Are Unit Trust Fund Managers Prepared for Budget 2014??

Despite the recent temporary US Government shutdown affecting the US stock market, the expected spillover effect on our local Bursa did not materialize entirely. The second factor which is the impending announcement of Budget 2014 looked set to take center stage instead. Majority consensus are expecting that the budget, once announced would have an adverse impact towards the stock market. 

With the majority of my investment portfolio allocated to equity based unit trust, I thought it might be a good idea to find out how fund managers are preparing their strategy to maximize the opportunities created from this scenario. 

The simplest verification is to check the movement of a fund's asset allocation. In this post I've decided to select a few of the top performing equity based unit trust funds for the purpose of this verification. However I decided not to provide the name of the funds in order to prevent any accusation of being bias. 

Case Study 1 : Top Performing Equity Fund "A"

Asset Allocation Movement from 30th June 2013 til 31st August 2013:

Comments:

As of 31st August 2013, the cash allocation (liquidity) for Fund "A" is at 34.10% of the Total Fund Value. In comparison to the month of July and June, this is a clear indicator that the fund manager is anticipating an opportunity to purchase stocks at bargain prices. Despite not having the data for September 2013, I expect the liquidity for this fund to remain the same or perhaps higher. 

Generally, the increase of cash/liquidity is due to the following possibilities:

1. Fund manager decides to take profit by selling certain stocks. 
2. Fund manager decides to cut loss by selling certain stocks.
3. Fund manager is expecting/predicting that the market outlook to be negative, hence he/she starts to liquidate their stock holdings to generate cash for opportunity/bargain buying. 

In this case, I believe the rise in liquidity for Fund "A" is highly due to Possibility Number 3. 

Never the less in order to reaffirm that the rise in liquidity is due to the upcoming Budget 2014 announcement, we shall take a look at the asset allocation of another top performing equity fund from a different company.

Case Study 2 : Verification via Top Performing Fund "B"

a) Asset Allocation Movement as of 31st May 2013

May 2013 - Cash Allocation : 9.9%

b) Asset Allocation Movement as of 31st July 2013

July 2013 - Cash Allocation : 33.1%

c) Asset Allocation Movement as of 31st August 2013

August 2013 - Cash Allocation : 41.0%

Comments:

Fund "B" indicates that the cash allocation of their fund has risen from 9.9% in May 2013 to 41.0% in August 2013. The large allocation of cash/liquidity indicate that fund manager for Fund "B" is expecting a drop in the stock market which would create numerous opportunities to investing into stocks at low prices. 

In fact, Fund "B" has the highest cash allocation among its rival funds in this category. With only 59% invested into stocks, in an advent that the stock market drops by 10%, Fund "B" will only suffer losses of approximately 5.9% of the total value of this fund.

By having a large cash/liquidity on standby, Fund "B" becomes an attractive investment option for investors as it creates an opportunity to generate higher returns through future gains made from purchasing stocks at low prices.

Conclusion

Based on the above, I strongly believe that there is an opportunity for investing into equity based unit trust fund after Budget 2014. While there is no guarantee that the Budget 2014 will create a negative impact on the stock market, the increase in cash allocation of top performing funds are pointing to that outcome. 

That aside, some readers might also ask why invest into unit trust when we know that the opportunity is there to profit directly from investing in stocks? In all honesty, the choice of investing depends on each individual, you can read mine HERE.

The bottom line for an investor when it comes to selecting an investment vehicle is to be comfortable with the risk that comes with it. There's no reason for one with low risk tolerance to join the bandwagon of high risk stock investing just because there's a promise of higher returns. If you look closely there are other available investment options that you can enjoy slightly lower returns in exchange for a peaceful sleep at night. 

Cheers and Happy Investing!

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The Hunt for RED OCTOBER!

For unit trust investors invested into equity related funds, the past one week should see your gains reduced in parallel with the minor drop of the Kuala Lumpur Stock Exchange from high of 1801.83 points on the 20th of September 2013 to 1776.16 points as of 27th of September 2013 (last Friday).

Downside Volatility KLSE

Further downside is seen in the local Bursa today (30th September 2013), shedding -10.33 points as of 10.54am.

Red Monday

This drop today was largely triggered by news released yesterday that the US Government might shutdown come Tuesday night due to Democrats and Republican at loggerheads about the following issue:

Politicians at Loggerheads!

Once again political disagreement rears its ugly head in the US Senate as the resulting deadlock of the above mentioned issue will create further instability to the economies and stock markets worldwide. 

What to Expect?

The KLSE for the coming week is expected to be worst if there is no conclusion to the US Government Shutdown Agenda. The Dow Jones tonight should see a sizable drop as US investors exit the stock market for temporary safer investment haven while waiting for the issue to be resolved. 

With Budget 2014 to be announced by the end of October 2013, we should expect spending cuts by the Government (no more gula-gula for the rakyat) and the introduction of GST to address the debt issue faced by our Government. 

Pening...hutang banyak!

All in all, I'm expecting a so called "RED OCTOBER" for our local stock market. For those whom have invested in unit trust, here's my recommendation:

Recommendation According To Strategy Used:

1) Existing Dollar Cost Averaging Investor - to continue the strategy and possible entry of additional investment after Budget 2014 to purchase more units at lower price.

2) Existing Lump Sump Investor - this is a sticky situation as it depends on the investment horizon. If are already making gains of now, perhaps you might want to consider realizing your profits. This can be reinvested after Budget 2014. For those whom are in the red, you can consider averaging down your unit price by making additional investment.

