This article first appeared in Wealth, The Edge Malaysia Weekly on March 25, 2024 - March 31, 2024

Areca Capital Sdn Bhd has bagged two awards at the LSEG Lipper Fund Awards 2024 with its Areca equityTRUST fund. This is the seventh year in a row that the fund house has walked away with the Best Equity Malaysia awards in the five-and 10-year categories.

CEO Danny Wong explains that Areca’s investment philosophy is about being agile, while emphasising the appropriate asset allocation to hold. This means deciding on the optimum amount of cash to hold or staying invested in equities at particular points in time. These decisions contributed to the fund’s success, he says.

The market in 2023 was marked by geopolitical tensions, concerns over slower growth in China and Europe, and worries about a potential recession in the US. In Malaysia, growth was moderated by weak global demand and low commodity prices.

One of the best investment decisions that the firm made at this time, says Wong, included making the move to increase cash at peak-pessimistic levels. Additionally, “right sectoral calls were made in the utilities and undervalued or turnaround plays in property and healthcare stocks”.

When asked what was the best investment strategy that the firm made last year, Wong says it was the contrarian decision to be more aggressive in the market when sentiment on Malaysian assets were at their all-time-low.

The Areca equityTRUST fund, launched in 2007, is a growth fund investing in Malaysian equities that aims to provide investors with medium- to long-term capital growth. As at Dec 31, 2023, it generated for investors a cumulative return of 5.21% over the past year. The returns over the past five and 10 years were 80.41% and 170.57% respectively.

Its sector allocation was mostly in construction and properties (18.2%), followed by technology (15.5%) and industrial (12.1%).

Despite challenges in the market, in the last year, the fund was heavily invested, says Wong. “From being over 80% invested in equity, we turned fully invested towards the remainder of the year, with close to 95% invested levels.

“We started to become more aggressive during the period of increased volatility, following the higher-for-longer theme and pre-state elections,” he says.

This strategy has evidently served the fund well. The Areca equityTRUST fund is no stranger to the Lipper Fund Awards, having had a stellar performance for many years.

“Over the years, we learnt that an agile approach, combined with the right asset allocation decision-making, contributes greatly to performance over the long term. For example, during times of drastic market sell-downs, cash is an important asset to hold for risk management.

“However, that is only one part of the story. Ultimately, it has to be deployed wisely at the appropriate time, into the right sectoral and stock picks to follow through on the opportunities,” says Wong.

The fund house will continue to apply this investment formula, which Wong says has been proven to work well over nearly two decades at Areca Capital.

“We have gone through numerous market turbulence and crises. From 2024 onwards, we are positive on the Asian region. The potential return of the Goldilocks economic conditions and the US Federal Reserve easing cycle bode well for risk assets, such as equity.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.