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Top and Bottom Equity Funds 1H2017: Malaysia Small Cap's Dominance! July 12, 2017
Given the decent market performance thus far, equity funds on our platform have posted generous returns to investors. In this article, we look into some of the contributing factors to the top and bottom performing equity funds over 1H2017.
Author : Tan Wei Yine


 Top and Bottom Equity Funds 1H2017: Malaysia Small Cap's Dominance!

Market Performance in 1H 2017

As the calendar flips through the second quarter of 2017, global equities have continued to tread higher on the back of strong corporate earnings and positive economic data. The MSCI AC World Index have delivered a return of 1.4% in 2Q2017, bringing its year-to-date return to 7.1%. European equities led the developed market pack as political risk subsides, underscored by positive economic data and improved corporate earnings. Emerging economies, particularly within Asia region continues to outshine their developed market counterparts while lending supports from global economic recovery, with exceptions to oil-strangled Russia and politically-troubled (yet again) Brazil ended up as bottom performing equity markets.

Chart 1: Performance of global equities over 1H2017.

Overall Fund Returns in 1H 2017

As of 30th June 2017, there are 236 equity funds on our platform, with 229 funds having posted returns over 1H2017. Investors who rode along with our overweight call on equities would likely have enjoyed decent returns thus far, as global equity markets continue to perform positively amidst a global economic recovery backdrop. 223 (97.4%) of the equity funds on our platform posted positive returns; with only 6 (2.6%) of the funds finished the first half of the year in red. On average, these equity funds have delivered a 10.4% gain over 1H2017.

[All stated returns are total returns including dividends and in MYR terms unless otherwise stated]

Chart 2: 1H2017 returns distribution for equity funds.

Top Performing Equity Funds

Table 1: Top 10 Performing Equity Funds

Ranking
Fund Name
Category
1H17 return (%)
2Q17 Return (%)
1 InterPac Dana Safi
Malaysia-General
46.2
25.8
2 InterPac Dynamic Equity Fund
Malaysia-General
41.9
22.1
3 KAF Tactical Fund
Malaysia-General
25.9
8.4
4 PMB Shariah Aggressive Fund
Malaysia-General
25.5
12.3
5 MIDF Amanah Strategic Fund
Malaysia-Small to Medium Companies
22.9
7.4
6 BIMB I Growth
Malaysia-General
22.4
8.6
7 PMB Shariah Growth Fund
Malaysia-General
22.3
6.7
8 RHB Small Cap Opportunity Unit Trust
Malaysia-Small to Medium Companies
21.7
5.3
9 Manulife Dragon Growth Fund - MYR Hedged Class
Greater China-General
21.3
9.3
10 Templeton Asian Smaller Companies Fund - Class A (MYR)
Asia excluding Japan-Small to Medium Companies
20.5
4.9

Source: Bloomberg, iFAST Compilations. Data as of 30 June 2017. Returns in MYR terms with any income or distribution reinvested.

Malaysian Small Cap Tops the Board

Back in 1Q2017, we mentioned that a moderation in downward earnings revision for local equities and decent corporate results have formulated a decent performance for the Malaysian small-cap segment. Moving into 2Q2017, the domestic economy growth recovery picture remains intact, in view of the fact that external trade data continues to strengthen and Business Condition Index continues to trend higher. As a result, we saw some of the Malaysian equity funds, especially those within the small-cap segment delivering generous returns for investors. The top performing Interpac funds even delivered returns exceeding 20% in 2Q2017 alone.

Chart 3: Robust exports growth on the domestic front.
Chart 4: Uptick in Business Condition Index portrays corporate confidence.

Once again, given the stellar performance of these small-cap funds, we would like to advocate investors to be mindful of their supplementary portfolio exposure as we continue to see strong investors interest in these top performing small-cap funds. While we opine that the Malaysian equity space remains a bright spot for domestic investors, investors should be aware of the risk of being overly concentrated on home country investments.

See: Is Malaysia Still A Good Buy?

Asian Equities Reign Global Markets

With Asia ex-Japan equities reigning top markets, it is unsurprising to see funds such as Manulife Dragon Growth Fund and Templeton Asian Smaller Companies fund making their way into the top performing list. This justifies our bullish call on the region back in October 2016. Asian equities have rallied on the back of upward revision in corporate earnings, where analysts see better earnings prospect for Asian corporates on the back of global economic recovery.

