Investing into Morningstar's "5 STAR" Rated Unit Trust Funds

The present dilemma with Malaysia's unit trust industry is that most Malaysians believe in the concept of "bigger is better". Malaysian investors generally buy into the idea that a fund will be top performing if it is managed by a large and well known fund house.

This data from Morningstar clearly indicates that the Unit Trust market share is dominated by a few fund houses.

Malaysia Fund Houses Market Share as of April 2016

While there is nothing wrong investing into large or popular fund houses, I believe that an investor can get better returns by investing into funds that are highly rated instead. The term highly rated in this context comes from a system of STAR rating provided by a neutral fund tracking website called Morningstar.

What is Morningstar?

Morningstar is a non bias website which tracks the performance of all unit trust funds in Malaysia. Morningstar also rates and categorizes unit trust funds using its own STAR rating system introduced in 1985. The best performing funds will be rated with the maximum of 5 STARs.

What are Morningstar's 5 STAR Rated Funds?
Based on the data extracted from Morningstar as of 5th June 2016, there are only 28 funds with overall 5 STAR rating. The list of 28 funds are as shown below:

Fund Name	Category
RHB Smart Balanced	Blended - Balanced
RHB Growth & Income Focus	Blended - Balanced
RHB Dana Hazzem	Blended - Balanced (Syariah)
Apex Dana Al-Faiz-i Inc	Blended - Balanced (Syariah)
Dana Makmur Pheim	Blended - Balanced (Syariah)
RHB Smart Income	Blended - Conservative
AmDynamic Bond	Bonds - Malaysia
AmDynamic Sukuk	Bonds - Malaysia (Syariah)
RHB Islamic Bond	Bonds - Malaysia (Syariah)
CIMB-Principal Asia Pacific Dynamic Inc	Equity - Asia Pacific ex-Japan
Affin Hwang Select Asia (ex Jpn) Quantum	Equity - Asia Pacific ex-Japan
CIMB-Principal Global Titans	Equity - Global
CIMB-Principal Greater China Equity	Equity - Greater China
Eastspring Investments Equity Income	Equity - Malaysia Income
AMB Ethical Trust	Equity - Malaysia Large-cap
CIMB-Principal Equity	Equity - Malaysia Large-cap
Manulife Investment Regular Savings	Equity - Malaysia Large-cap
Public Ittikal Sequel	Equity - Malaysia Large-cap (Syariah)
Eastspring Investments Dana al-Ilham	Equity - Malaysia Large-cap (Syariah)
Eastspring Investments MY Focus	Equity - Malaysia Mid/Small-cap
Kenanga Growth	Equity - Malaysia Mid/Small-cap
Eastspring Investments Small-cap	Equity - Malaysia Mid/Small-cap
RHB Smart Treasure	Equity - Malaysia Mid/Small-cap
Manulife Investment Shariah Progress	Equity - Malaysia Mid/Small-cap (Syariah)
KAF Money Market	Money Market - Malaysia
RHB Cash Management	Money Market - Malaysia
Libra MoneyExtra Fund	Money Market - Malaysia
Libra Dana Safa	Money Market - Malaysia (Syariah)

Breakdown of 5 STAR rated funds according to Fund Houses
The table below indicates the breakdown of 5 STAR funds according to fund management companies.

Fund House	No of Funds	Percentage
RHB Asset Management Sdn Bhd	7	25.00%
Eastspring Investments Berhad	4	14.29%
CIMB Principal Asset Management Berhad	4	14.29%
AmFunds Management Berhad	2	7.14%
Manulife Asset Management Services Berhad	2	7.14%
Libra Invest Berhad	2	7.14%
Pheim Unit Trusts Berhad	1	3.57%
Amanah Mutual Berhad	1	3.57%
KAF Fund Management Sdn Bhd	1	3.57%
Public Mutual Berhad	1	3.57%
Kenanga Investors Berhad	1	3.57%
Apex Investment Services Bhd	1	3.57%
Affin Hwang Asset Management Berhad	1	3.57%

Percentage (%) of 5 STAR funds according to Fund Houses

By comparing the data above with the earlier data on market share by fund companies, it clearly shows that funds companies with top rated funds are being overlooked by Malaysian investors. For example, RHB Asset Management Sdn Bhd has seven "5 STAR" rated funds yet only has a meager market share of 4.83%!

