fixed income.

We like characteristics like quality, earnings resilience, growth visibility and reasonable valuations. We like companies that have scope for self-help, for example, on adjusting service/product offerings, managing costs, optimising their capital structure via share buybacks and/or higher dividends. We continue to look for opportunities include reopening beneficiaries (internet platform giants, consumer) and infrastructure spending plays. Factors and themes include high dividend yield, quality, inflation-hedges (selective staples, healthcare, materials, agriculture), decarbonisation (renewables) and beneficiaries of previous under-investments (energy, materials).

The comments that US Federal policy could go beyond neutral and into restrictive territory may keep US Treasuries (UST) elevated and volatile. We expect the 10-year UST yield to trade in a wide range but should find an anchor once the inflation outlook stabilises. Following the recent rally in the local government bonds in the month of May, we will look to pare some position in government bonds as the long-end of the curve remains volatile and would switch into the belly for better risk-reward opportunities.

We are also looking to the primary market for corporate bonds as liquidity and yields are generally attractive compared to the secondary market. For now, investors need to be prepared for continued volatility as market noises could dominate economic news over a few weeks or couple of months. In our base case, we think inflation will fall but remain above central bank targets, economic growth will slow but stay above zero and markets will ultimately shift focus to economic fundamentals.

These are the investment philosophies we are adopting for the near future:

  • Risk Management is key
  • Stick to funds that are focused on quality and income-generating feature
  • Diversifying to funds that also have an exposure to value and sustainable growth

Munirah Khairuddin, chief executive officer and country head, Principal Malaysia

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