kcchongnz blog
Investing through unit trusts and managed funds in Malaysia kcchongnz
I have written an article yesterday to discourage people who knows nothing about fundamental investing from speculating in the stock market as appended in the link below:
http://klse.i3investor.com/blogs/kcchongnz/104168.jsp
I seriously mean it. You can read from the post why I am so persistent about my view. Here, I would like to deal with a couple of good comments in my article.
Posted by Hiu Chee Keong > Sep 11, 2016 02:36 AM | Report Abuse 
I invest myself, and so far so good, not earning big money, just about 10%+ return for past 12 months. I have been in BSKL for 10 years+, but only last year i started to be more serious active manage my own investment and money.
Anyway, i am thinking of giving back my investment to mutual fund to manage so that i have more free time :)
Posted by wkitwing > Sep 11, 2016 09:00 AM | Report Abuse
hello,kc,how about we put our fund in mutual fund or unit trust if we dont want to burdened by dilemma and stress of investing on our own.So what do you think about this leaving our money to those fund managers to handle?
Investing in unit trusts in Malaysia
This is an extract of an article written by a unit trust consultant, Mr. X in his blog sometime in early 2014, with a big image about return of unit trust as above.
[I am writing to share with you about investing in unit trust specifically in Public Mutual Berhad which can give higher return or yield than EPF, Fixed deposit and even ASB.
In early 2006, I invested through EPF in a fund called Public Regional Sector Fund. I sold it in mid-2007 when the KLSE was 1,500 points and I made a return of 41%. My other funds (three of them) which I bought earlier also give me a return of average 20% per annum.
After realized how much I benefited from investing in the right unit trust, I signed up as a consultant. I want to be serious in this business because firstly I can help myself and secondly investment in stocks and shares is my passion.
I have done a comparison on the performance of the various funds under Public Mutual Berhad and I can confidently conclude that the returns from some of them are much higher than the return from ASB. Investing in the right fund and with the right timing can give a return of between 20 – 50%.
Rather than leaving your money in EPF or ASB earning only about 5% and 9% respectively, it is better to invest in unit trust with Public Mutual Berhad. Peter Lynch once said, “The mutual fund is a wonderful invention for people who have neither the time nor the inclination to test their wits against the stock market, as well as for people with small amount of money to invest who seek diversification.”]
Note the sales pitch used:
- Public Mutual funds can give higher return than EPF, and even ASB
- 41% return from a regional sector fund in one and a half years
- Confidently conclude that the return from some of them are much higher than the return from ASB.
- Investing in the right fund and the right timing can give a return between 20%-50%.
- Rather than leaving your money in EPF or ASB earning only 5% and 9% respectively, it is better to invest in unit trust with Public Mutual Berhad.
I have written an article on this issue as appended in the link below:
http://klse.i3investor.com/blogs/kcchongnz/75466.jsp
I have shown in the article with actual data, detail analysis of the returns of the unit trusts, specifically Public Mutual Funds then that all the above points stated are false, with my various reasoning why the outcome should be as what I have expected.
I have also shown my own experience in investing in unit trusts in Malaysia with cash as well as EPF for quite considerable long time before and my experience was very unsatisfactory with return way below EPF as well as bank deposit rate.
However, my conclusions of my article is, for those who wish to invest in the equity market but have no knowledge about fundamental investing:
“Unit trusts in Malaysia does provide a good opportunity and a much better option for retail investors who have no knowledge or time to invest on their own to obtain real return after adjusted for inflation from Bursa. They must be able to choose a fund manager who can do a good job for them, for a long-term period of at least five to ten years. However, they must realize not to expect market beating return as it is simply not easy and highly unlikely, given the operation of this industry; fees, costs of play, market efficiency, competitions, agency problems etc. It is not so much a matter whether they have good fund managers or not. In fact, I believe every fund has qualified, knowledgeable, skilful and experienced fund manager.”