On the other hand, Public Mutual Berhad with the biggest market share of 57.41% (and 97 funds under management) has only one "5 STAR" rated fund! As a matter of fact, if you look at the growth of  Public Mutual Berhad, the company has amazingly increase its market share from 56.67% in 2015 to 57.415 in 2016 despite not having many top performing funds.

The ignorance of Malaysian investors towards unit trust fund is the very reason why they are losing out on investing into funds that could provided better returns in the long run!

What are you losing out when you are not investing into these 5 STAR funds?
As mentioned earlier, Morningstar ratings are given according to the performance of each fund in terms of returns. A 5 STAR rated fund is normally one that is top performing in its respective category.

Now what I'm going to show you next are the annualized returns of these 28 funds in terms of 3 Yrs, 5 Yrs and 10 Yrs. Do take note that this is not a performance comparison between the 28 funds because each fund come from different categories with various risk level.

1) Fund performance in terms of 3 Yr Annualized Return

Fund Name	3 Yr Annualized Return (as of 2 June 16)	Available on eUnittrust?
Eastspring Investments Small-cap	29.84%	YES
Eastspring Investments MY Focus	20.26%	YES
RHB Smart Balanced	16.87%	YES
Kenanga Growth	15.90%	YES
CIMB-Principal Global Titans	13.97%	NO
RHB Smart Treasure	13.69%	YES
CIMB-Principal Greater China Equity	12.87%	NO
RHB Growth & Income Focus	12.30%	YES
Manulife Investment Shariah Progress	11.93%	NO
Dana Makmur Pheim	11.56%	YES
Eastspring Investments Dana al-Ilham	11.19%	YES
RHB Smart Income	11.09%	YES
Eastspring Investments Equity Income	8.33%	YES
RHB Dana Hazzem	7.44%	YES
CIMB-Principal Asia Pacific Dynamic Inc	7.24%	YES
Manulife Investment Regular Savings	7.08%	NO
Affin Hwang Select Asia (ex Jpn) Quantum	6.70%	YES
RHB Islamic Bond	5.80%	YES
Apex Dana Al-Faiz-i Inc	5.62%	NO
AMB Ethical Trust	5.61%	YES
CIMB-Principal Equity	5.01%	NO
Public Ittikal Sequel	4.99%	NO
AmDynamic Sukuk	4.27%	YES
AmDynamic Bond	3.89%	YES
Libra Dana Safa	3.77%	NO
Libra MoneyExtra Fund	3.66%	NO
RHB Cash Management	3.49%	NO
KAF Money Market	3.36%	YES

2) Fund performance in terms of 5 Yr Annualized Return

Fund Name	5 Yr Annualized Return (as of 2 June 16)	Available on eUnittrust?
Eastspring Investments Small-cap	17.08%	YES
Kenanga Growth	15.69%	YES
Eastspring Investments MY Focus	14.01%	YES
Manulife Investment Shariah Progress	13.87%	NO
RHB Smart Balanced	12.85%	YES
CIMB-Principal Asia Pacific Dynamic Inc	12.19%	YES
Affin Hwang Select Asia (ex Jpn) Quantum	11.79%	YES
Eastspring Investments Dana al-Ilham	11.58%	YES
Eastspring Investments Equity Income	11.38%	YES
RHB Smart Treasure	11.04%	YES
RHB Growth & Income Focus	10.19%	YES
CIMB-Principal Global Titans	10.17%	NO
Dana Makmur Pheim	8.82%	YES
RHB Smart Income	8.41%	YES
Manulife Investment Regular Savings	7.76%	NO
RHB Islamic Bond	7.68%	YES
CIMB-Principal Equity	7.00%	NO
AMB Ethical Trust	6.85%	YES
Apex Dana Al-Faiz-i Inc	6.36%	NO
CIMB-Principal Greater China Equity	5.98%	NO
AmDynamic Bond	5.57%	YES
Libra Dana Safa	3.63%	NO
Libra MoneyExtra Fund	3.53%	NO
KAF Money Market	3.37%	YES
RHB Cash Management	3.31%	NO

