Best Singapore Equity Fund: Winner

We spoke to the winning managers and asked them about their strategies. Here is an edited excerpt:

Question: How was the portfolio positioned to navigate the coronavirus-driven market volatility in 2020? Were there any particular holding(s) or theme(s) that drove the fund’s performance for the year?

Answer: At the start of 2020, the portfolio was repositioned quickly to avoid sectors that would be negatively affected by COVID-19, including airlines, tourism, energy, and retail. It was also positioned in industries that would benefit from the pandemic environment, including data, logistics, and healthcare.

As the pandemic began to be brought under control, we added selectively to domestic industries that stood to gain from the relaxation of mobility restriction measures, including retail and domestic land transportation. At the end of 2020, when vaccine makers began to announce positive results in their clinical tests, we began to exit stocks of the beneficiaries of COVID-19 that had done well and add to quality names that would gain from the reopening of international travel.

Question: Against the backdrop of (i) the vaccine rollout, (ii) a new US administration, and (iii) ongoing monetary easing globally, what is your outlook for 2021, and how are you expressing these views in your portfolio?

Answer: We are positive on 2021. As the COVID-19 vaccination process progresses in the coming months across the world, we could see further relaxations in domestic social distancing restrictions, as well as travel restrictions to selective destinations.

We expect that Singapore’s economic growth in 2021 could be near the top of the government’s forecast of 4%-6%, with global manufacturing showing continued signs of strength, and the low base set in 2020. In line with the economic recovery, we expect corporate earnings to also show a sharp rebound in 2021. Against this backdrop, we believe that valuations have not fully discounted the economic and earnings recoveries in 2021.

Question: What are the top risk factors that could have an impact on your portfolio, and how are you positioned to mitigate these potential risks?

Answer: A key risk factor we are monitoring is the onset of inflation, which could drive bond yields and interest rates higher. This could have a negative impact on stocks that have performed well, especially where valuations have become stretched. REITs, which are trading at thin dividend yields that are not justified by strong growth prospects, may also underperform.

Our strategy in such an environment is to focus on stocks that deliver positive fundamental change and feature attractive and sustainable returns. We continue to advocate dividend investing, but we will prefer companies that are beneficiaries of a post-pandemic recovery.

We continue to favour "New Singapore" stocks in sectors such as healthcare, food, tech, data, and logistics, which represent the future economy of Singapore. Last, we like corporate restructuring candidates, where companies are looking to reorganise their businesses in order to be more relevant to the future economy.

Question: How is your investment team organised? 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?

Answer: Our Asia equity (ex Japan) investment team consists of 19 portfolio managers and analysts with an average 18 years of investment management experience. Responsibilities of the team members are organised by market and sector. As part of this broader investment team, the portfolio managers of the Nikko AM Singapore Dividend Equity team are supported by our team of sector analysts and a macro specialist covering regional markets including Singapore.

There have been no changes to the investment team or structure over the past year. No additions are anticipated in the near future.

Question: Where do you feel that the investment team or the investment process can be improved upon in the future?

Answer: Over the past 18 months, we have done significant work to further focus our investment process and bottom-up stock research on positive fundamental change and attractive sustainable returns. Important enhancements were also made in the way ESG is integrated into our fundamental research. Last, we improved the tech infrastructure supporting our investment process.

In the near future, we will continue to refine these enhancements, with an aim to drive further consistency in our fundamental research across the team and enable stronger collaboration and sharing between team members.