CEO Morning Brief

UOB Asset Management Takes Home a Group Award, Three Fund Awards

Publish date: Tue, 28 Mar 2023, 09:00 AM
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TheEdge CEO Morning Brief

This article first appeared in The Edge Malaysia Weekly on March 27, 2023 - April 2, 2023

Among sectors, we have added to our positions in technology [recently], as there are signs of the industry bottoming in the coming quarters and potentially lesser valuation headwinds from rising interest rates compared to 2022.” - Lim

In a challenging year of tight monetary policies and high inflation, UOB Asset Management (M) Bhd (UOBAM) clinched the Best Mixed Assets Group (Malaysia) award and three fund awards at the Refinitiv Lipper Fund Awards 2023.

Its United ASEAN Discovery Fund (UADF) won the Best Equity ASEAN (Malaysia) award in the five-year category and the United Bond & Equity Strategic Trust Fund (UBEST) bagged the Best Mixed Asset MYR Balanced — Global (Malaysia) in the three- and five-year categories.

CEO Lim Suet Ling says the fund house’s security selection has been a significant contributor to outperformance and was a key factor in the performance of the funds.

“As tough as 2022 was, we recognise that ‘this too shall pass’ and invest with the long-term view in mind. Market weakness can present investment opportunities to the vigilant investor. Our medium-to-long-term track record for the fund demonstrates that we can deliver consistent outperformance over different market conditions and economic cycles.

“We employ a rigorous and disciplined investment research process to identify and invest in quality businesses at the right price to deliver superior and consistent long-term investment performance to investors,” she says.

The market situation was incredibly challenging for UADF, an equity fund with an absolute return benchmark, says Lim.

This was because 2022 was a challenging year for equities as their performance was sapped by tightening monetary policy to deal with high inflation. “As a result, while Asean markets fared relatively better compared to markets in North Asia, most still had negative returns.

“We invest the fund with a long-term view and recognise that some years will be better than others. Despite the market downturn in 2022, the fund can still deliver more than 8% annualised return since inception.”

Managing the UBEST Fund, a mixed assets fund, was also beset with difficulties following negative returns for both equity and fixed income last year, she says.

“Based on US data since 1928, this was only the fourth occasion where equity and fixed income declined in the calendar year. The negative performance was due to high inflation and tightening monetary policy to deal with it.

“Regarding asset allocation, we were underweighting both equities and fixed income, and overweighting cash. It helped the portfolio navigate tough market conditions in 2022.

“However, rising rates presented headwinds to equity valuations and the impact is severe for sectors with above-average valuations, such as technology. As a result, we reduced our position in higher-valuation sectors, such as technology, in 2022.

“For the fixed income portion of the portfolio, our strategy to have a shorter duration than the benchmark helped mitigate the headwinds in a rising yield environment,” says Lim.

Using AI to screen small and mid-cap stocks

Lim says local presence is crucial for the firm to select and invest in small- and mid-cap companies, especially in managing UADF. The deployment of artificial intelligence (AI) solutions also helped the firm pick some winners among the smaller companies that contributed to the fund’s outperformance.

“For small- to mid-cap investments, local presence is crucial, given that it typically requires more intense due diligence and local knowledge. Our research focuses on identifying companies that have been largely undiscovered by the market or are significantly mispriced.

“Besides fundamental analysis, artificial intelligence (AI) also augments the stock selection process.”

The firm has deployed AI for security screening since 2020, says Lim. It has helped the firm be more efficient and also reduce their bias and blind spots. “The output from the model is combined with the fundamental view by analysts to shortlist securities for inclusion into portfolios.

“We’re one of the first to introduce a robo-advisory service for corporate investors that helps to automate clients’ investments in terms of rebalancing, reallocation and managing clients’ funds by reducing blind spots and biases.

“In addition, AI helps to optimise and enhance UOBAM’s ability to incorporate our team’s fundamental views towards the ever-moving market uncertainties,” she adds.

As for UBEST, the firm decided to increase its weightage in the Asean markets and underweight in China and Hong Kong.

“We were positive about Asean for its more defensive qualities and reopening prospects in 2022. Meanwhile, China was affected by regulatory risks, the zero-Covid-19 policy and challenges in the real estate sector. Such a decision contributed to the fund’s relative performance as Asean markets fared better than China in 2022,” says Lim.

The firm maintained a high cash position last year as a defensive measure in weak market conditions and reduced their exposure to equities and fixed income instruments.

Increasing its position in the tech space

But after a sharp tightening of monetary policy through 2022, the hiking cycle is getting closer to an end across emerging and developed markets.

“Some light emerges [this year] as policy tightening could end by mid-2023, although slowing global growth remains a headwind. Moreover, the reopening of China is expected to be positive for the sentiment of Asian markets, including Asean.

“Among sectors, we have added to our positions in technology [recently], as there are signs of the industry bottoming in the coming quarters and potentially lesser valuation headwinds from rising interest rates compared to 2022,” says Lim.

On the fixed-income side, Lim favours investment-grade bonds over high-yield bonds.

“For the funds’ fixed-income positioning, we are neutral. We expect the US Federal Reserve to continue to lift the fed funds rate to above 5% and hold the rate stable through 2023.

“We favour investment-grade over high-yield [bonds] for credits, given the risk of a recession in the US. Additionally, given the current attractive yield for investment-grade securities, there is little need to move down the credit curve to achieve a decent return.

“As the markets may shift their focus from inflation and monetary policy to growth, our base case is a soft landing in the US, which would be an acceptable outcome for markets,” she says.

The firm also plans to further digitalise its investment and its core-ranging marketing strategies.

“For example, we had to automate prompts to enable clients to push and give the right product at the right time. Imagine having a digitalised fund manager who can recommend you purchase, sell, or switch your investment,” she says.

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Source: TheEdge - 28 Mar 2023

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