MTC prefers global equities, volatile markets
Published in Focus Malaysia on May 19, 2017.
Although stocks on the local bourse have performed strongly this year, boutique investment firm MTC Asset Management is not rushing in to buy just yet.
Its founders and managers say this is because they are not optimistic about the domestic economic prospects over the short to medium term. Thus, they are not jumping on the buying bandwagon.
“This is a short-term sort of thing,” MTC co-founder Devan Linus tells FocusM. “Over the last five years, Bursa Malaysia hasn’t really moved -just+/- 10% – while the US markets have gone up close to 70% over that period.”
Linus, who is also CEO and chief investment officer, believes the local market is moving now because the US markets have been trending up since Donald Trump’s election as US president.
“So Malaysia has moved because the whole world is positive and many emerging markets are also moving up,” he adds.
“The US markets moved after Trump won (followed by) the post-Chinese New Year (rally), China has also been moving up.”
He notes that stocks are generally a representation of the country’s economy, which he believes is not very strong now.
Nonetheless, MTC acknowledges that even in tough markets, there are always gems which it hunts to add to its portfolio.
Lack of volatility
MTC thinks the local economy is too dependent on foreign economies, highlighting that many companies rely heavily on exporting their products to large economies like China.
“If China does not buy or invest in our products, then Malaysia is going to do very badly,” says Linus.
The fund, he adds, also sees the lack of volatility as a hindrance to making returns. He explains that for a stock market to do well, it has to have different types of investors. For example, Malaysia does not have many investors who short the market.
“In the US, you can see blue chips undeservedly crash by 50% and this gives people like us the opportunity to buy and make big investments,” he notes.
“But in Malaysia the big companies get supported up by big institutional investors like the Employees Provident Fund and Khazanah Nasional Bhd. There is no volatility. A good market has healthy levels of volatility so that people like us can take advantage of it.”
Global operations key considerations
One of MTC’s key considerations is whether a local company’s operations are global or confined only to the domestic market. Its co-founder Aaron Yew says global operation is a core component of the fund’s investment strategy.
Therefore, he says while the fund does invest in Malaysian stocks, not many fit its bill. Local stocks make up just 10% of its portfolio.
“When we say global operations, what we mean are companies that derive revenues from all over the world. In that sense, they are more diversified,” he adds.
“So we do invest in some Malaysian listed companies that derive revenues globally, but there are limited opportunities in what we are looking for.”
Hedging against currency fluctuations
Linus explains that MTC invests in only such companies because it wants to hedge against currency fluctuations.
Since its inception in 2012, the fund has seen annualised returns of about 15% in US dollar terms and about 20% in ringgit terms.
He attributes this to the fund’s strategy of choosing companies with global operations. Considering the global nature of business these days, there is also a need to hedge against inflation, not only locally but also globally, he adds.
The argument against this strategy is what would happen if the ringgit were to strengthen. However, Linus believes that looking from along-term view, it will even itself out.
“If you are investing in a global company that derives revenues from various countries, you will find that over the long term currency impacts will balance out, and it is not sensible to speculate on how currencies will move in the short term,” he says.
Banking on hedge fund concept
MTC Asset Management was founded by three friends who met at an Australian university and saw an opportunity to provide a niche service to get high net worth Malaysians.
Devan Linus, Aaron Yew and Donovan Ng noticed many of these investors who wanted a total returns fund with global exposure were forced to park their money in Hong Kong and Singapore.
In 2012, they tried to set up shop in Malaysia but found that the regulators were not open to giving out licences to boutique investment firms like theirs. Hence, MTC began its journey in Singapore.
However, their plan was always to return home and MTC continued engaging the Securities Commission of Malaysia (SC). In 2015, the trio obtained a boutique fund management licence from the regulators and shifted their headquarters back to Malaysia.
Yew says MTC is the only asset manager using the hedge fund concept in Malaysia. “We are the only hedge fund in Malaysia that is regulated by the SC”.
Because the SC strictly controls the issuance of this licence, Ng highlights that MTC has no direct competition locally.
“Obviously there are similar types like investment banks, but it’s not necessarily direct competition.” he says.
“A lot of what we do is very different and in fact competition would probably come more from Hong Kong or Singapore”.
A unique feature of MTC is that it offers investors just one fund unlike traditional unit trusts or mutual fund providers which provide a slew of products.
“We have only one product or fund and we do not plan to have more” says Linus. “We are a total or absolute returns fund. Our returns target is 10-15% and so far we have achieved 21% per annum”.
The reason MTC has a single fund is that its objective is not to create a product for every client’s whims. For example, it will not start a technology focus fund just because an investor wants that exposure.
Yew says creating funds that merely chase returns creates unnecessary speculation.
“We are trying to encourage investors to think like institutional and sovereign funds, and stop making speculative bets for quick returns. Have a steady allocation for investments that work and are in line with your risk level. Then make sure you appoint the best fund managers to execute it.” he says.
MTC believes the benefit of using a hedge fund strategy is that it is not mandated and this gives it flexibility to craft and adapt investment strategy. This means it can focus on companies with global operations.
The fund manages RM200 mil which it hopes to increase to RM250 mil by year-end.