This article first appeared in The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

Nomura Asset Management Malaysia (NAM Malaysia) has received recognition for its commitment to ESG, with the Nomura Global Shariah Sustainable Equity Fund (GSSE) winning the gold award in the best ESG performance and returns category at The Edge Malaysia ESG Awards 2024.

GSSE aims to achieve long-term capital growth by investing in shariah-compliant equities and equity-related securities of companies worldwide. It targets investments that align with sustainable development goals, ensuring a positive impact on society while adhering to shariah principles.

Managing an ESG-focused fund like GSSE has presented several challenges, primarily due to the high inflation environment prevalent across major developed economies, according to the Global Equities team of NAM Malaysia, as the US Federal Reserve’s aggressive interest rate hikes — totalling 5.25% in less than two years — heightened investor concerns about a potential recession.

This uncertainty led to a narrow market focus, with investors favouring the “Magnificent Seven” stocks — Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Meta Platforms and Tesla — and structural themes like artificial intelligence (AI).

“Although GSSE did not invest in all the Magnificent Seven, we managed to achieve strong positive returns through our disciplined, bottom-up approach, focusing on high-quality companies at reasonable valuations. Despite the challenging macroeconomic environment, these select companies demonstrated resilience, consistently delivering better-than-expected earnings results,” says the global equities team.

While the team remains cautious about recession risks, top-down market discussions on the likelihood and severity of a downturn could present potential opportunities for attractive investments. “Our bottom-up approach will prioritise identifying quality companies capable of outperforming their peers by effectively navigating the volatile business environment and capturing business opportunities.”

It also acknowledges the potential for increased market volatility from the US presidential election but avoids taking a partisan stance.

In collaboration with NAM UK, NAM Malaysia has played a significant role in advocating for ESG issues within its investment portfolio, focusing on the environmental and social pillars that align with GSSE’s six impact goals.

One notable achievement was their engagement with a large US pharmaceutical company that resulted in the latter participating in the data collection initiatives of the Access to Medicine Foundation, which is a non-profit organisation dedicated to improving global access to essential healthcare.

“By providing data and participating in surveys, we hope to see the company contribute to the foundation’s efforts to enhance transparency, stimulate innovation and improve public access to medicines, particularly in low- and middle-income countries,” says the team.

NAM Malaysia hopes to see greater acceptance of ESG and sustainable and responsible investment funds in Malaysia, emphasising that ESG is not merely a superficial box-ticking compliance exercise.

The team believes that ESG is not only a tool for positive environmental and social impact but also a catalyst for new business opportunities for companies equipped with the right technology and capabilities.

“ESG and fund performance are not mutually exclusive as ESG helps to develop a virtuous cycle of sustainable business growth. We believe that ESG creates long-term growth opportunities that align with a long-term investment horizon, enabling investors to achieve their desired capital returns.”

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