South Korea and India equities, which are amongst the top performing equity markets over 1H2017, have contributed to the decent return of Templeton Asian Smaller Companies Fund, which has more than 45% allocation towards the aforementioned nations. Besides that, Manulife Dragon Growth Fund, which has more than 25% allocation towards Technology sector, has benefitted from the Asian tech-rally in 2017 thus far, clocking 21.3% gains over 1H2017.

Read now: Top Markets 1H 2017

Chart 5: Earnings revision for MSCI Asia ex-Japan Index remains healthy.
Chart 6: Asian tech stocks rally year-to-date.

Bottom Performing Equity Funds

Table 2: Bottom 10 Performing Equity Funds

Ranking
Fund Name
Category
1H17 return (%)
2Q2017 return (%)
214 Pacific Global Stars Fund
Global-General
1.0
-1.0
215 Eastspring Investments Japan Dynamic MY Fund - USD Hedged
Japan-General
0.8
2.7
216 RHB Global Fortune Fund
Global-General
0.7
-0.7
217 AmGlobal Agribusiness
Global-Agribusiness
0.5
-0.7
218 Precious Metal Securities
Global-Gold & Minerals
-1.0
-4.1
219 RHB Gold and General Fund
Global-Gold & Minerals
-1.3
-5.8
220 RHB Retirement Series - Islamic Equity Fund
Malaysia-General
-1.7
-1.2
221 AmOasis Global Islamic Equity
Global-General
-1.8
-3.9
222 Commodities Equity
Global-Resources
-8.1
-5.7
223 Manulife Global Resources Fund
Global-Resources
-9.7
-7.8

Source: Source: Bloomberg, iFAST Compilations. Data as of 30 June 2017. Returns in MYR terms with any income or distribution reinvested.

Resources Equities Dragged by Oil Performance

Despite OPEC’s agreement to extend their supply-cut deal, oil price uncertainties are still stemming from US shale production as shale producers continue to fill up the supply gap which OPEC production cut creates. To make the matter worse, OPEC nations that are not part of the supply-cut deal such as Libya and Nigeria have reported higher oil production, hampering efforts of committing OPEC members. The scenario has exerted downward pressure on oil-related equities, which further translates to a lower performance for resources equity funds that are exposed to the oil and gas sector.

Chart 7: Upward trajectory of US oil inventories continues to weigh upon oil price.

Greenback Denominated Assets Suffered from Ringgit’s Strength

Apart from resources equity funds, investors might have noted that some of the global funds such as Pacific Global Stars Fund, RHB Global Fortune Fund and AmOasis Global Islamic Equity Fund were among the bottom performers. To our findings, we believe these funds which have more than half of their assets in US equities, which are denominated in the US dollar may have suffered from the strength of the Ringgit.

Chart 8: Year-to-date Ringgit's strength against USD and JPY.

Conclusion:

At this juncture, Asia ex-Japan equities remain as our favoured region as valuations remains to be supported by robust earnings growth against a backdrop of global economic recovery. Having delivered strong returns, we have revised our star ratings on some key Asian markets lower to reflect the gains in equity prices. In conjunction to that, we have also adjusted our overweight call on equities vis-à-vis bonds to reflect equity markets’ strong returns, higher valuations as well as lower estimated potential returns moving forward.

See: Adjustments to Our Asset Allocation

While equity markets’ upbeat performance may continue to buoy investors sentiment, we continue advocate investors to stay diversified geographically for their portfolios, and opine that one should not entirely leave out developed market equities exposure (such as US, Europe) for the aforementioned purpose. On a side note, fixed income segment should stay relevant to an investor’s portfolio, and should be seen as a portfolio stabilizer. We prefer the safer segments of fixed income such as short duration bonds over high yield and emerging market debt due to the risk of rising risk-free rates which have sent yields rising for credit spread related instruments.

For investors who are looking to invests in unit trust funds, you may refer to our recently released Recommended Fund 2017/18. (Grab this exciting opportunity to grow your portfolio!)

See: Why You Should Consider FSM Managed Portfolio?


This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus, product highlight sheet (PHS), and if necessary, consulting with financial or other professional advisers. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Amongst others, investors should consider the fees and charges involved. The relevant prospectuses have been registered and lodged with the Securities Commission. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors should be highlighted of the fact that the value of their investment will remain unchanged after the distribution of the additional units. All applications for unit trusts must be made on the application form accompanying the prospectus. The prospectuses and PHS can be obtained from Fundsupermart.com. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.