Malacca Securities Factor Strategy Beats KLCI by 38.6% Since Inception

Factor Strategy Outperforms Despite Market Headwinds

Despite a brutal September 2026 for Malaysian equities, with the FBM KLCI sinking 4.3% and the FBMSCAP sliding 1.0%, Malacca Securities’ factor-based portfolios held their ground. The research house’s Large-cap portfolio lost just 1.3% in the month, while its Small-cap portfolio surged 13.7%, according to its Factor Focus – October 2026 report published on 2 October 2026 via M+ Online.

The outperformance underscores the resilience of a disciplined factor-selection methodology during periods of macroeconomic uncertainty, when high US 10-year Treasury yields and oil price spikes typically punish equity valuations indiscriminately.

How the Quality-Momentum Framework Works

According to Malacca Securities Research, the strategy combines two distinct scoring systems: momentum derived from 6-month and 12-month price appreciation, and quality scores built from fundamental financial ratios. This dual-lens approach aims to identify stocks that exhibit both positive price trends and sound balance-sheet strength.

The methodology filters candidates across market capitalisation tiers, then selectively adds and removes holdings based on real-time factor shifts. In the latest rebalancing cycle, Malacca Securities added nine stocks to its watchlist: NATGATE, MNRB, KERJAYA, VLB, LAGENDA, EXSIMHB, ISF, LWSABAH, and DUFU. Simultaneously, it removed nine underperformers: PMETAL, 99SMART, UTDPLT, WPRTS, KMLOONG, MSC, HIBISCS, INNO, and KOBAY.

Cumulative Returns Since Inception Tell the Story

Since the portfolio’s inception, Malacca Securities’ factor-driven picks have delivered 38.6% for Large-cap, 63.4% for Small-cap, and 51.7% for the Combined portfolio. These figures dwarf the headline benchmark losses, suggesting that stock-level selection discipline outweighs sector and macro timing over longer horizons.

The research house noted that most individual picks have exceeded average benchmark returns across their respective categories. This consistency hints at a systematic edge in identifying quality compounders before the market reprices them upward.

What This Means for Retail Investors

For individual shareholders evaluating Bursa Malaysia opportunities, Malacca Securities’ framework highlights two key lessons: first, that factor-based filtering (quality + momentum) can reduce downside capture during volatile months; and second, that small-cap exposure, often dismissed as speculative, can deliver outsized gains when paired with strict fundamental criteria.

Retail investors should note that September’s 4.3% decline in the FBM KLCI was broad-based and macro-driven. The fact that Malacca Securities’ model portfolios endured with minimal damage suggests that stock-picking discipline remains valuable even in hostile market conditions. However, the added and removed stock lists show that factor models are dynamic—holdings that pass screening criteria today may fall below thresholds tomorrow as fundamentals or technicals shift.

Key Takeaways

• Malacca Securities’ Large-cap and Small-cap portfolios outperformed the FBM KLCI and FBMSCAP during September 2026, recording losses of 1.3% and a gain of 13.7% respectively, versus benchmark losses of 4.3% and 1.0%.
• Cumulative returns since inception stand at 38.6% (Large-cap), 63.4% (Small-cap), and 51.7% (Combined), significantly outpacing broader index performance.
• The strategy integrates momentum scoring (6-month and 12-month price trends) with quality scores derived from financial ratios to identify resilient equity positions.
• Nine stocks were added and nine removed in the latest rebalancing, reflecting the model’s dynamic response to shifting factor conditions.
• Small-cap factor exposure has delivered the strongest cumulative returns, suggesting that size-based diversification paired with fundamental rigor can unlock alpha in Bursa Malaysia.

Frequently Asked Questions

How much has Malacca Securities’ factor strategy returned since launch?

According to Malacca Securities Research, the Large-cap portfolio has returned 38.6%, the Small-cap portfolio 63.4%, and the Combined portfolio 51.7% since inception. These cumulative gains significantly exceed the performance of the FBM KLCI and FBMSCAP over the same period.

Which stocks did Malacca Securities add in the latest rebalancing?

The research house added nine stocks: NATGATE, MNRB, KERJAYA, VLB, LAGENDA, EXSIMHB, ISF, LWSABAH, and DUFU. These additions reflect positive shifts in the momentum and quality scoring metrics.

What makes Malacca Securities’ factor model different from simple index tracking?

The research house integrates momentum (price movement over 6 and 12 months) with quality scores derived from financial ratios, allowing it to select stocks that exhibit both positive trend and fundamental strength. Index tracking passively holds all constituents regardless of quality or momentum signals.

Why did the Small-cap portfolio outperform Large-cap in September 2026?

Malacca Securities’ Small-cap portfolio gained 13.7% in September despite broader market weakness, suggesting that selected small-cap holdings possessed stronger factor characteristics (quality and momentum) than the broader FBMSCAP index, which fell 1.0%.

Is this report a buy or sell recommendation?

No. This is a performance report published by Malacca Securities Research detailing its factor strategy methodology and historical returns. It does not constitute investment advice; individual investors should conduct their own due diligence and consult licensed advisors before making trading decisions. The full report is available via M+ Online at https://mplusonline.com/research-report/detail/1451.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Ratings and target prices cited are those of Malacca Securities Research and are subject to change. Always do your own research before making investment decisions.

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