Category Winner: Best Singapore Equity Fund - Singapore Dividend Equity Fund (S$ Class)
Inception Date: 1999-8-2
Total Net Assets (Mil) (2018-02-28): USD 117.32
Manager: Lai Yeu Huan, Kenneth Tang
M: Morningstar N: Nikko
M: Can you highlight any major changes you made to the portfolio over the course of 2017? Were there any particular holding(s) that drove the fund’s performance for the year?
N: At the start of 2017, we had anticipated a more favorable outlook for Singapore equities, driven by a reset of earnings expectations and low valuations, better-than-expected economic data, and an expectation of a turnaround in corporate earnings growth. As such, one of the key changes to our portfolio was the addition to our holdings in export-driven names, particularly in the technology sector. Through the year, the holdings have been a strong contributor to performance, despite the paucity of names available for selection.
Aside from the technology sector, our holdings in the Singapore banks also contributed strongly as the sector performed well amidst fading asset quality worries and expectations of higher interest rates. Our holdings in the real estate sector also performed well. Developer stocks rallied as residential sector activity picked up, particularly after a perceived loosening of property measures. REITs also had a good year as long bond yields remained benign and the growth environment began to improve.
M: What is your outlook for 2018 specific to the markets you cover, and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
N: We remain optimistic on Singapore equities in 2018, with the most recent consolidation in stock prices as being in line with our more moderate expectations for investment returns in 2018 following the strong performance in 2017. We remain positive on earnings expectations, and see potential for gradual upgrades, supported by the ongoing recovery in global economic activity and trade, coupled with firmer domestic demand.
As we enter a more mature phase of the economic and stock market recovery, we are convinced that there will be strong opportunities for bottom-up security selection, driven by wider bifurcation in returns between sector, stock and size factors. We favour cyclical industries such as technology, capital goods, real estate and selected commodity names. We are light in the domestic transportation and telecom sectors, which remain pressured by competition and business model disruption.
We also maintain our long-held conviction in companies which embody the New Singapore. These are companies that are reinventing their business models to succeed in the future economic landscape. We believe that these New Singapore companies will tend to be in industries like technology, healthcare, logistics, tourism and consumer services. Corporate restructuring will also continue to be a driver, in our opinion, as companies look to exploit inorganic opportunities to be further profit from the ongoing economic recovery.
M: Can you comment on the major risks facing financial markets, such as rising US rates and elevated asset prices? How do these risks affect your investment decisions?
N: At the current time, the key risk facing markets in our view is a rise in US interest rates beyond the gradual pace which has been anticipated, together with a disorderly rise in long bond yields. As a dividend-focused strategy, we need to pay particular attention to any high-dividend stocks in our holdings which are vulnerable to such a scenario. In general, we would favour stocks which feature healthy potential growth, in addition to offering an attractive dividend yield. For the time being, we will maintain a lower exposure to the Singapore REITs, focusing on a core position of names which are leveraged to the improving economic environment as well as our New Singapore focus.
M: How is your investment team organized? Have there been any changes to the investment team or structure over the past year? Do you anticipate adding to the team in the near future?
N: The Asian equity team continues to be helmed by Head of Equity Peter Sartori, who has over 27 years of investing experience. The team of portfolio managers and analysts has distinct roles and responsibilities. The portfolio managers are primarily concerned with picking stocks and managing the total risk of the portfolio whilst the analyst team has sector research responsibilities covering markets in the Asia ex Japan region and will present their best ideas to the portfolio managers for consideration.
The Singapore equity strategy is jointly managed by two senior portfolio managers, Kenneth Tang and Yeu Huan Lai, who share the responsibility of selecting and implementing stock ideas for all Singapore equity portfolios. They are supported by the team of Asia ex Japan analysts and the macro specialist for macro views. Together, they have a combined industry experience of over 40 years and have been managing equity portfolios over multiple market cycles.
The investment team and structure have remained broadly intact over the last one year. There are however, strategic plans currently underway to augment the Asian equity team’s coverage of China equity opportunities. This is in line with the firm’s strong view on the growing impact of China on Asia and the rest of the world. New resources are being added to the China equity team located in both Hong Kong and Shenzhen where the enlarged stock coverage and combined experience is expected to broaden the opportunity set for the Asia ex Japan equity strategies going forward.
Except for the above mentioned development, we do not foresee other changes in the near future.
M: Can you highlight any areas where you feel that the investment team or the investment process can be improved upon?
N: We believe that our investment process is currently stable and robust and do not anticipate any significant change in the foreseeable future. One shortfall of our process is that we place significant importance on proper company research before any stock can be included into our portfolios. Every potential idea must be thoroughly researched and debated before it is assigned a stock rating. This requirement for detailed research can sometimes mean that short-term opportunities must be sacrificed. As such, our library of researched companies can only be grown gradually. Research quality is preferred over quantity.
View all Morningstar Singapore Fund Awards 2018 articles here.