Quarterly Market Outlook
Source: Lipper Investment Management September 2023
This is the first time in the past year that we observed a net outflow in Chinese equity funds, however, it was still relatively small compared to the substantial inflow of RM1 billion over the course of the year, allowing it to maintain the highest inflow in the entire industry over this period. This shows that some investors have started to diversify away from Chinese equity funds.
Heading into Q4, the peak of the hike rate cycle is expected to continue to give an edge over equities. However, that doesn't rule out the equities market entirely. There’s still huge potential in the global technology space, particularly strategies that incorporate the AI ecosystem. The Federal Reserve is nearing the end of its tightening phase, and the US is expected to transition into policy easing, leading to an upward momentum.
Which now takes us to our fund picks for Q4.
This type of fund is designed to track components of equity market indices, such as the Dow Jones Islamic Market Titans 100. Index funds offer broad market exposure, low operating costs, and minimal portfolio turnover.
Source: Dow Jones Islamic Market Titans 100 Fund Factsheet, HSBC Global Asset Management
For investors who are willing to take on higher risks, there's the option to delve into sectoral funds, particularly those focused exclusively on the technology sector.
We have two suggestions for this:
Both leverage the extensive experience of Janus Henderson's global technology team across various market cycles and technology trends.
Bargain time! The drop in the tech-heavy NASDAQ 100 in Q3 presents an opportunity for investors to get high-quality US tech stocks at a lower price.
Growth-oriented stocks, such as tech, tend to be sensitive to the Fed Fund Rate (FFR) and US Treasury yields. If a rate cut materialises sooner, we can expect to see this positivity reflected in the technology sector. Based on the CME’s FED watch Tool, there is a higher probability of FFR being cut in 2H 2024.
Given the prolonged market uncertainties, it would be a prudent move to focus on large-cap companies with strong cash flows that can withstand potential bumps along the road, such as a mild recession.
In addition to U.S. tech, both funds also have exposure to Asian technology stocks, such as Tencent and TSMC, which are key contributors to the region’s equity market. TA Global Technology has a commendable track record in Malaysia and is one of the top-performing technology funds in the market. Year to date, the fund has seen an impressive increase of 23.40% (as of 30 September 2023). Its strength lies in its focus on the five powerful secular themes for growth: Fintech, Internet 3.0, Next Generation Infrastructure, AI and Process Automation and Electrification. The fund leans more towards FAANG stocks: Meta (META) (formerly known as Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google).
Source: Wellsaid Labs
Although most generative AI companies are based in the West, it’s essential not to overlook investment opportunities in Asia. Let’s create an overview of the AI landscape. While this diagram is not exhaustive, it provides a useful guide for identifying direct and indirect players in the Asian markets.
Source: Janus Henderson - Global Technology Leaders Fund Factsheet (31 August 2023)
RHB i-Sustainable Future Technology Fund is the first Shariah Sustainable Technology Strategy in the market. This fund offers a greater diversification across various technology stocks. There are significant and very broad investment opportunities within the sustainable technology sector that are aimed at helping solve global sustainability challenges.
*Source: Gartner Research, January 2023.
Source: Janus Henderson Investors, as at 31 January 2023.
Note : The above are the team’s view and subject to change without notice. References made to individual theme do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable.
Let’s not forget AI. RHB Global Artificial Intelligence is a niche fund that focuses only on AI companies within the tech sector.
Since the launch of ChatGPT, generative AI has garnered significant attention and discussions around its commercial potential. It is believed that generative AI could contribute up to USD 4.4 trillion to the global economy.
The fund’s strategy includes a wide and diverse array of AI-related solutions, which are managed differently compared to a typical tech fund. The fund taps into the multiple layers within the AI landscape, and investors have the chance to catch the wave in the early stages of the growth cycle.
For investors seeking a more moderate approach, we present the TA Total Return Income Fund. This is a global mixed-asset fund managed by Fullerton. This is an income fund where the fund aims to pay a monthly distribution of 5% pa from its NAV.
Source: TA Investment - TA Total Return Income Fund Presentation Deck (August 2023)
The core strategy allocates 60% to equity and 40% to fixed income, although the fund manager may adjust allocations based on market conditions. Exposure to a specific sector or company can be achieved through means such as allocating to ETFs or directly investing in underlying shares.
Source: TA Investment - TA Total Return Income Fund Presentation Deck (August 2023)
Now, how can one benefit most from potential rate cuts? Here’s where we introduce the RHB American Income Fund.
This fund offers a yield of 6.59% with a duration of 5.55 years. This diversified portfolio of more than 1,000 holdings is mainly exposed in US treasuries, while the fund manager also 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.
Source: AllianceBenstein American Income Portfolio (31 August 2023)
The following table shows the performance of the funds we’ve picked. There was a pullback in Q3, but over the year, the overall momentum has been positive.
Did any of the funds pique your interest? Get in touch with your Relationship Manager today to discuss your diversification options based on your risk profile and long-term goals.
Get in touch with RHB Premier today.
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