This article first appeared in The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

Recognising renewables as a multifaceted investment opportunity spanning decades has paid off for Principal Asset Management Bhd (Principal) as it won the gold award for Best Impact Fund at The Edge Malaysia ESG Awards 2023.

The objective of the winning fund — Principal Asia Pacific Renewables Fund — is to ensure the unitholders benefit from the global shift to cleaner and more sustainable forms of energy in the long term, says Patrick Chang, chief investment officer at Principal Malaysia and chief investment officer (equities) at Principal Southeast Asia. “At least 70% of the fund’s total assets is invested in the equities of renewable energy companies that contribute to our Morningstar Sustainability Rating,” he adds.

“We believe our experience managing the fund so far will stand us in good stead in the long term as we develop expertise in this emerging trend. There is a limited number of comparable Asia funds that invest solely in the renewables space.”

Despite the global move towards energy transition, managing the fund in the face of outflows from the renewables sector proved to be challenging. “The broader market correction impacted the sector disproportionately as it may not be seen as a core holding or key benchmark name for general equity funds,” says Chang.

“To help mitigate risk to unit holders’ capital while staying true to the purpose of the fund, we moved the portfolio structure more towards companies that benefit from efforts to combat climate change, as well as commodities that benefit from the energy transition. This has helped us to significantly outperform major clean energy indexes, even though we acknowledge absolute performance has been challenging amid the ongoing broad equity market correction.”

The firm’s commitment to sustainability goes beyond renewable energy. Another key area that Principal has been working towards is financial inclusion. Through the firm’s partnership with e-wallet provider Touch ‘n Go Sdn Bhd, where the former directly distributes capital market products, Principal has been able to foster financial inclusion to more than three million customers, he says.

“Recently, we have enhanced our fund offerings on the e-wallet to provide customers with more options to invest from as little as RM10 in unit trust funds focused on global, regional and domestic markets.”

The firm also launched its Islamic Global Responsible Equity Fund, an ESG - focused Undertakings for Collective Investment in Transferable Securities fund in Dublin, Ireland, for investors that want global exposure with a sustainability objective.

“This fund has a specific focus on companies demonstrating strong ESG fundamentals and promoting environmental and social characteristics. In addition, the fund ensures that companies or issuers involved in the production of tobacco or the gambling sector are appropriately excluded and this level of social exclusion criteria aligns with shariah principles,” says Chang.

Going forward, the firm is “cautiously optimistic” about the sustainability theme given that key sectors such as solar energy, wind energy and electric vehicles “have come down to attractive levels”.

“We are closely monitoring the supply and demand situation of these key sectors in order to determine a good entry point to increase allocation to these sectors and benefit from their long-term growth. We believe a large part of the correction in the sector has already happened and are cautiously optimistic about the prospects of the fund in the year ahead,” he says.

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