My article above with the detail analysis was done about one and a half year ago. Is there any difference with the return of the unit trust funds in recent years? Yes, there is significant difference. Do unit trusts give you better return than EPF, ASB as suggested by Mr. X?
Performance of unit trust and as on August 16 2016
I have recently read an article in the Personal Wealth section of the Edge Magazine in the September 5 2016 issue. It summarizes the performance of unit trusts, ETF and other assets as shown in Table 1 in the Appendix.
Over the last 5 years, the broad KLSE returns a total of 36.4%, including all dividends, or a CAGR of 6.4%. The average return of the unit trusts investing in Malaysia under “Equity Malaysia” as shown in Table 1 below return a total of 34.2%, or a CAGR of 6.1%, a shade below the return of the broad market. The small and mid-cap funds have done better with a CAGR of 11.7% over the last 5 years. The Global and regional funds have return between 4% to 6.5%, nothing great too. The few ETF we have also return about 5%, nothing to shout about too. These returns from the unit trusts, I believe, have not taken into the upfront fee which ranges from 2% to 6%. This upfront fees would have shaved off another percentage point from the CAGR of the average return on unit trust.
What about putting your money in a closed-end-fund, icap.biz?
Return of closed-end-fund icap.biz
Figure 1 below shows the share price performance of icap.biz since inception.
Fiigure 1: Share price performance of icap
Icap closed at RM2.36 last Friday on 10th September 2016. If you have bought icap three years ago, you gain nothing but have your money eaten up by inflation. It is zero gross return but a terrible negative real return. If you have bought it 5 years ago, you gain 31%, or a CAGR of 5.6%, less than the EPF return, albeit with the higher risk associated with equity investment. If you have bought it 9 years ago at its peak, you would have lost 16%. The best scenario is if you have bought it when it was first listed in 2005 and icap.biz and its fund manager was flying sky high. You would have made 118%. However, that is nothing great too when you consider the CAGR is only 7.2%, not much above the return of EPF, and even lower than the return from ASB.
So does this assertion that “Rather than leaving your money in EPF or ASB earning only 5% and 9% respectively, it is better to invest in unit trust” carries any truth in it, or just from the mouth of snake oil salesman? Mind you, we have not talked about the risk involved in the unit trust as compared to the much lower risk investing in ASB, and keeping your money in EPF.
But can we blame the salesman above? Not completely. It is also the poor state of the business and regulation of the whole industry. I have been in this industry for a couple of years and I would say I know how the industry operates. The unit trust agents, including most of the qualified licensed and supposedly independent financial advisors are not professionally and ethically trained. The companies have no interest to train their advisors to be professional, ethical and care about the interest of the clients, but more on pushing of financial products. You want to be a professional and independent financial planner giving advice on personal financial plan? The company will ask you to go and fly kite. The investing public has been treated badly, quite badly I would say. But genearally many deserve it too as most of them are unwilling to pay for advice, although they pay heavily for the financial products. Can’t blame the industry I guess, everyone has his own rice bowl to take care of.
Conclusions
My conclusion remains the same. If one wishes to participate in the equity market, it is still better to invest in unit trusts, if he doesn’t know anything about the business and the language of the business, vis. how to read and interpret financial statements to understand how the business is performing.
For investors who are serious in building long-term wealth, but have no knowledge of investing, and have no time to do that, should look for other alternatives such as low-cost exchange traded funds (ETF) in the United States (In Bursa, this is limited and may not be suitable), or to engage someone credible and has proven records with the right philosophy and methodologies, and with lower cost than the unit trusts and managed funds, and the licensed advisors too.
A better alternative is one should learn and gain the knowledge in fundamental investing, and the experience in investing. Why not? Isn’t building long-term wealth in a more reliable and more predictable way important for your personal finance, something equally important as your career, if not more important?
