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"KWAP achieved net ROI and TWRR of 10.04% and 11.64% respectively in 2009"
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Equity
About Equity Department 
 
Equity investment in KWAP refers to the act of buying, holding and selling shares of any public company whose securities are listed or have been approved for listing on Bursa Malaysia. The activity is primarily governed by the Capital Market & Services Act 2007, KWAP Act 2007 and KWAP Investment Policy & Guidelines (IPG).

Equity as an asset class, plays a significant role in KWAP's portfolio, generating a considerable portion of the total investment income of KWAP. Generally, KWAP's investment in equities are divided into two broad categories being Internal Equity and External Equity, The former, as the term suggests, is managed internally by the internal portfolio managers of KWAP while the latter is the portion of funds outsourced to External Fund Managers (EFM). This section generally explains our investment in Internal Equity and its critical role as one of the most important asset class in KWAP's portfolio.
Our Portfolio
 
Allocation for Equity
Internal Equity constitutes 21.9% of KWAP's fund size at market value. Currently, this allocation is entirely invested in the domestic market across all sectors available in Bursa Malaysia.
Sector Allocation
Underpinned by the belief that the right sector is the key to portfolios' outperformance over the long run, our analysts and portfolio managers work closely in the allocation of funds across various sectors in the market. At present, the largest sector exposure is in Banking/Finance (26.7%), followed by Oil & Gas (13.8%), Telecommunication (13.1%) and Plantation (11.2%). With the existence of strategic exposure in these sectors, we are confident that our portfolio will be able to take advantage of the long-term potential of the respective sectors. Notwithstanding that, a close monitoring of the dynamism of the sectors is carried out to ensure that the fundamentals of each industry remain intact.
 
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Style Allocation
In constructing the portfolios, we seek to have the right balance between the three major categories of stocks; being Income, Growth and Value. While some stocks may fit in more than one of the previously mentioned categories, the stocks are generally categorised according to their most dominant characteristic. Our current allocation between the three group of stocks, as measured by the percentage of their respective market value, are as follows:
 
International Diversification 
In recognizing the need for greater diversification, plans are currently devised for diversification into foreign equities within the next 2-3 years . Successful implementation of diversification would enable us to reap the benefits through significant reduction in the risk profile of our current portfolios. Staff are currently enrolled in appropriate training programs and industrial attachments to better equip themselves with the proper knowledge and skills
 
 
Proxy Voting
As common shares are attached with voting rights, we take an active participation in the AGM and EGM of the listed companies in regards to their proposed decisions. All voting decisions are decided upon by the Investment Panel or Chief Executive Officer of KWAP, based on the materiality of the decision impact to the financial standing of the respective company. In most cases, KWAP appoints two representative officers to attend the meetings and vote on behalf of KWAP. Table below shows the 10 most recent AGMs/EGMs attended by KWAP :
 
Date Stock Remarks Attendance
Yes No
8-6-2010 Genting Plantations AGM  
11-6-2010 Wah Seong Corp Berhad AGM  
15-6-2010 Maxis Berhad AGM & EGM  
17-6-2010 UMW Holdings Berhad AGM  
22-6-2010 Kossan Rubber Industries Bhd AGM & EGM  
22-6-2010 Axiata Group Berhad AGM  
24-6-2010 Top Glove Corporation Bhd EGM  
28-6-2010 Time DotCom Berhad AGM  
7-7-2010 Fraser & Neave Holdings Bhd EGM  
Our Approach
 
We strive to deliver superior returns to meet our stakeholders’ needs and objectives by creating efficient portfolios through a well-defined investment process. These portfolios are governed by clear investment mandate and parameters, as well as a definite risk management framework. Portfolios constructed are closely monitored in an ever-changing economic and market trends to identify factors that could adversely impact the fundamentals of the stocks held.
When it comes to equity investing, we place a great emphasis on active management. With the belief that the market has never been strongly efficient, portfolio managers and analysts can work together to find long term investments that trade below their fair value. Over time, we believe returns generated by a portfolio of these identified undervalued assets will exceeds average market return.
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As a pension fund, our focus is on selecting fundamentally sound companies with secured long-term business prospects, predictable earnings, strong management, good track record as well as good corporate governance. Often times, our inclination towards such criteria will bring about a selection of dividend yield counters.
Companies listed on Bursa Malaysia will typically undergo a rigorous and stringent filtering process by our team of experienced analysts. Selected companies will be maintained under our Stock Universe, which explicitly means, these are the permissible stocks that portfolio managers are allowed to invest in. Presently, KWAP Research maintains some 70 companies under their List of Stock Universe. The number is expected to expand as the size of the team increases and as the team starts covering regional companies.
Equity Investment Objectives
 
Our investment objectives in equities can be exemplified in the following keypoints:
 
  • To achieve optimal portfolio through maximizing return while maximizing risk relative to market.
  • To achieve consistent and stable income via dividend and realized income from sales of shares.
  • To achieve capital growth via investment in equity market.
Research
 
We take pride in having our own proprietary research to provide us with the insights into invested. Previously run as a separate department, now, the Research Department has now been absorbed by the Equity Department to enhance the investment process and information flow. Despite the integration which took place in late 2008, research analysts continued to retain their full autonomy in conducting analysis and giving recommendations. At the same time, the integration has improved coordination between analysts and portfolio managers resulting in efficiency and effectiveness in the investment decision making process.
 
