Managing risk and emerging stronger

After taking home three Asia Asset Management (AAM) Best of the Best Awards last year, AmInvest, the brand name of the fund management business of AmFunds Management Berhad and AmIslamic Funds Management Sdn Bhd, emerges even stronger this year. The firm won four country awards in AAM’s 2022 Malaysia awards: Best Bond Manager, Best Sukuk Manager, Best Pension Fund Manager and Best ESG Engagement Initiative.

Bond dominance

AmInvest’s strength in the fixed income space has been widely recognised by the industry for many years. Over the last three years, the actively managed AmDynamic Bond has registered an annualised total return of 4.5%, exceeding the total annualised returns of its benchmark of 4.3% as at March 31, 2022.

The AmIncome Focus is one of the many AmInvest bond funds that has outperformed its benchmark, recording a 1-year return of 12.7%, while its benchmark of 70% Thompson Reuters Bond Pricing Agency Malaysia Corporates (3-7 years) All Bond Index and 30% Malaysian Banking overnight rate gained 1.8% during the same period. Over a 3-year period, the fund recorded an annualised return of 7.7% a year, against the benchmark’s annualised return of 3.3%.

Behind the success of AmInvest’s bond and sukuk funds is a team of dedicated investment experts led by AmFunds Management’s Chief Investment Officer, Wong Yew Joe. Wong says the biggest challenge for his bond investment team in 2021 was managing the portfolio risk as yields had risen quickly in the bond markets, especially in the first quarter. 

“Malaysian government bond yields rose by up to 100 basis points in 2021.This rising yield environment had a direct adverse impact on bonds. We had to trim down portfolio duration quickly and switch our exposure from government bonds to more corporate bonds,” Wong explains, adding that the company raised and maintained adequate liquidity in its unit trust funds, as it anticipated more market volatility and potential fund redemptions. 

“The key strategy was to stay defensive, but invested enough to generate income. We also diversified our portfolio into more local and regional corporate bonds. The lower trading volume in the market last year resulted in less trading opportunities, hence our focus was on generating income from bond coupons,” Wong said.

Commitment to ESG

For AmInvest, ESG is an important part of its operations and investment process. In 2021, AmInvest became a signatory to the Malaysian Code for Institutional Investors (MCII), launched by the Securities Commission Malaysia on April 1, 2021. AmInvest has also been a member of the Institutional Investors Council Malaysia since December 2021 in a bid to promote better corporate governance and global awareness of environmental change and social equality. 

“Consistent with the objectives of MCII, we perform ESG assessments on all investee companies. We find this is pertinent to align our funds with clients’ and investors’ needs as we have observed a wave of new demand for ESG-centric investments over the past few years,” says AmFund Management’s Chief Executive Officer, Goh Wee Peng.

To tap into the rising demand for ESG-related investment products, AmInvest launched two ESG-themed funds in 2021, and another during the first quarter of 2022. 

“We recognise the need to continue enhancing our ESG assessment capability in our investment decision-making process. We are also introducing more ESG-centric investment funds this year and have introduced three ‘Sustainable Series’ funds, which include funds that invest into companies that have a positive change impact on climate technology and the nutrition value chain in line with industry trends and growing investor interest,” she adds.

Investment outlook

With the US and other developed markets’ interest rates set to increase this year, and ongoing geopolitical tensions including the Russian invasion of Ukraine, the investment climate is likely to remain volatile. 

In Malaysia, Wong says that the central bank is expected increase the overnight policy rate by 25 to 50 basis points this year. 

“In the current environment, we expect adequate credit spreads from the corporate bonds will enable them to outperform government securities. In general, we are likely to maintain our strategy around a belly duration and more corporate bonds,” Wong says. 

“Despite an expected year of volatility, risky assets like equities may have better upside after the dust settles compared to lower-risk assets such as bonds. In the meantime, trading positions in commodities may present a window of opportunities for excess returns.”