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?

--------------------------------------------------------------------

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!

Cigarette Producer on a Roll...BAT (4162) Stocks on the Rise!

Our latest analysis (6 Dec 2020) indicate there is a further upside to BAT stocks within the next 30-60 days. 

Target Price prediction for BAT:

TP: RM16.12 (+20.44%)

Further Price Upside: RM24.43 (+82.62%) ~ if the bullish scenario remains

Stop Loss Price: RM11.07 (-17.29%)  

Price Simulation and Commentary:

That's all folks! Happy Investing!