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This article first appeared in Wealth, The Edge Malaysia Weekly on April 19, 2021 - April 25, 2021

RHB Asset Management Sdn Bhd’s RHB Thematic Growth Fund won the award for Best Mixed Asset MYR Flexible (Provident) in the three-year category at the Refinitiv Lipper Fund Awards 2021. It was the first Refinitiv Lipper award for the fund, which invests in securities of Malaysian companies that benefit from evolving domestic and global trends.

Eliza Ong, CEO of RHB Asset Management, attributes the success to good sector selection. “We took the view early on that the demand in the healthcare sector, especially for exporters, would rise exponentially and lead to higher selling prices of their products and hence, profitability for these companies.

“The fund took an overweight view of this sector in as early as March 2020. The Covid-19 pandemic that led to lockdowns in many parts of the world further fuelled demand in the healthcare and related sectors, which delivered strong earnings growth.”

The fund house capitalised on the mis­pricing between price and valuation by combining bottom-up stock picks with top-down considerations, says Ong, adding that this strategy allowed the fund to generate consistent and superior returns over the medium to long term.

The pandemic presented a challenging market for the fund house to navigate last year, despite the recovery that occurred following the sharp dip in March 2020.

“Markets have recovered well from the lows in March 2020 despite the severe impact of Covid-19 on the global markets. Equity markets throughout the world have continued to climb higher, aided by stimulus packages announced by various governments and aggressive cuts in interest rates by central banks,” says Ong.

“It was challenging to make fundamental investment decisions at that point, as most valuations had peaked while earnings visibility remained weak. The possibility of more downside risks as well as ongoing external concerns like trade tensions remained.”

Against this backdrop, the RHB Thematic Growth Fund successfully generated a return of 49.44% by end-2020. This was possible because the fund house focused on stocks with earnings growth, as it believed that only sectors that could deliver growth could outperform the market, says Ong.

“Growth investments outperformed value investments significantly in the first nine months of 2020 as earnings from healthcare-related sectors beat expectations. Asset allocation also contributed to the fund’s performance as the fund was not fully invested in 2020 due to the lack of companies that could offer growth in earnings,” she adds.

Cash flow issues in companies due to collapsed demand and uncertainties in the economy contributed to RHB Asset Management’s decision to not be fully invested in the market last year.

Additionally, the fund house avoided underweighted sectors that had been negatively impacted by Covid-19. This minimised the negative impact from these sectors. The fund house also actively traded and rebalanced its portfolio by increasing the weightage of healthcare-related sectors and decreasing that of sectors with negative earnings or those that had cash flow issues.

Moving forward, RHB Asset Management believes that an economic recovery is underway. The rollout of Covid-19 vaccines and easing of movement restrictions will contribute to an improved economy by the second half of 2021, Ong observes.

“We deployed [funds] into cyclical stocks and value stocks by the fourth quarter of 2020 and continued to do so in the beginning of 2021.”

The fund house may change its investing style going forward, she adds. “Although the growth investing style outperformed value investing due to the scarcity of sectors that could offer earnings growth in 2020, we believe that the cyclical and value investment styles will outperform growth investing in 2021 or post-Covid-19.”

The fund house believes that growth outperformance has peaked. Sectors with low price-to-book ratios and strong earnings revisions will be its preferred picks for 2021.

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