This is my passion to teach people who are interested in fundamental investing with a small fee. At the same time, one may find some good stocks to invest in at cheap prices. Please contact me if you are interested at
ckc15training2@gmail.com
KC Chong
Appendix
Table 1: Return of unit trust and other assets as on 16th August 2016
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Discussions
3 people like this. Showing 49 of 49 comments
Brother, KLCI 1,000 Climb To 1,500 You Only Earn 41% ? Am I Mention Wrong ?
2016-09-13 09:15
"The average return of the unit trusts investing in Malaysia under “Equity Malaysia” as shown in Table 1 below return a total of 34.2%, or a CAGR of 6.1%, a shade below the return of the broad market." No better than buying a bunch of REITs and sleep on it.
2016-09-13 09:29
It is easier to say, to select the right fund is never easy. May be KC can shed some light on this subject..
2016-09-13 09:30
Well, ICAP's AGM is around the corner, Icap shareholders must print this article and send it to TAN TENG " Bull" for explanation during the upcoming AGM why he , as a fund manager instead searching to invest in those under valued stocks. He prefer to timed the market and ended up lousy performance for past 5 years. Browsing through the latest Annual Reports of Icap, Notice he dare not and no longer boast his recent years compounding returns as he has made a wrong judgement for his decision by keep telling bear is coming.
2016-09-13 09:46
Unit trusts.... when you pick is good it will perform else.... it will stuck there forever.... quote example i am just lucky with a china funds launched in 2006 / 2007... since day 1 it keeps drop till have to do dollar cost averaging..... if not badly bruised....
2016-09-13 12:54
Diversify in unit trust can make it safer
Buy 100 unit trust and I can guarantee it is safer
:)
2016-09-13 12:56
Posted by Hippo Buy Signal > Sep 13, 2016 12:41 PM | Report Abuse
From KC Chong....
Question:
Past records do not predict the future performance. Sometimes this fund good, sometimes that fund good.
A person with no experience in stock market, how to know which one to choose?
I don't think unit trust is the straight forward answer to those without knowledge. I have seem people made huge loss from unit trust. Then people will say about Dollar Cost Averaging, must select the the best unit trust, etc. Same question again, how do a person without knowledge know how to choose.
If you teach them, then better teach them stock market. And if we teach them, then they will know be categorized as "retail investors who have no knowledge"
Me: Well said. Can't agree more with you.
2016-09-13 15:33
Posted by Bruce88 > Sep 13, 2016 09:30 AM | Report Abuse
It is easier to say, to select the right fund is never easy. May be KC can shed some light on this subject..
Well said.
The problem is "right fund" now can be "wrong fund" next year. Few, very few fund managers are consistent. Look at the fund manager of icap. He is supposed to be the oracle of Bursa. But how well has he been performing the last few years?
Having said that i remember Eastspring and Kenanga Growth fund have been a little more consistent.
2016-09-13 15:36
Mutual fund is actaually a mini Bursa, if you look at its long term unit price for any individual fund is similar to any stock in the Bursa. So, lucks play an important part. You will not be able to know what stocks are they buying and selling anytime. Who operates the fund that you are investing. They normally aggressively promote their funds during boom time hibernate during bear market. In addition, they load up high entrance fees to make sure you will not be able to leave the fund as soon as possible. Then they slaughter you with yearly management fees. Worse still ,you have no chance to pour out your grievances once you buy a wrong funds as no AGM is conducted. They Olson has a strong disclaimer " past years result should not be used to predict their future performance". With points highlighted above, it appears to me the the operators are running sure win business , you , as investors in mutual fund merely rely on God bless you.
2016-09-13 18:06
To prevent getting "slaughtered" by the fund house or the market, you can consider to invest in 0% front loading KLCI tracker fund. We have RHB KLCI Tracker Fund to meet your need. Buy handsomely when KLCI index moves above its SMA 200 line and sell when long term up-trend becoming reversed.
