In an attempt at a revival of our favourite mini-series “Five Minute Finance”, join us as we introduce 3 people for the next few weeks with interviews in the fields of investments and financial technology.
Part One: Investment banking and asset management
Chong Lee Choo is the Director of the Innovation Lab and Alternative Investment with Affin Hwang Asset Management Berhad. She lends her expertise in this article as we explore the nature of her industry.
Simply explained, what is an ETF?
I like to call ETFs (exchange-traded funds) index trackers and in fact, they are. ETFs are a basket of shares that tracks a particular investment. For example, say I have an ETF that tracks the FBMKLCI index, the ETF would buy the thirty stocks that make up the KLCI index and hence, the performance of such ETF tracks the index performance.
It is an opportunity for investors to be exposed to the index because, put quite simply, although there are many indexes in the world, one cannot invest in an index. Indexes are merely for reference, however, ETF’s – pooling funds from many investors the way a mutual fund does- presents one with a way to do so.
A large part of Affin Hwang Capital is its Asset Management entity. What are the fundamentals of asset management?
Asset management in Malaysia typically entails managing money for investors. In Affin Hwang, there are various products developed under the asset management company but the most popular one for retail investors are Unit Trust Funds. We group like-minded people and invest based on a certain, shared objective and every fund launched will have an objective and investment strategy tied to it. For example, for our flagship fund Affin Hwang Select Opportunity Fund, invests 70% into Malaysian stocks and 30% into Asian stocks and if you, an investor, like and is convinced by this strategy, you can invest into the fund alongside others who also think the same. The Fund Manager will then carry out stock picks on behalf of the investors and deliver the returns to you (the investor).
Another way that we manage money is through customisable mandates for corporate and high net worth individuals. Simply put, we customise portfolios based on the various objectives an investor might have. This also allows investors to opt-out of certain sectors that they do not feel comfortable supporting like tobacco and gambling.
Given that the Affin Hwang Asset Management Fund has managed to outperform the benchmark, do you see this continuing in the future?
In the United States, people are seen favouring ETFs over Unit Trust Funds simply because Fund Managers cannot outperform the S&P 500. Markets in the United States are incredibly efficient and there is no way for someone to have the upper hand in terms of information. Companies cannot disclose information that is not already known by the general public. Asian markets, on the other hand, have a saying “ Alpha is not dead”- Alpha being a strategy’s ability to beat the market return.
Fund Managers in Malaysia can easily outperform the FBMKLCI which is why people here still buy Unit Trust Funds. The reason for the disparity is because we [Fund Managers] can get a slight additional advantage of obtaining information from various sources, one way being through company visits and drop-in session. However, when regulations get tighter and market more efficient, it would be harder for Fund Managers to outperform [the index].
Speaking of regulations, do you see increasing regulations in Malaysia as a sign of increased cost and difficulty in doing business?
Increased regulations, in any case, would mean that companies would have to spend more in tightening processes-monitoring, for example- which may require new technology and thus incurring cost. The money would still be made but with compressed margins.
Asset Management firms consist of departments that are usually divided into three: front end department, back-end and the support function(eg: Compliance, legal and HR). What department/role do you view as suitable for fresh graduates wanting to go into asset management?
This depends on what you study and where your interest lies because in any company there are various roles: you can be an analyst/fund manager, you can be a product manager, in legal or operations. Different roles would require different skill sets, but if you want to be a fund manager then joining as an analyst would make the most sense.
An analyst’s work is more desk-bound-pertaining research and reading- that will then be translated into reports and recommendations, therefore it may not be suitable for people who prefer more interactions in the workplace. Of course, there’s always marketing or if you are pursuing a law degree then there are legal roles that you can go into. It boils down to personal preference as some people would prefer routine work with no surprises and to ‘go home on time’ which, in that case, a role in operations might be suitable. Interest, I would say is paramount.
Some of our readers might be interested in knowing the options in investing they might have. Of course, there are several categories of retail funds to choose from like fixed income, assets and PRS (Private Retirement Scheme). Personally, which do you find most interesting and beneficial?
If you are a fresh graduate and would want to save for retirement building, I would go for equities. It gives you a higher return over a long period and I like to invest inequities. Bonds
are more for the weak hearted, since there is a lot of volatility but if you lose sleep over loss, then you should go for income funds or balanced funds where there is a good mix -maybe 50-50 between bonds and equities and with income it even be a 70-30 [70% bonds and 30% equities]. The lower percentage inequities will help the fund perform more stably but on the other hand, having it on your portfolio would mean a higher upside in terms of potential.
FLY Malaysia would like to thank Chong Lee Choo for her time.
Watch this space as we return with part 2 and part 3 in the coming weeks!
Interviewers: Bryan Wong, Wilson Teh
Writer: Bryan Wong