Smart Investor Malaysia

Top performing funds in a pandemic

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By safely navigating the Covid-19 crash, Malaysian asset managers have seen their funds outperform 

By Lee Min Keong

Life as we know it has changed significantly over the past several months as the world grappled with a global pandemic for the first time in 100 years. The rapid spread of Covid-19, which broke out in China end last year, prompted nations around the world to impose strict lockdowns. 

The lockdowns brought economies screeching almost a standstill and caused steep selloffs in stock markets around the world in late February to mid-March. The novel coronavirus outbreak is now seen by many as the Black Swan event which has tipped the world into a global recession, the likes not seen since the Great Depression in the 1930s.

While stock markets crashed in March, they have made an impressive recovery since then. In the US, the S&P 500 and tech-heavy Nasdaq have touched all-time highs while the Dow Jones Industrial Average (DJIA) is within touching of it.

Public Mutual Bhd chief investment officer Lum Ming Jang says unprecedented monetary easing and fiscal stimulus measures undertaken by governments to mitigate the impact of the pandemic on economic growth subsequently led to a synchronised rebound in global equities. 

He says the FTSE Bursa Malaysia (FBM) KLCI and MSCI All Country Far East ex-Japan (MSCI FExJ) Index fell to lows of 1,220 points and 480 points respectively on 19 March 2020 while the DJIA hit a low of 18,592 points on 23 March 2020, resulting in year-to-date declines of 23.2%, 20.2% and 29.2% (in ringgit terms) respectively. 

“The FBM KLCI regained most of its losses by rebounding 27.6% to close at 1,556 points on 5 June 2020 from its low on 19 March 2020. The MSCI FExJ Index and DJIA rebounded by 24.6% and 40% (in ringgit terms) to 618 points and 27,111 points respectively from their March lows up to 5 June 2020,” he adds. 

In fact, Public Mutual and various asset management companies that Smart Investor reached out to confirm their funds not only weathered the Covid-19 storm but a number also outperformed as equity markets staged a strong recovery. 

In the coming days, we’ll shine the spotlight on their top performing funds during the Movement Control Order (MCO) period and find out why they outperformed, and get the views of their fund managers on where the see the market moving forward.

Public Mutual Bhd: Small-cap funds steal the limelight

For Public Mutual, its domestic small-cap funds were the star performers during the MCO period. Lum says its domestic equity funds rebounded in tandem with the local market’s recovery, with more than half of its funds registering returns of above 30% from 19 March to 5 June 2020. 

“Our domestic small-cap funds achieved higher returns as small-cap stocks rebounded by a larger margin as compared to the broader market, with most of our small-cap funds registering returns of close to 40% or more over the same period.” 

In tandem with the upturn in regional and global markets, more than half of its foreign equity funds registered returns of above 25% from 19 March to 5 June 2020, while the rest of the funds generally delivered double-digit returns.

The No. 1 private unit trust company and Private Retirement Scheme (PRS) provider in Malaysia, Public Mutual manages 148 unit trust funds, four wholesale funds and nine PRS funds with a total net asset value of over RM95 bil.

Strategic positioning in healthcare and technology 

To mitigate market volatility caused by the global health pandemic, Lum says its equity funds generally raised their cash levels during the market’s sell down in the first quarter of 2020. 

“Our funds subsequently rebalanced their portfolios into stocks within the healthcare, technology and e-commerce sectors to capitalise on the increased focus on health & wellness, the ongoing digital transformation as well as the change in consumption patterns following the Covid-19 outbreak,” says Lum.

Selected consumer staple stocks with resilient and defensive earnings which benefit from the current low interest rate environment were also included in its funds’ portfolios. 

Lum attributes the good performance of the aforementioned funds to their strategic positioning in stocks in the healthcare and technology sectors which benefited from the pandemic. 

“Healthcare stocks have been underpinned by growing demand for healthcare services, medical equipment as well as personal protective equipment such as rubber gloves. 

“Over the longer term, the sector’s outlook is supported by the ageing demographic profile of the global population and the rising income per capita of the developing nations.”

The growth outlook for technology stocks providing software, Internet and e-commerce services has been bolstered by the pandemic, as business enterprises increasingly shift to remote work policies while consumers resort to online activities ranging from online shopping, home entertainment, social media to gaming. 

Lum notes this trend will also benefit vendors within the semiconductor and IT hardware supply chains on the back of rising demand for data centres and cloud services globally. 

“Over the longer term, technology, e-commerce and Internet stocks are poised to benefit from the social distancing precautions and structural changes in consumption patterns due to the concerns triggered by the current pandemic. This should bode well for our equity funds with holdings in these companies,” he explains.

Prepare for renewed market volatility

Prior to the successful development of a vaccine for Covid-19, investors should be prepared for renewed market volatility in the event there is a second wave of infections globally, says Lum.

Nevertheless, he says the monetary policy easing and fiscal stimulus measures undertaken by most of the countries worldwide are supportive for global economic activities in the medium term and have helped to shore up investor confidence in the near term. 

“These moves have also led to declines in interest rates and bond yields globally, which fell below levels seen during the 2008 Global Financial Crisis to hit new all-time lows. This has, in turn, underpinned global equity markets,” he says.

Lum encourages investors to hold a diversified portfolio across different markets (domestic, regional and global) and asset classes (comprising equities and fixed income) to better navigate the market cycles. 

“Investing in unit trusts by adopting a Ringgit Cost Averaging (RCA) approach and maintaining a long-term investment horizon will also help investors ride out market fluctuations and allow time for their funds’ investments to grow,” he adds. 

Read the full article in the July/August issue of Smart Investor.

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