2016-09-13 18:10
Posted by MG9231 > Sep 13, 2016 06:06 PM | Report Abuse
Mutual fund is actaually a mini Bursa, if you look at its long term unit price for any individual fund is similar to any stock in the Bursa. So, lucks play an important part. You will not be able to know what stocks are they buying and selling anytime. Who operates the fund that you are investing. They normally aggressively promote their funds during boom time hibernate during bear market. In addition, they load up high entrance fees to make sure you will not be able to leave the fund as soon as possible. Then they slaughter you with yearly management fees. Worse still ,you have no chance to pour out your grievances once you buy a wrong funds as no AGM is conducted. They Olson has a strong disclaimer " past years result should not be used to predict their future performance". With points highlighted above, it appears to me the the operators are running sure win business , you , as investors in mutual fund merely rely on God bless you.
Well said,
Icap TTB is now squeezing everybody by putting Cash in FD and drawing high fees. Better vote him out and replace him with MG9231
At least MG9231 is not a wastrel. Live frugally, wear short, buy slipper from pasar malam and eat at cheap coffee shop to save money just like Warren Buffet eating burger and oreo biscuit everyday.
Change Icap Biz name to Machine Gun Fund.
Hahaha! SOOO GOOOD!!! CLEVER!!!!
2016-09-13 18:12
Posted by ks55 > Sep 13, 2016 09:50 AM | Report Abuse
If you think Unit Trusts suck, wait till you see the Insurance companies' life policies.
No more guaranteed cash value (or surrender value), but the value of the units you have at the prevailing price.
Insurance companies will not take care of your interest, but their own backside.
This is the same as Public Mutual.
Insurance life policy, those participate in the profit ones, has two components; one is life coverage and the other investment. The investment return will probably mimic that of unit trusts or managed fund. The killer is the marketing cost. Insurance agents are rewarded with a few hundred percent of the annual premium paid. With this taken straightaway from your policy, how can one get good return from the investment portion of the life policy?
It is just common sense. However, few policy holders understand it. Even licensed financial advisors, not to mention insurance agents, either they don't understand it which i am not surprised, or they deliberately don't want to know.
Sorry, I am just being very direct. Of course there are also some good and knowledgeable licensed professional financial advisors around, but they are far and few.
2016-09-13 19:43
I hate unit trust.. a bunch of small fees sucking my potential yield...dam
2016-09-13 19:53
Some of my friends asked me why other people make moneys investing in mutual fund but they lost. Then i asked them did they put in money every month or regularly, they said no, they only put in one lump sum once only. No wonder, the power of mutual fund is dollar averaging with regular investing. If you only put in one lump sum, then that's depend on luck, if you happen to invest when the market is low, then you win, but if you happen to invest when market is high, then ....god bless you, :D
2016-09-13 20:21
Posted by Hiu Chee Keong > Sep 13, 2016 08:21 PM | Report Abuse
Some of my friends asked me why other people make moneys investing in mutual fund but they lost. Then i asked them did they put in money every month or regularly, they said no, they only put in one lump sum once only. No wonder, the power of mutual fund is dollar averaging with regular investing. If you only put in one lump sum, then that's depend on luck, if you happen to invest when the market is low, then you win, but if you happen to invest when market is high, then ....god bless you, :D
Dollar cost averaging (DCA) has been long debunked in personal finance. The long-term return of the stock market is up. you can't possibly get higher return over a long period by drip feeding your money, compared to invest in one go when you have the money.
DCA, however, is a safer strategy though, for those people who can't sleep well when the market is down.
2016-09-13 22:16
Posted by batman11 > Sep 13, 2016 06:10 PM | Report Abuse
To prevent getting "slaughtered" by the fund house or the market, you can consider to invest in 0% front loading KLCI tracker fund. We have RHB KLCI Tracker Fund to meet your need. Buy handsomely when KLCI index moves above its SMA 200 line and sell when long term up-trend becoming reversed.
The long-term return of tracker fund will mimic the return of the broad market, less the annual management expense ratio. You can actually mimic the broad market return by buying the component stocks of KLSE, without having to pay the management fees.