Click on flash animation below to view KWAP's investment research approach
 
Accuracy of analysis as well as speed of communication form an integral part of our research. With the aim to be ‘first in-the-know’, analysts and portfolio managers are equipped with latest state-of-the-art technologies to aid and facilitate their research undertaking. Bloomberg, Reuters and Datastream are examples of the systems utilised by our analysts in carrying out their research of companies under their coverage. Earning models are exclusively developed by analysts, based on specific investment assumptions to assist in the projection of earnings forecast of these companies.
 
 
In addition, our team of analysts maintains a set of ‘Model Portfolio’ that serves as a benchmark for portfolio managers. The weightage assigned to a particular stock in the model portfolio is a reflection of the analyst’s views and analysis on fundamental of that particular stock and its sector outlook.
 
 
In our aspiration to become a high performance organisation, close monitoring of the financial performance is a habit. We track diverse set of performance metrics to measure the performance of equities. A great deal of emphasis is placed on two performance indicators being Return on Investment (ROI) which measures the realised return over average fund invested and Total Return, as measured by Time Weighted Rate of Return (TWRR), which tracks the portfolio's total return inclusive of the realised and unrealised gain. Total Returns measurement enables the evaluation of portfolio performance against selected benchmarks. Other performance metrics includes portfolio dividend yield relative to benchmark yield, portfolio beta, Sharpe ratio, information ratio and tracking error. This serves as guide for portfolio managers to identify factors affecting their performance.
 
Performance Metrics
Basic Performance
Active Management
Asset-class Specific
ROI   Total Return   Standard deviation
  • Measures realised gain over average fund invested.

 

  • Captures both Investments income and unrealized capital gains.
  • Adoption of FRS standards required.
  • Measures riskiness of returns.
  • Enables estimation of risk-adjusted returns.
Sharpe Ratio        
  • Measures excess return over risk-free per unit.
  •  Enable overall portfolio appraisal
       
Active Return   Active risk/tracking error   Information ratio
  • Return over benchmark.
  • Captures positive or negative effect of active management.
 
  • Measure risk of active returns.

 

 
  • Measure excess return over benchmark per unit of active risk.
  • Enable TAA and manager appraisal.
         
         
Beta        
  • Measures sensitivity of equity portfolio returns to market movements
Counterparty Evaluation
 
The Investment Policy & Guidelines (IPG) of KWAP requires a minimum of twice yearly evaluations of its counterparties. High emphasis is placed on counterparty evaluations with the expectation of the best level of service from counterparties that deal with KWAP. This also ensures that the quality of the services by counterparties commensurate with the level of business provided. A clear and transparent method of counterparty evaluation has been established.
 
Criteria of Evaluation
Counterparties are evaluated on 3 major criteria being Dealing, Research and Back Office. The table below provides the details of each criteria on :
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Results of Evaluation
The evaluation results are communicated to the Investment Committee, the Investment Panel as well as the respective counterparties. The counterparties are subsequently categorised into different tier groups which determine the eligible amount of investment to be awarded.

List of Counterparties
At present, KWAP’s panel of counterparties consists of 18 stock broking houses with 15 locally incorporated and 3 foreign affiliated brokers. The panel list of investment banks, financial institutions and public listed companies only includes counterparties that fulfill the minimum requirements as stipulated by the IPG as well as surpassing the minimum threshold of each periodical evaluation. Listed below is the panel of counterparties of KWAP:

  • Affin Investment Bank Bhd
  • Alliance Investment Bank Berhad
  • Aminvestment Bank Berhad
  • CIMB Investment Bank Berhad
  • CLSA Securities (M) Sdn Bhd
  • Credit Suisse Securities (M) Sdn Bhd
  • ECM Libra Avenue Securities Sdn Bhd
  • HLG Securities Sdn Bhd
  • HwangDBS Investment Bank Bhd
  • JP Morgan Securities (M) Sdn Bhd
  • Kaf-Seagroatt & Campbell Securities Bhd
  • Kenanga Investment Bank Bhd
  • Maybank Investment Bank Berhad
  • MIDF Investment Bank Bhd
  • MIMB Investment Bank Bhd
  • OSK Investment Bank Bhd
  • RHB Investment Bank Berhad
  • TA Securities Holdings Bhd
Corporate Exercise Calendar
About Equity Department
Our Approach
Our Objectives
Our Portfolio
Research
Counterparty Evaluation
Performance