Areca Capital on six-year winning streak

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

Areca Capital Sdn Bhd bagged four awards at the Refinitiv Lipper Fund Awards 2023. This is the sixth year in a row that the fund house has walked away with the Best Equity Malaysia awards in the five- and 10-year categories. It also won the Best Equity Malaysia Income awards in the three- and five-year categories.

Its CEO Danny Wong attributes the win to the firm’s active investment strategy. Depending on market conditions, Wong and his team identify the appropriate level of equity and cash in their portfolios, which enables them to manage risk better and actively bargain hunt when prices are down.

It is also about discipline, he adds.

“We saw how unpredictable events and geopolitical developments wreaked havoc on the market in 2022. But the swings in sentiment meant that there would be discrepancies between the price of financial assets being traded and their intrinsic or fair value. That created opportunities that long-term investors can take advantage of.”

The shorter market cycle could be due to the abundance of liquidity in the market, despite interest rates rising recently. It has accumulated over many years of monetary easing by central banks globally. This is something we have to continue to live with.” > Wong

Guided by Areca’s disciplined investment approach. Wong and his team held on to a relatively high level of cash last year, gradually deploying the money over time. Among them is a banking counter that emerged as a sector outperformer when the year ended.

“We learnt that cash is king, especially during times of drastic market selldowns. But this is only one part of the story. The cash has to be deployed wisely, which was what we did.

“One of the better calls we made last year was on one of the banking names. We managed to buy it when market sentiment was very negative and held on to it until our investment thesis came to fruition.”

But the process wasn’t without its challenges, especially when markets were volatile and unpredictable. While Wong and his team communicated with their client to stay invested and not panic, they still had to make sure the firm had sufficient cash to meet clients’ withdrawals when they occurred. Even when there are opportunities in the market, sometimes they can’t act quickly on them.

“There were times when we had to prioritise liquidity and risk management on behalf of our investors’ interests, especially during the middle of the year. However, as uncertainties dissipated, we quickly deployed more funds into our preferred stocks and sectors,” says Wong.

In 2023, Wong and his team will continue to remain agile and invest flexibly. Asset allocation continues to be key.

“In short, we will continue to apply the same investing formula that has proven to work well over the past 1½ decades. We have gone through numerous market turbulences and crises. Each time, we emerge stronger.”

Agility and flexibility are important as market cycles are becoming shorter. Those who are unprepared may be caught by surprise and struggle to recover from their losses.

“The shorter market cycle could be due to the abundance of liquidity in the market, despite interest rates rising recently. It has accumulated over many years of monetary easing by central banks globally. This is something we have to continue to live with,” he says.

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