This article first appeared in The Edge Malaysia Weekly on March 24, 2025 - March 30, 2025

KAF Investment Funds Bhd continues its winning streak to win the Best Equity (Provident) Group Award and eight individual awards.

The award-winning funds are KAF Bond Fund, KAF Dana Adib, KAF Core Income Fund, KAF Vision Fund and KAF Tactical Fund.

Its head of investments Tan Gan Leong says the firm’s best stock call is its investment in YTL Power International Bhd and it played a significant role in the firm’s strong performance during the first half of last year.

“Having initiated the position [in YTL Power] in 2023, we maintained our holding despite gains exceeding 200%, a decision that proved highly rewarding. Nevertheless, we were fortunate to be able to sell a substantial portion of our investment near its peak,” says Tan.

EG Industries Bhd, which specialises in the provision of electronic manufacturing services for global electrical and electronic products, is another company that contributed to the outperformance of KAF’s award-winning funds.

It was a contrarian call, says Tan. “The company is a beneficiary of the ongoing trade diversification trend and has successfully expanded its customer base. As a result, its share price has appreciated significantly in tandem with its earnings growth since our initial investment.

“However, we believe the company remains on a robust growth trajectory and its current valuations have yet to fully reflect its long-term potential.”

All this is thanks to KAF’s investment strategy of always prioritising independent research to uncover promising opportunities in the market. The firm’s research integrates insights from microeconomic factors and broader macroeconomic trends, which allow fund managers to gain a comprehensive market perspective when making investment decisions.

Its investment philosophy, which is grounded in fundamental analysis and rigorous research, has also been instrumental in helping Tan and his team navigate periods of heightened volatility.

On asset allocation, they have maintained consistent communication with investors and adhered closely to the investment mandate for their funds.

“For instance, a pure equity fund should limit cash holdings to no more than 10% at any given time to ensure investors receive their intended exposure to the asset class. Furthermore, we find it to be extremely difficult to accurately time the market [through asset allocation] in a consistent manner,” says Tan.

As at end-January, KAF Core Income Fund, which yielded a cumulative return of 281.76% over 10 years, has the most exposure to the industrial product (25.83%) and energy (25.4%) sectors.

According to its fund fact sheet, its top holdings were Bumi Armada Bhd (9.4%), EG Industries Bhd (5.59%), Keyfield International Bhd (3.73%) and Genetec Technology Bhd (3.37%).

The KAF Vision Fund, which generated a cumulative return of 173.67% in the past decade, also has the highest exposure to the industrial (31.69%) and energy (23.42%) sectors.

As at end-January, its top five holdings were EG Industries Bhd (7.87%), Bumi Armada Bhd (6.62%), Genetec Technology Bhd (4.48%), HSS Engineers Bhd (4.26%) and Keyfield International Bhd (3.81%), according to its fund fact sheet.

As for the KAF Bond Fund, which garnered a cumulative return of 61.32% in the past decade, it invests mostly in corporate bonds (69.79%) and the rest in cash and other assets.

According to its fund fact sheet, it held a 29.68% interest in the money market as at end-January. Its top three holdings were bond papers issued by Tenaga Nasional Bhd (6.63%), Public Bank Bhd (6.07%) and YTL Power International Bhd (4.74%).

Reflecting on 2024, Tan says last year was a strong one for risky assets, with both the equity and fixed-income markets delivering solid returns despite persistent inflationary pressures and geopolitical uncertainties.

On the local front, fund managers that invested in Malaysian equities saw light at the end of the tunnel after years of disappointing performance.

Still, the journey ahead is going to be challenging, as Tan expects market volatility to remain elevated, especially for risk assets. It is driven mainly by significant policy shifts under the new US administration.

“The rapid pace of regulatory and fiscal changes underway underscores this uncertainty. While the US administration has outlined an ambitious policy agenda, however, the execution of these measures remains a key challenge. For example, President Trump suspended tariffs on low-value packages from China, which led to severe disruptions at US customs, causing backlogs at the airports.

“This demonstrated the complexities of passing sweeping policy changes, and we believe it would be premature to assume that all policies proposed [by Trump during his election campaign] will take effect as planned this year,” says Tan.

Policy uncertainties, which are hard to predict, will cause swings in the markets. But Tan sees this as a potential opportunity for long-term investors. It is bargain-hunting time for discerning investors who can spot undervalued good companies.

“Market dislocations may create attractive entry points, allowing investors to acquire high-quality companies at more favourable valuations, which could enhance long-term returns,” he says.

As in any volatile year, Tan and his team plan to stay true to the fund manager’s investment philosophy by focusing on their core strength of identifying high-quality stocks and investing in companies in which they have the highest conviction.

On the other hand, the firm’s fixed-income funds will focus on a conservative strategy to protect the portfolio from market volatility.

“We will look to maximise the fund’s bond coupon collection, hunt for opportunities to buy quality assets at attractive prices and manoeuvre the portfolio holdings to ride the waves in the bond yield curve,” says Tan.

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