Dissatisfaction of the Unit Trust Industry, are you aware?

In this survey conducted by FIMM in 2019, clearly there were key dissatisfactions that require key changes to the industry. I recall writing my views both on this blog and on IME Facebook circa 2012-2016, expressing similar concerns as well as sharing my opinion that the future of unit trust will be via digital platforms and investors are given freedom to self service when investing.

 

Looking back, the industry prior to covid-19, was very much consultant dependent. There were thousands of licensed unit trust consultant working for various fund houses, yet many investors were unhappy with the high sales charge coupled with poor/almost absent advisory services from these consultant (as reaffirmed by the 2019 survey)

In fact relationship between investor and consultant back then were more transactional, involving filling up forms for cash investment/withdrawal, taking thumb prints and signatures for epf withdrawals, etc. The issue was systemic (in my opinion), but not much could be done as the livelihood of many in the industry were dependent on such commissions. The dependency on commission was clearly highlighted by this post from The Malaysian Reserve in 2019, where the introduction of EPF's i-Invest platform raised alarming concerns on how it could impact the income of consultants.

Then the Covid-19 pandemic (2020-2021) hit! The resulting lockdowns during the pandemic phase of Covid-19 practically disrupted the traditional "transactional and manual" way of work of unit trust consultants. 

As a matter of fact, Covid-19 was the tipping point for the industry to embrace digital. Investors begin to learn how to self service by embracing digital platforms such as eUnittrust  to transact funds, have access to wider choices of funds from these platforms as well as enjoy massive reduction in sales charges for cash investment via these platforms. EPF's introduction of i-Invest with zero sales charge to invest into epf approved unit trust funds was another significant moment for this industry. 

Personally, I see these changes over the past 2-3 years (which was accelerated by Covid-19) as a welcomed one. We now witness the democratization of the unit trust industry as well as empowerment of investors to make their own investment choices. Which is rightly so if you think about it! Unit trust has been touted as an option for many to invest passively for their retirement, yet how many of us are actually aware of where their money invested in or how the investment is doing? 

Food for thought indeed...if you are planning for the future.

Cheers and Happy Investing!

Is Investing into Award Winning Funds A Good Strategy? (Part 2)

Recap of Part 1

In Part 1 of this article, we analyzed how Award Winning Funds in 2017 under the "Malaysia Equity" categories are performing as of today as well as compare the funds against the rivals in the category.

We concluded in Part 1 that investing into Award Winning Funds under the Malaysia Equity category is not the best strategy for investor to utilize when it comes to selecting fund to invest into. 

Check out the full post for Part 1 HERE

Part 2 Analysis

For part 2, we analyze how Award Winning Funds in 2017 under the "Mixed Assets" categories perform. Using the similar approach, we will try to answer the following:

1. If one was to invest into award winning funds in 2017, what would be the performance (cumulative returns) of the funds as of today?
2. Are those award winning funds in 2017 remain as leader (the best) as of today or other rival funds within the same category have better result?

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If one was to invest into award winning funds in 2017, what would be the performance today?

We will derive the following outcomes in order to answer the 1st Question:

• The cumulative returns (%) of the award winning funds from 2nd March 2017 (a day after result was announced) to 1st June 2022 
• The estimated annualized return of the award winning funds
• Are the estimated annualized return of the award winning funds is higher than 5% ? Otherwise it would be wiser to invest your money in ASB, ASNB or just leaving it in EPF

Derived outcomes of 2017 Lipper Award winning funds under the group of "Mixed Assets" for 3 Years and 5 Years

Clearly from the table above, 71.4% of 2017 Lipper Award winning funds have performed poorly over the past five years (5 out of 7 funds under the "Mixed Assets" categories). Note: Poor performance in this analysis is defined as less than 5% in annualised returns.

2. Are those award winning funds in 2017 remain as leader (the best) as of today?

The analyis for Question 2 comes as no surprise with rival/competitor funds under similar categories of the 2017 Lipper Award winning funds performing multiple times better. 

