Affin Hwang Asset Management is using stock-specific warrants to hedge volatility risks in its new Dana Malaysia fund which targets an absolute total return of 30%, according to Ai Mei Chan [pictured], chief marketing and distribution officer at the Malaysian asset management firm. Although the fund invests in a portfolio concentrated on domestic equities, money is allowed to flow into structured products, whenever the manager considers it to be appropriate.
"The fund can invest up to 50% (of the net asset value of the fund) into derivatives and/or structured products. We also use derivatives, such as futures, to hedge our market exposure and manage risks amid the rise in volatility," said Chan.
There are more than 1,500 structured products using a warrant wrapper in Malaysia, including 605 products, which are still live, according to SRP data. Among the live products that are linked to shares, Supermax and MyEG Services, two local firms, are the most popular with both used as the underlying for 16 warrants. The underlying asset of other stock warrants include AirAsia, Dialog Group and DRB-HICOM. All 605 live products had short terms of less than one-year.
In the past two years in Malaysia, Chan said the firm has seen an increase of fund-linked structured products with a capital protection feature. Given such trend, Affin Hwang has launched a series of so-called 'Income Focus Funds' that invests in structured products linked to mutual funds, according to Chan. "The funds derive returns by increasing the exposure of the underlying mutual fund through investments in options and warrants," said Chan. This compares to the past when Affin Hwang introduced funds that focus investments on credit-linked notes.
As of August 9, the total amount of funds that Affin Hwang Asset Management held in structured products came in at USD$170 million, while the firm's overall asset under management (AUM) volume stood at USD$12.1 billion at the end of July this year.
The Affin Hwang Dana Malaysia fund is benchmarked against the FTSE Bursa Malaysia Kuala Lumpur Composite Index and caters to the need of investors with high risk tolerance and mid-term investment horizon.
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