KWAP: RM700m allocated for investing in small-cap companies

PETALING JAYA: The Retirement Fund (Incorporated) (KWAP) has to date allocated RM700 million for investments in small capitalisation companies in the country.

KWAP said it is looking at increasing the size of its small-cap equity mandate for further growth and earnings potential.

Set up in April 2014 with a capital of RM200 million, the small-cap equity mandate represents KWAP’s initiative to diversify its equity investments, which are concentrated on large capitalisation stocks.

In a statement yesterday, KWAP said of the total allocation, RM380 million is internally managed by the pension fund, while the remaining is managed by external fund managers (EFMs), spread over four fund managers licensed under the Securities Commission (SC).

KWAP said this is in line with the government’s call to allocate a RM3 billion fund to licensed fund managers under the SC to invest in potential small and medium capitalisation companies.

KWAP CEO Datuk Wan Kamaruzaman Wan Ahmad said, in general, small-cap stocks with the right niche offer relatively higher earnings growth potentials compared to the large-cap stocks under the current low growth environment, as large-cap stocks’ earnings growth typically mirrors the pace of the current economic climate.

He said the wide valuation difference between large-cap and smallcap companies provides the fund with the opportunity to invest in fundamentally strong companies that offer a rewarding proposition in the long run.

He added that the small-cap stocks are also potential acquisition targets, noting that acquiring smaller and growing profitable companies is one of the easiest ways to grow earnings.

As at Sept 30, 2016, the EFMs recorded a return of 8.23% over a period of one year, while the internal fund managers provided an 11.19% return within the same period, and the total return over a three-year period for both stood at 18.41%.