We also observed that annualised returns of rival/competitor funds for all categories exceed the 5% benchmark. In other words, investing into rival/competitor funds have better risk vs reward outcome.

Conclusion for Part 2

Similar to the outcomes in Part 1, investing into award winning funds under "Mixed Assets" category also produced similar fate as award winning funds under "Malaysia Equity" category. We can safely conclude that performance of majority of award winning funds tend to degrade after garnering alcolades (approximately 70% and above).

As an added bonus, we have another hypothesis which we intend to validate and published under Part 3, so stay tune and Follow our Facebook for updates!

Cheers and Happy Investing

Analysis of Fund Performance versus Fund Size

For many years, we have observed (albeit without proper analysis) that the size of an unit trust fund (some refer to as total assets or net asset value) tend to have an impact on the performance of the fund. 

As per our general observation, the larger a fund becomes, the harder the fund will struggle to generate returns as compared to rivals funds that are smaller in side. 

However investors must also take note that performance of a fund is not entirely dependent on size of fund alone, but also must consider other factors such as the geography or sector a fund is investing in, the fund's investment strategy as well as the fund manager's expertise (just to name a few factors)

Now back to our analysis on "fund size versus fund performance".......

We begin our analysis by extracting data for the top 20 performing Equity funds in terms of 3 Yrs Annualized Returns (as of 9th June 2022) as well as the respective fund size. 

We then plot both the "Ratio of (%) Returns to Fund Size" versus "Fund Size" and managed to derive the following observations:

Observations

1. Out of the 20 funds, there are 2 funds which we deem as outlier and have been excluded from the graph above
2. The remaining 18 funds have 3 Yrs Annualised Returns ranging from 16.44% to 29.45% (which is pretty impressive!)
3. All remaining 18 funds clearly have fund size that are lesser than RM250 million
4. 15 out of 20 funds (75%) have fund size that are lesser than RM150 million
5. The Top 3 best performing funds averages 27.49% in terms of 3 Yrs Annualised Returns with average fund size of RM 71.57 million

Summary

Clearly, this analysis provides evidence that an investor should consider the size of a fund as part of the criteria of selecting a fund to invest in.

Recommendation

When to use smaller fund size criteria:

• When deciding between two or more funds that are equal within the same category, go for the fund with the smaller fund size. This allows an investor to find the best cut gems within existing gems
• Try to use the general guideline of not investing into funds that are larger than RM150 million in size. 

When NOT to use:

• Perform due dilligence to verify funds that fall under the "Feeder Fund" category, for the rule of using fund size is not applicable
• Do not use this criteria alone to select fund. 

Cheers and Happy Investing!

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Is Investing into Award Winning Funds A Good Strategy? (Part 1)

One of the simplest strategy many Unit Trust investors use to select unit trust fund is refer to "Award Winning" funds. In this context, the most widely acknowledge awards for unit trust performance would be that of the annual "Lipper Fund Award". As a matter of fact during the early years of this blog, we too track and revered the results of Lipper Fund Award  from 2012 to 2017. 

Fast forward five years to the present day, we now raise the question of the effectiveness of the strategy to invest into award winning funds. We seek to answer two keys questions:

1. If one was to invest into award winning funds in 2017, what would be the performance (cumulative returns) of the funds as of today?
2. Are those award winning funds in 2017 remain as leader (the best) as of today or other rival funds within the same category have better result?

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Our analysis to the questions will be via award categories, with this blog post focussing on award categories under the "Malaysia Equity" for 3 Years and 5 Years

1) If one was to invest into award winning funds in 2017, what would be the performance today?

We will derive the following outcomes in order to answer the 1st Question:

• The cumulative returns (%) of the award winning funds from 2nd March 2017 (a day after result was announced) to 1st June 2022 
• The estimated annualized return of the award winning funds
• Are the estimated annualized return of the award winning funds is higher than 5% ? Otherwise it would be wiser to invest your money in ASB, ASNB or just leaving it in EPF

Derived outcomes of 2017 Lipper Award winning funds under the group of "Malaysia Equity" for 3 Years and 5 Years

Clearly from the table above, 75% of 2017 Lipper Award winning funds have performed poorly over the past five year in 9 out of 12 "Malaysia Equity" categories. Note: Poor performance in this analysis is defined as less than 5% in annualised returns.