3) New Investor - be patient and wait for the opportunity to start your investment after Budget 2014.

Disclaimer!

The above recommendations are general guides for long term unit trust investors. Do take them as a reference in decision making. Different investors have different investment goals and purpose, therefore there's no one right/correct/suitable recommendation for everyone. Do seek respective unit trust consultant for their views and decide what's best for your investment portfolio.

Summary

For every downside of an investment, there lies an opportunity for one to profit. One can never eliminate risk from investing, however one can also take advantage of risk and turn it into an advantage. 

Cheers and Happy "Red October"!

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Malaysia Retirement Survey 2013, Surprise Surprise!

Today I came across this interesting survey report by HSBC Insurance Holding Limited, London titled "The Future of Retirement, Life after Work?". The survey represented views of more than 16,000 people in 15 countries (including Malaysia) taken between July 2012 and April 2013. However I intend to show survey views and responses coming from Malaysia only. Now let's take a look at what's surprising about this survey!

Survey Question 1: Do you expect to move from working full time into semi-retirement before you retire fully?

Target Survey Group: Not Fully Retired

Survey Outcome:

Click to Enlarge

Explanation: 

‘Semi-retirement’ involves a reduction in working hours but a continuation of some paid employment as one approaches or reaches retirement age.

Semi-retirement was an option for the majority of today’s retirees: 

• 57% were given the opportunity to and, of these, 55% took it up.
• Over half of those not fully retired either plan to semi-retire (54%) or are already semi-retired (5%). 
• Moreover, a third (33%) of 55-64 year olds are already semi-retired.

My Comments: The key highlight here is the age group of 55-64 years old. I believe many Malaysians would prefer to fully retire at this age and be allowed the freedom to pursue other priorities. Yet 33% in this age group are still working for specifics reasons which we shall discover in Survey Question 2!

Survey Question 2: What do you expect to move or why have you already moved from working full-time into semi-retirement?

Target Survey Group: Not Fully Retired

Survey Outcome:

Click to Enlarge

Explanation: 

Of those who plan to semi-retire, many have positive reasons for doing so: 

• 47% because they would like to keep active 
• 37% aspire to keep working in some capacity 
• 35% want to ease their transition into retirement.

Key concerns are for reasons highlighted in the the red boxes:

• 26% could not retire fully 
• 24% are still paying off other debts past retirement age
• 24% needed to bridge a shortfall in retirement income

My comments: The figures key concerns could even be higher knowing that Malaysians are shy to admit their own fallacy even if this is a survey.

Survey Question 3: Overall, financially do you think that you prepared adequately for a comfortable retirement?

Target Survey Group: Fully Retired

Survey Outcome:

Click to Enlarge

Explanation: 

• About a fifth (22%) of today’s retirees say they failed to prepare adequately (21%) or at all (1%) for a comfortable retirement.
• Amongst this group of retirees, less than two-fifths (39%) realised that their preparations were insufficient before retiring.
• Comparatively, over half (53%) of today’s working age people say that financially they are not preparing adequately or at all for a comfortable retirement.

My comments: This is indeed worrying especially the last point where 53% of Working Age People are not preparing adequately for a comfortable retirement. With rising cost of living, inflation and high household debt ratio for Malaysian today, the possibility of Gen X, Gen Y and Gen Z facing a difficult retirement life in the future could be much more higher then what the Baby Boomers are facing now!

Survey Question 4: People sometimes say ‘If only I knew then what I know now’. Which, if any, of the following would you say is the best financial advice you have ever received?

Target Survey Group: Fully Retired

Survey Outcome: 

Click to Enlarge

Explanation: 

Given that a lack of adequate preparation can be an obstacle to realising retirement aspirations, we asked retirees to look back at the best financial advice they have ever received.

• ‘Start saving at an early age’ was the most popular piece of advice (chosen by 63%)
• ‘Buy only what you need’ (52%)
• ‘Develop a financial plan for the future (52%).

My comments:

The elders have spoken! Need I say more?

Summary

Now that the facts are there for everyone to see, I believe it is time for you to start grabbing hold of your personal financial leash. Start by having a control over your unnecessary wild horse spending. Reign in your finances and start with basic of just saving your money in a fixed deposit account. If you've been doing that, consider looking for alternatives of investing that could generate higher returns. The current retired generation has shared their biggest regret, why let the same regret be passed on to you when you've got the capacity to make a change?

P.s :The four survey questions in this post are just some of the interesting responses of this survey. If you like to read the full survey, feel free to look it up HERE. 

P.p.s : The survey result in this post is Reproduced with permission from The Future of Retirement, published in 2013 by HSBC Insurance Holdings Limited, London.’

Cheers and Happy Saving!

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Personal Ranting

If I were to present the outcome of this survey using my capacity as a financial consultant, some might perceive this as a scare tactics being deployed in order to coax one to invest. In fact some of my previous blog posts have also received some criticisms as well as receiving a few email queries asking if I am a consultant trying to promote certain products.

Yet this was never the intention when I created Invest Made Easy. It is a blog to capture my personal journey of financial education and allowing others to benefit from reading it. Offering my services is an option I leave for readers that have decided that it is worthwhile to seek advisory. Rest assured it is my greatest pleasure to have rendered my service for friends, readers and colleagues whom have met me personally or corresponded via email. For that I can only say THANK YOU!