Then you are talking about market timing here which is not for unit trust, which should be long-term investment to get any decent return.
2016-09-13 23:20
why need to debunk DCA at the first place ? it didn't lie to anyone, and didn't miss-lead anyone, the concept is simple straight forward. If one miss-understand it and never try to understand it at the first place, then it is not DCA's fault. Since we can't time the market, we don't know when it's going to be up or down, so we put in money regularly. If market keep going down, whether DCA or one lump sum will go to hell anyway. and if market keep going up, both one lump sum and DCA also make money. yes, long term market is going up, but if you put one lump sum and happen to buy gold when it's 1800, how many year you need to just break even ?
2016-09-14 08:52
Everyone who follows Mr kcchongnz columns will agree that kcchongnz gives out good and well thought out advices. For that, we cannot thank him enough. His opinion on mutual funds especially Public Mutual is spot on target. I once got so frustrated with Public Mutual that I wrote a 3 page letter and handed it over to their Wealth Manager and asked her to forward it to their HQ.In my letter, I asked Public Mutual why I would want to waste my time and money investing in many of their non-performing funds. I highlighted that the rates of FD returns were higher than their non-performing funds and named some of the funds I held or had sold off. From my experience,I can safely conclude that their fund managers push their agents to sell slow moving funds that does not benefit its investors in the long run. After carrying out my research, I emailed my Public Mutual agent and asked him whether he was asked to promote slow moving or non-performing funds to their clients. He did not bother to reply to my queries, so I made my own conclusions. The agent had years earlier persuaded me to switched my portfolio from some performing funds to what he claimed was " sure Winners" at no cost in switching. Sad to say, I held those non-performing Public Mutual funds for many years and finally sold it off last year with no profits. These funds were Far East Dividend and China Select fund. Another was a Sukuk fund that the bank Wealth Manager says could pay out 4% to 6% per annum. I sold it off 18 months later because upon reading the annual shareholders report, Public Sukuk was lending out our money to "Highway concessionaires, plantation groups and Power plant operators at below 4% interest. So how can they pay me 4% to 6% per annum. Better invest on your own but with your eyes wide open.Learn from lessons taught by kcchongnz even if it is just discussions in a forum. Keep it up Mr KCCHONGNZ.
2016-09-14 12:18
Posted by Hiu Chee Keong > Sep 14, 2016 08:52 AM | Report Abuse
why need to debunk DCA at the first place ? it didn't lie to anyone, and didn't miss-lead anyone, the concept is simple straight forward. If one miss-understand it and never try to understand it at the first place, then it is not DCA's fault. Since we can't time the market, we don't know when it's going to be up or down, so we put in money regularly. If market keep going down, whether DCA or one lump sum will go to hell anyway. and if market keep going up, both one lump sum and DCA also make money. yes, long term market is going up, but if you put one lump sum and happen to buy gold when it's 1800, how many year you need to just break even ?
It will be interesting to watch the video and do some exercises on DCA to see if DCA is a Holy Grail in investing, or is it just a myth
https://www.youtube.com/watch?v=spQFSjSvzwo
http://www.moneychimp.com/features/dollar_cost.htm
2016-09-14 12:54
Never trust in Fund Manager. Only trust warrent rule. Buy low sell high. Only 0.00001% Fund manager is good.
2016-09-14 13:34
kikikiki! yayaya, truth is hurt! pls don't buy unit trust! fund manager want to earn your money only!
2016-09-14 13:45
I have invested some RM130k in Public Mutual using EPF over the past 10 years with current value at RM205k. Returns 75% for the period. It all depends on what funds you have invested.
2016-09-14 13:56
Posted by winston1 > Sep 14, 2016 01:56 PM | Report Abuse
I have invested some RM130k in Public Mutual using EPF over the past 10 years with current value at RM205k. Returns 75% for the period. It all depends on what funds you have invested.
You are one of the lucky ones investing in unit trust. However, your return in CAGR is only 4.7%, way below EPF.
