KUALA LUMPUR: Institutional fund managers must review their investment strategies, look at fixed income and low risk options such as fixed deposits, treasury bond or sukuk amid current volatilities in both overseas and local stock markets.
Economists said fund managers should not sell-off their stocks in local equity market, although most counters had been depreciating due to Covid-19 pandemic and plunging oil prices.
Sunway University Business School economics professor Dr Yeah Kim Leng said fund managers should adopt ‘averaging down’ investment strategy to reduce losses, accumulate good quality stocks whose prices have fallen below their net asset value and position strategically for a market recovery.
“Institutional funds that have overweighted equities will be taking a big hit, albeit paper losses, from the current market rout. Even then, balanced portfolios will also experience declining market value due to the sharp drop in equity prices,” he told the New Straits Times (NST).
Yeah said pension and savings fund managers that continue to receive contributions could reshuffle their portfolio by investing the new monies in safer assets such as fixed income securities.
“Depending on how uncertain and volatile the equity market will continue to be, the fund managers could also increase cash holdings. They could afford to pick stocks and time the purchases to maximise returns upon recovery of the economy and stock market,” he added.
Yeah said the sharp equity market decline may require a repositioning of asset allocation strategies to minimise losses and accelerate recovery when the market turns around.
“In their overseas portfolio allocations, they could adopt market and sector-shifting strategies to leverage on the different timing, impact and speed of recovery in the various developed markets and sectors,” he said.
Asked on whether institutional funds should impose stricter rules in investing in equity market, Yeah said it is best left to professionals to navigate the markets they know best.
“Any rules or restrictions could interfere with their ability to deliver the performance targets they are accountable for.”
Yeah said capital preservation should be the base case expectations for investors and contributors, citing that any dividend will therefore be a bonus in a still evolving global crisis.
“It will also be a testimony to the talents and agility of the fund managers who can generate positive returns,” he said, adding that economic downturn caused by the pandemic appears unavoidable.
Further, he said there were hopeful signs that the downturn could be confined to one or two quarters, depending on how the virus can be contained successfully in Malaysia.
“The economic impact is also being mitigated by the combined monetary and fiscal stimulus measures mounted in the affected countries, including Malaysia,” he said.
Putra Business School business development manager Associate Professor Dr Ahmed Razman Abdul Latiff said higher concentration of institutional funds’ investments in the local market is important to support the growth of domestic economy.
“Diversification in their investment should be vital for them (fund managers) at this present time. The best form of investment would be in fixed income and low risk such as fixed deposits, treasury bond or sukuk,” he told NST.
He also said this is the right time for investors to start buying some of the equities that have been battered in stock exchange but still strong fundamentally in term of financial performance and sustainability.
“There is always an opportunity for investment when the market is bearish for a long term investment strategy. Any market will eventually bounced upwards after the crisis is over and as long as these investment funds have enough fund to buy these equities for long term return,” he said.
He reckoned that institutional funds will give lower dividend for 2020 due to the current crisis and it will be probably lower than the previous dividend announcement for 2019.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said institutional investors were sophisticated investors with measures to limit their potential losses are all in place.
“Their risk management are there to monitor their daily position and make necessary recommendation to the investment committee for decision making,” he told NST.
He said the public should not be worried on their (fund managers’) ability to weather the current investment climate.
“The current market condition has provide the right entry points especially stocks that have value. Given that these institutional investors are long term in nature, the short term gyration would affect their investment decision,” he added.
Afzanizam said fund managers’ asset mix that comprise the low risk assets such as money markets and fixed income instrument would give them certainty in terms of income stream at a time when risky assets are extremely volatile.
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