In our quarterly Fund Discovery Series, we discuss current market conditions and offer suggestions and strategies to diversify your portfolio.
Listen and subscribe to the podcast version by RHB Bank’s Head of Investors Advisory Nova Lui here to stay updated on the latest market developments.
Happy new year! Before we plan our steps for Q1, let’s have a quick recap of what happened in the global market in Q4 2023.
The continued instability in China and geopolitical tensions in the Middle East placed pressure on global economic growth. The fourth quarter of 2023 started off on a slow burn, with mixed view on the Fed’s monetary policy stance. However, soon after the expectations of a peak in the rate hike and market starts to price in prospect of multiple rate cuts in 2024, asset and portfolio values rose, closing most market higher with exception of the Chinese equity market.
Most developed markets ended the last quarter of 2023 on a positive note. For example NASDAQ closed the year up 40%, followed by the S&P500 (26%) and EURO STOXX 50 (21%). The Chinese equity market disappointed investors, with the HSCEI down 11%, while the FTSE China A50 dropped 9%.
The ringgit’s persistent weakness against the US dollar throughout the year led to the influx of US dollar denominated funds. This migration was also reflected in Malaysian equities, which saw the most significant outflow among equity funds in 2023. This was not unique to Malaysian equities, however, as there was also considerable outflow across global equities, information technology, absolute return, and Asia Pacific ex-Japan strategies. The outflow effect spilled over into other equity-related funds focusing on Japan, Singapore, India, and the ASEAN region.
Within the fixed income sector, global fixed income funds gained an edge over those specific to Malaysia and the Asia Pacific region. Worries in the Chinese equity market continuing into Q4 where there has been 2 quarters of outflow from Chinese equity funds.
To kick off 2024, we see fixed income having a slight edge over equity. Fixed income’s yield is at a multi-year high and is also the most direct beneficiary asset from interest rate cut. Notably, the NASDAQ exhibited a substantial increase of 45% throughout 2023, and this positive momentum in the US equity market, particularly in the technology and AI sector may potentially continue into the beginning of 2024.
Anticipating three rate cuts by the Federal Reserve in 2024, the markets have speculated on a more aggressive count of up to six cuts. This expectation aligns with the perception that accommodative monetary policies tend to have a favourable impact on risky assets. However, investors should maintain a diversified portfolio and accumulate when there is a pullback in the equity market.
With that in mind, these are our picks for Q1 2024.
The TA Global Technology Fund, established in 2011, is managed by Janus Henderson Investors. Since inception, the fund has yielded impressive total returns of close to 400%.
The fund’s strategy is concentrated on major tech companies, aiming to attain returns that surpass the broader market. It ticks all the boxes for powerful secular themes, including Fintech, Internet 3.0, Next Generation Infrastructure, AI & Process Automation, and Electrification, all of which are pivotal drivers for sustained sector growth.
For investors with a more global view, you might want to consider the RHB Global Shariah Equity Index Fund. This type of fund is designed to track components of financial market indices, such as the Dow Jones Islamic Market Titans 100.
Index funds offer broad market exposure, low operating costs, and minimal portfolio turnover. This index fund focuses on the top 50 U.S. stocks, the top 25 European stocks, and the top 25 Asian stocks. The tech sector comprises a significant portion of the index's holdings while also diversifying into other sectors including health care and consumer discretionary. These global blue-chip companies are financially robust and capable of weathering challenging business environments.
Let’s not forget real estate. As an actively managed fund, the fund manager strategically allocates resources into REITs that are anticipated to perform strongly within their respective categories. This REIT fund has over 50% exposure in industrial and telecom tower REITs.
REITs present the potential for both capital appreciation and income generation. To qualify for favourable tax treatment, REITs are required to distribute a significant portion of their income to shareholders. In addition to this structure, REITs have historically enjoyed a resurgence in total return performance following the end of monetary policy tightening cycles.
Despite encountering some negative attention, particularly concerning shopping mall and office REITs, they are still a good bet as the market is mature enough to include a diverse range of types, so you aren’t putting all your eggs in one basket.
In the final months of 2023, this fund rebounded by more than 20%. Don’t worry about missing out on lower prices, though, as the fund is still close to its starting price in 2019, just before the pandemic.
This fund has a diversified portfolio of more than 1,000 holdings, with most of its exposure in U.S. treasuries. At the same time, the fund manager aims to create excess returns from sources like high-yield bonds and emerging market hard currency bonds. At the feeder fund level, currency hedging is implemented to mitigate foreign currency risks. This fund offers a yield of 7.55% with a duration of 5.91 years.
With the prospect of rate cuts becoming a reality, this fund holds great potential as bonds are expected to benefit directly from lower rates.
What about Asia? The Principal Islamic Asia Pacific Dynamic Equity Fund is a bottom-up fund offering good diversification options within the continent in India, Taiwan, and South Korea.
There are plenty of little pockets of opportunity in various Asian countries and sectors and this fund strategically positions the investors to make the most of them. This fund has consistently outperformed its benchmark in the past and may also invest up to 20% of its NAV in global companies with businesses/operations within the Asia Pacific ex-Japan region.
We hope these insights will help you diversify and fortify your portfolio. Get in touch with your Relationship Manager today to explore how these recommendations can be integrated into your diversified portfolio.