So if you withdraw EPF and invest in it, then you become the unlucky one as the performance is substantially below EPF return.
2016-09-14 14:10
http://m.free-online-calculator-use.com/cagr-calculator.html
Use this link to calculate cagr
2016-09-14 14:29
My experience with unit trust is this:
1. i use to DCA amb unit trust for 5 years; then sometime in late 1990's my units grow from 1000 to 3000 plus. However, by the time i need the money in late 90's it was consolidated to 0.30 each. So after 10 years, i get back my capital.
2. I invested in pru guaranted capital for 5 years. I get dividend for 3 yrs totaling 6% but 2 years without dividend. I finally withdraw upon maturity my capital...gain only 2%.
3. I try again with HLG. After getting div. only for 2 years...i think 5%, the principal depreciation by 20%. I sold at a loss. And the staff did tell me that the whole team was kicked out.
4. Last year i purchase eastspring...after 1 yr the div, after receiving 2 dividends, i still cannot cover my fees. I switched.
That's my sad story.
2016-09-14 14:31
130k put in epf assume 6.5% return
Become 244,027.87 in 10 years
Not bad
Pub mutual only give you 205k
39k short of epf
2016-09-14 14:41
EPF give better return or you can invest yourselves with good dividend paying stock, never with unit trust . They are just a bunch of liar
2016-09-14 14:50
stocks & bonds are artificially driven by central banks & hedge fund managers. time to dump stocks & bonds for phyical gold. outlook for fed hike (also ECB & BOJ) is gloomy and the worst has yet to begin. the 555 trillion debt bubble will implode and that's the end of fiat currency.
2016-09-14 14:54
Posted by PlsGiveBonus > Sep 14, 2016 05:38 PM | Report Abuse
Ytl give 7% dividend
Buy!
Yes, YTL & YTL POWER Both Good!
But the surprise will be from OPCOM! Someday, sometime opcom going to announce a surprise dividend!
2016-09-14 17:40
Posted by PlsGiveBonus > Sep 14, 2016 05:41 PM | Report Abuse
I will only agreed with your Ytl call
The rest is but joke
:(
Haha!
Today is 14th Sept 2016
Calvin stated Opcom will give a surprise dividend some day!
Just mark these words & SEE.
Yes or no ONLY TIME IS OUR WITNESS
2016-09-14 17:43
pb mutual is worst, PRS 3year return is 0%!!!!! PSF 3 years return is 4% only.. niasin
2016-09-14 18:15
PRS return can be as high as 18% if 3k deduction from your income tax :)
2016-09-15 10:23
Hi Kc, I've never invested in any mutual funds before. I've mostly invested in the market by myself using the wisdom and knowledge from Graham and Doddsville.
But I would like to recommend mutual funds to a friend that wishes to invest but do not have the time and knowledge to do so.
Do you mind to share your experience with me how do much they charge (Registration fee, annually, commission, etc)?
Thank you in advance.
2016-10-14 17:46
Raider advice u to invest in unit trust only when u have a tax advantage, like the Private Retirement Funds where u can get a tax deduction of Rm 3000 per year.
At least u r already make a gain by getting using the tax deduction.
REMEMBER U R ENTITLE RM 3,000 DEDUCTION IF U INVEST INTO A PRIVATE RETIREMENT SCHEME EVERY YEAR....!!
2016-10-14 17:53
Ezra,
I talked a little bit about the costs of investing in unit trust here
http://klse.i3investor.com/blogs/kcchongnz/45121.jsp
Try going through Fundsupermart, it is much cheaper. Goggle it.
2016-10-14 21:19
units trust are suitable for those that don't have the time and expertise to parked their funds.
i don't invest into these or other schemes, i manage my own investment in gold,
stocks and banking saving products and insurance investment plus protection products.
2017-05-20 12:54
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Tq For the thoroughly explanatory article .
2016-09-13 02:13