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Idea of the Week: Introduction to A Brand New Local Islamic Small Cap Fund [16 June 2017] June 16, 2017
In this article, we will discuss the features and investment strategy of Eastspring Investment Islamic Small Cap Fund.
Author : Jerry Lee Chee Yeong


Idea of the Week: Introduction to A Brand New Local Islamic Small Cap Fund [16 June 2017]

For investors who have invested into unit trust funds in the past few years, Eastspring Investment Berhad should be no stranger to investors. They have a few funds that are well known for its decent past performance such as Eastspring Investment Small Cap Fund and Eastspring Investment Dana Al-Ilham (see table 1). However, Eastspring Investment Small Cap Fund has soft-closed in mid-April as the fund was approaching the optimal asset threshold for the Manager to manage. Coincidentally, the launch of Eastspring Investment Islamic Small Cap Fund would be able to cater investors’ demand for local fund small cap fund. Therefore, in this article, we will discuss the features and investment strategy of this fund.

Table 1: Fund Performance (cumulative return)

Fund
1-Yr (%)
2-Yr (%)
3-Yr (%)
5-Yr (%)
10-Yr (%)
Eastspring Investment Small Cap Fund
14.72
29.02
41.33
210.34
264.45
Eastspring Investment Dana Al-Ilham
5.01
5.00
10.35
64.31
134.28

Source: Bloomberg, iFAST compilations. Data as of end-May 2017. Returns in MYR terms with any income or distribution reinvested.

Fund info & Investment Strategy

Eastspring Investment Islamic Small Cap Fund is a Shariah-compliant local equity fund that was recently launched on 25th May 2017. The fund charges a relatively fair management fees (1.5%) as compared to the peers within the same segment. The fund aims to provide capital appreciation by investing in Shariah-compliant equities and equity-related securities of small-cap companies listed in Malaysia with market capitalisation up to RM5 billion. On the investment strategy front, the fund manager will adopt a systematic fundamental research and valuation driven approach to select stocks. On top of that, the fund manager will also take into account the quality of management, strength of business model, industry dynamics, profitability and sustainability of earnings during the stock picking process.

Table 2: Fund's info

Eastspring Investment Islamic Small Cap Fund
Management Fees
1.5%
FSM’s Discounted Initial Sales Charge
1.75%
Minimum Initial investment
RM 1000
Minimum Subsequent Investment
RM 100

Source: Bloomberg, iFAST compilations. Data as of end-May 2017.

Experienced Investment Team with Proven Track Record

As per discussion with the fund house, the new fund will be managed by the award-winning investment team who are experienced in managing Islamic fund as well as small cap funds - Eastspring Investment Small Cap Fund and Eastspring Investment Dana Al-Ilham. The team has illustrated their outstanding ability in stock picking which can be observed from the decent performance of Eastspring Investment Small Cap Fund – outperformed benchmark and peers consistently for the last five years (see figure 1). Hence, following the soft-closure of their conventional small cap fund, Eastspring Investment Islamic Small Cap Fund would be a good alternative for investors to leverage on the expertise of the investment team as they are adopting the investment strategy that akin to their conventional small cap fund.

FIGURE 1: Funds' Performance

Investment Universe

One of the investors’ concerns when investing into the local Shariah-compliant small cap fund is on the pool of stocks that are available for the Manager to invest as majority of the investors might have the misperception of limited selection for Shariah-compliant stock. However, if we look into the stocks listed on Bursa Malaysia, there are 676 out of 927 stocks traded on local bourse are Shariah-compliant, which account for about 73% of total stock listed on local exchange. Hence, the fund manager believes that the pool of local Shariah-compliant stocks is sufficient for him to exploit the market inefficiency in order to generate additional alpha.

Fund Manager’s View on Small Cap Segment

The fund manager believe that Malaysia equities are now back in the limelight as shown by the strong economic growth in the first quarter of 2017. In fact, he is favoring in the small cap segment as it has illustrated its ability to outperform the large-cap stocks over the past 10 years (see figure 2). Moreover, with the latest initiatives introduced by our government – small and mid-cap public listed company research scheme as well as the government linked investment companies (GLICs) RM3 billion special fund, the fund manager believes that there would be more opportunities for growth in the local small cap space.

FIGURE 2: Small Cap vs Large Cap Index Performance

Conclusion

All in all, Eastspring Investment Islamic Small Cap Fund provides a gateway for investors to gain access to the local Shariah-compliant small cap segment. On top of that, after the soft closing of Eastspring Investment Small Cap Fund, for investors who wish to leverage on the expertise and skill of the investment team, they can look into this fund as they are manage by the same investment team with similar investment strategy.


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