2. Are those award winning funds in 2017 remain as leader (the best) as of today?

The analyis for Question 2 comes as no surprise with rival/competitor funds under similar categories of the 2017 Lipper Award winning funds performing multiple times better. 

We also observed that annualised returns of rival/competitor funds for all categories exceed the 5% benchmark. In other words, investing into rival/competitor funds have better risk vs reward outcome.

Conclusion for Part 1

Clearly we have shown that investing into award winning funds might not be the best strategy to adopt (at least for investing into 2017 award winners under "Malaysia Equity" category). Future Parts of this topic will see us analyse other award fund categories for 2017 as well as other award winning funds from 2018 onwards.

By then, we hope to be able to conclusively conclude that investing into award winning funds might not be the best strategy.

Cheers and Happy Investing

"Top Performing Unit Trust Funds" Data, is it useful?

If you look at the information available on the internet, most blogs and sites tend to provide unit trust statistics regarding Top Performing Unit Trust Funds over 3 Years, 5 Years or 10 Years. Here are some snapshots of fund performance from eUnittrust taken as of 7 June 2022:

Top 5 Performing Funds (3 Yrs) as of 7th June 2022

Top 5 Performing Funds (5 Yrs) as of 7th June 2022

Top 5 Performing Funds (10 Yrs) as of 7th June 2022

No doubt such statistics do provide some insights to the investor in terms of which Unit Trust (UT) funds and in general able to provide the following benefits

1. Illustrate that investing into Unit Trust (albeit the right one) can be profitable over a 3, 5 or 10 years period.
2. Help investor in zooming into specific funds to research upon. This benefit is important to any investor especially when the investors wants to find out which are the best among the hundreds of funds available.
3. These statistics provide the additional boost to help UT marketplaces or UT agents in promoting funds to investors

Now there are also a set issues with these statistics especially for the more savvy UT investors. Let me try to list them down below:

• These statistics are changing consistently (daily basis). 

For example a Top 10 List of UT over 3 Years (published today) may contain list of funds that are different from a Top 10 List of UT over 3 Years (published 6 months ago). 

The reason such a scenario exist is due to the way the performance of a fund is calculated as illustrated below:

Fund A's Cumulative Returns (%) over 3 Years (as of 2 June 2022) : +66.96%

3 Years Cumulative Returns (as of 2 June 2022)

 Fund A's Cumulative Returns (%) over 3 Years (6 months ago) : +158.75%

3 Years Cumulative Returns (as of 31 Dec 2021)

What this means is that, such data on top performing funds is not a good gauge when it comes to trying to identify funds to invest into. The volatility of such data renders the fund ranking tables as a means to serve the soft benefits of Unit Trust as per written earlier.

• The data is purely a list of the best performing funds at any present moment, yet such data is most commonly utilized by parties in promoting UT funds. 

Such data can be rather misleading to the uninitiated new investor, especially when used as reference by blogs, social media or sites and to a certain extent unit trust consultants in promoting funds.

Example of Historical Performance used to promote funds on social media

This does not construe that all blogs, sites or UT consultants are intentionally misleading an investor, rather it should a mandatory responsibility for the educated party to inform the uninitiated investor when displaying such information .

In a nutshell, an unitiated investor when faced with such information should practice further due dilligence when selecting funds to invest into. In fact a simple google search could provide a potential list of tips and technique to when it comes to selecting unit trust funds. 

I would also like to add that apart from  knowing how to selecting the "best" fund, implementing the right strategy to investing is also crucial in ensuring that your reap the rewards in investing passively via Unit Trust. Check out also some of my older articles on unit trust investing HERE

Cheers and Happy Investing!