This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 14 - 20, 2016.

KAF Investment Funds Bhd won the award for Equity Malaysia Small and Mid-Caps in the 10-year category at The Edge-Thomson Reuters Lipper Fund Awards 2016. This was the first award for the company. Acting CEO Mohd Irhzan Mohd Nor attributes the win to the fund’s investment manager, Amundi Malaysia Sdn Bhd. 

According to Amundi, the strengths of the winning fund included its flexibility to invest in growth equities, especially in companies with small capitalisations. The fund may invest 30% of its net asset value in large-cap companies (those that exceed RM1 billion) and a large portion of its assets in companies with market capitalisations not exceeding RM1 billion. 

“The small-cap companies had the opportunity to provide higher capital appreciation as well as to grow at a faster rate, which provided significant outperformance in returns for the fund. We believe this combination of small-cap companies for higher return and large-cap companies for stability is the strength of this winning fund,” says Mohd Irhzan.

Amundi’s bottom-up fundamental research philosophy identifies counters whose potential returns have yet to be recognised by the market as well as stocks that have been neglected due to past disappointments, he adds. “We seek to identify companies with strong market positions and opportunities for growth. Our investment process is the result of years of experience as a leading bottom-up manager.”

Amundi ensured that the fund was always fully invested as the company believes in the strategy of maintaining a high level of investable assets, which allows the fund to capture opportunities in the market. 

“We think cash can neither represent an investment nor be utilised as a primary reason to time the market. Studies consistently show that market timing is rarely, if ever, successful. We prefer to rebalance the portfolio with higher or lower beta companies when the need arises,” says Mohd Irhzan.

The sharp depreciation of the ringgit on the back of a weakening macroeconomic and oil outlook for the country last year meant that the fund manager had to reposition its portfolio and adapt to a slower growth environment by searching for catalysts and themes within the stock market. 

In the current economic outlook, the fund manager believes opportunities can be found in undervalued local stocks. It will continue to manage the fund with the objective of identifying Malaysian companies with the potential for steady growth. 

“The fund manager will consider the price, risk, growth prospects, management quality, competitive position and prospects for investment return in the selection process. We will conduct both company visits and financial analysis to determine the suitability of potential investments,” says Mohd Irhzan. 

“We prefer to concentrate on companies that have focused and competent top management, comparatively low gearing, high earnings growth potential, low stock valuations in relation to book value and earnings, and is a market leader in a growing industry with significant competitive advantages,” he adds.

The fund manager will take advantage of any special situations and mispricing opportunities in the marketplace, which generally represent short to medium-term inefficiencies that are subsequently corrected to its fair value over the longer term.