This article first appeared in Wealth, The Edge Malaysia Weekly on March 27, 2023 - April 2, 2023

Manulife Investment Management (M) Bhd had one of its best years at the Refinitiv Lipper Fund Awards 2023. The firm clinched three group awards — Best Equity Group (Malaysia), Best Mixed Assets Group (Islamic) and Best Bond Group (Provident) — and bagged five fund awards.

The winning funds were in Lipper’s Conventional universe and Islamic universe. The firm clinched the awards for Best Equity Malaysia in the three-year category, Best Equity Malaysia Small & Mid Cap in the three- and 10-year categories and Best Mixed Asset MYR Flexible in the 10-year category.

CEO Jason Chong attributes the wins to the firm’s investment philosophy of generating long-term outperformance and sustainable returns by following a disciplined approach to stock selection through its rigorous investment process. Internally, the firm has an investment framework based on growth, cash flow, management and value, or GCMV.

“We invest in companies with solid and scalable business models, good earnings potential, strong cash flow generation, a driven management team as well as an attractive valuation. We also incorporate ESG (environmental, social and governance) factors into our investment process,” he says.

Many fund houses preferred to hold cash in the battered market last year, but Manulife stayed almost fully invested at all times for its pure equity funds.

While holding cash would cushion investment portfolios against market downturns, fund managers never know when the markets will rebound. In other words, it is very difficult for investors to time the market.

“Timing the market is a very difficult thing to do. This is why our funds remained fully invested in 2022 despite the challenging environment for equity markets amid rising interest rates,” says Chong.

“Instead of moving into cash, we rebalanced our funds by rotating out of growth stocks and switching to stocks that we considered beneficiaries of the interest rate hikes. We have taken that view since the early part of the year.”

Thanks to Chong and his team’s courage to remain almost fully invested, the firm was able to capture the upturn when the markets rebounded in October last year and at the beginning of this year. Meanwhile, their defensive position in good dividend-yielding stocks continued to provide their portfolios with income and stability.

“Specifically for our Islamic Flexi Fund, we capitalised fully on the fund’s flexible allocation strategy, which enabled us to protect the downside during some of the most challenging market conditions,” says Chong.

“This fund is managed on an absolute return basis, with the aim of delivering consistent returns without taking too much risk. Through active management, investment is made based on fundamentals by employing a top-down overlay, where most of the effort is spent on identifying themes, sectors and stocks where excess returns could be derived.”

Yet, all this does not mean 2022 was an easy year to navigate. It was challenging as equity and bond prices fell in tandem, a rare occurrence in recent financial history.

The biggest challenge for the team, however, was the speed and magnitude of the technology stocks selldown, which caught Chong and his team by surprise. “We had been taking profit on our positions on technology counters at the end of 2021 and early 2022, but the drastic drop in the sector still impacted our funds,” he says.

“Fortunately, we were able to offset the losses with stocks that provided us with good returns through our portfolio rebalancing strategy. Having a well-balanced portfolio helped us to cushion the impact of the selldown while achieving our capital preservation goal.”

On top of that, Chong and his team’s decision to overweight the oil and gas (O&G) sector benefited the firm’s portfolios. “One of the best calls we made was to overweight the O&G sector,” he points out.

“There were concerns about the sustainability of high oil prices given the weakening global economic environment. However, we held to our belief that supply constraint was a big issue in the oil market, exacerbated by the Russia-Ukraine war.

“The oil majors were also ramping up production to take advantage of the high oil prices. While the oil and gas service providers had a difficult time during the pandemic years, they bounced back strongly as activities picked up after the reopening of the economy.”

Chong and his team continue to favour the energy sector this year. As at end-February, the award-winning Manulife Investment Shariah Progress Plus Fund still had an allocation of 10.7% in the energy sector, which is its third largest exposure. The two largest allocations of the fund are industrial products and services (15.7%) and consumer products and services (12.3%).

The top five holdings of the fund were Dayang Enterprise Holdings Bhd (3.6%), Bank Islam Malaysia Bhd (3.1%), Padini Holdings Bhd (3.1%), Velesto Energy Bhd (3%) and Genetec Technology Bhd (2.9%).

From an asset allocation perspective, Chong reiterates that the firm remained almost fully invested throughout the year. Instead of holding cash, it rotated out of growth stocks into stocks that would benefit from interest rate hikes and those deemed beneficiaries of the reopening of certain markets.

Most importantly, they were actively taking profit to lock in gains. “Given the volatility of the market, we were actively taking profit on stocks that we believed to be fully valued. We reinvested the proceeds in stocks with attractive valuations, some of which were unloved by the market,” says Chong.

“As we have a longer-term investment horizon, we believe these fundamentally strong undervalued stocks will rerate when the dust settles. Dividends paid by these companies will continue to provide income to our portfolio before we monetise from the capital appreciation.”

As the firm’s investment approach has worked time and again, Chong and his team will continue to apply the same approach to navigate market storms in the future.

He believes 2023 will be a year of stock picking. “We will continue to search for quality stocks for our portfolios to enhance returns over time. Stocks in focus will be those with a compelling valuation, strong cash flow, preferably in a net cash position, have a strong management and a consistent dividend payout,” he says.

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