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

Principal Asset Management Bhd outperformed its previous record at the LSEG Lipper Fund Awards 2025, winning nine awards including one for Best Islamic Mixed Assets Group. This is the highest number of awards that the asset management firm has clinched in the last five years, since its ownership was realigned and the firm was renamed in 2019.

Several of its funds, such as the Principal Asia Titans Fund and the Principal Global Titans Fund, are repeat winners, having been recognised in the same categories consecutively in the last few years.

Lee Chun Hong, chief investment officer of Principal for Malaysian equities, says its best investment strategy last year was adopting a constructive approach to sectors that stood to gain from the National Energy Transition Roadmap, including utilities, construction and property.

“There was also optimism about financial and consumer names, driven by strong investment momentum in Malaysia, as well as oil and gas services,” says Lee.

Companies that benefit from a stronger ringgit were also favoured, including the technology counters. But the firm is more selective in this space.

The rollout of an expansionary budget by the Malaysian government, alongside other key economic growth initiatives, such as the New Industrial Master Plan 2030 and National Semiconductor Strategy, boosted domestic investor sentiment, he adds.

Christopher Leow, CEO and CIO of Principal Asset Management Singapore, says 2024 was quite favourable for regional and global equity investors, primarily driven by the artificial intelligence (AI) hype.

As 2024 progressed, Leow and his team continued to see positive data coming out of the US. Its corporate earnings and labour market were resilient while the US Federal Reserve’s indication of a pivot to an easing cycle also supported sentiment in the fixed income market.

The Chinese government’s announcement of policy measures to boost its economy had lifted consumer confidence, which had a positive impact on its markets, he adds.

Asset allocation-wise, Lee and Leow point out that the firm avoids making major changes as it looks at the long term and focuses on absolute return.

“We avoid making high frequency changes unless there are better opportunities on a structural basis or it is to reduce the risk of the portfolio. Cash levels were kept to a minimum as we believe we can generate superior returns in other asset classes,” says Lee.

Two of Principal’s equity funds bagged two awards each, representing the Malaysian and regional equity markets.

The Principal Islamic Enhanced Opportunities Fund, which won two awards in the Equity Malaysia awards category, had its top sector allocation in industrials (22.26%), followed by information technology (10.41%), according to its latest fund fact sheet in January.

The top holdings in the fund include Tenaga Nasional Bhd (7.59%), Gamuda Bhd (4.59%) and Sunway Bhd (3.59%).

The Principal Asia Titans Fund, which also won two awards in the Asia-Pacific ex-Japan category, invested mostly in the information technology (23.28%), consumer discretionary (15.45%) and financials (14.28%) sectors.

Its top holdings were Taiwan Semiconductor Manufacturing (9.98%), Tencent Holdings Ltd (6.67%) and Alibaba Group Holding Ltd (3.1%).

Principal is known not only for its equity funds. In fact, it won the group award for mixed assets this year and its Principal Lifetime Balanced Fund clinched the Best Mixed Asset MYR Balanced — Malaysia (Provident) award.

This success was attributed to its dynamic asset allocation and bottom-up stock-picking approach that focuses on securities that demonstrate strong fundamentals and resilient earnings, says Lee.

On the fixed income side, he says the team’s emphasis on investment-grade corporate credit over government securities has been pivotal. “We maintain a bias towards the medium yield curve and prioritise primary issuances, which have consistently delivered positive alpha.”

Lee also attributes the firm’s win to its investment philosophy, which focuses on the early identification of fundamental changes. This drives the team to conduct primary research, think independently and position the firm’s investments ahead of the market.

This philosophy, Lee believes, allows its funds to deliver consistent, low-risk and high-return performance. “The analysis of a company’s forecasted free cash flow yield over the longer term is a key metric [when we look at investing in a company],” he says.

Looking ahead, fund managers might find it tougher to navigate the markets in 2025 due to trade disputes and their subsequent inflationary effects, geopolitical tensions and disruptions in the AI boom. These shifting policy landscapes and evolving market conditions call for active and diversified portfolio construction, says Leow.

Nevertheless, Leow and his team have a constructive view on Asian equities as they see the Chinese economy stabilising, coupled with early signs of improving private sector confidence in the country.

“We see valuations [of the Chinese market] as undemanding. We like companies with a clear path to growth, strong cash flows and those with clear shareholder return policies,” says Leow.

Overall, he favours technology stocks, including beneficiaries of AI investments and Chinese domestic consumer and cyclical stocks that appear deeply discounted.

Leow also likes industrial names with exposure to infrastructure, strong consumer and banking franchises in Southeast Asia and Indian companies with reasonable earnings expectations.

For the Principal Global Titans Fund, Leows says the team will continue to maintain a well-diversified portfolio amid heightened policy uncertainty.

“While we continue to hold an overweight position in US equities and an underweight position in Europe, we have moderated the magnitude of these positions relative to our benchmark.

“Uncertainty around US policies, particularly regarding tariffs, immigration, tax cuts and deregulation, could impact inflation dynamics and the fiscal deficit,” he says.

Leow says the economic challenges persist in Europe but its relatively low-tech sector weight, moderately positive earnings forecasts and attractive valuations present a case for diversification into the region.

He adds that the team has a neutral position on Japan. Its strong economic growth and persistent inflation should support the Bank of Japan’s ongoing interest rate hikes, which would result in the appreciation of the Japanese yen and temporarily weigh on Japanese equities.

“Additionally, we have increased allocation to assets outside the US, Europe and Japan, including gold exchange-traded funds and select Asian and Chinese stocks to further enhance portfolio resilience,” he says.

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