Note : 3 funds does not have a 5 Year performance track record yet. 

3) Fund performance in terms of 10 Yr Annualized Return

Fund Name	10 Yr Annualized Return (as of 2 June 16)	Available on eUnittrust?
Kenanga Growth	16.73%	YES
Eastspring Investments Small-cap	15.95%	YES
RHB Smart Treasure	15.68%	YES
RHB Smart Balanced	14.79%	YES
RHB Growth & Income Focus	13.96%	YES
Affin Hwang Select Asia (ex Jpn) Quantum	13.73%	YES
AMB Ethical Trust	13.12%	YES
CIMB-Principal Equity	13.01%	NO
Eastspring Investments Dana al-Ilham	13.01%	YES
Apex Dana Al-Faiz-i Inc	11.47%	NO
Eastspring Investments Equity Income	10.85%	YES
Manulife Investment Regular Savings	10.82%	NO
Dana Makmur Pheim	8.85%	YES
RHB Smart Income	8.37%	YES
AmDynamic Bond	7.61%	YES
RHB Islamic Bond	6.17%	YES
CIMB-Principal Global Titans	4.07%	NO
Libra MoneyExtra Fund	3.33%	NO

Note : 10 funds does not have a 10 Year performance track record yet.

Summary

I must stress how important it is for every investor to include the Morningstar's star rating of a fund as a key criteria when it comes to selecting a fund to invest into. However the awareness about the use of star rating is extremely low among Malaysians investors. 

Only if you are an investor that diligently searches for information about unit trust investment would mostly likely discover the star ratings of funds via the Morningstar website. If you're the type that depends on an agent or consultant for advisory, chances are you would probably never heard about Morningstar rating. In addition, most fund fact sheets does not display the Morningstar's star rating because only a limited number of funds (28 only) has the bragging rights to show off their 5 STAR rating. 

Other funds have no reason to put the star rating because there is nothing to brag about. As a matter of fact, it could be counter productive for a fund to show off a 3 or 4 STAR rating which could possibly trigger an investor to ask is there a higher rated 5 STAR fund? 

After all that is said above, I feel that putting up a post on the list of unit trust funds with 5 STAR ratings is justifiable and in line with my personal goal of raising awareness among Malaysian unit trust investors. It is my believe that an investor should be given the right to access to non bias information about unit trust fund as well as make comparison between unit trust funds easily. If you're reading this post now, do share it with your family and friends. Help educate those that are yet to be "enlightened" with knowledge and resource. Give those that you care for the option to make wiser and better choices when it comes to investing into unit trust!

Cheers and happy investing!

P.S : 

• Are you already invested into unit trust? Why not let me check for you how your funds compare against that of the 5 STAR rated ones. Just drop me an email at shanesee03@gmail.com if you like me to do a check for you!
• 18 our of the 28 funds above can be invested online at very low sales charge. Find out how you can use eUnittrust to managed your own unit trust investment! Just click HERE
• I've recently launched an online learning platform called Unit Trust Made Easy to help Malaysians to kick start their own unit trust investment. For further details, check it out HERE

Potential rise in Crude Oil price! Is there an opportunity to invest for Malaysian investors?

Over the past couple of months, price of Crude Oil per barrel experienced a huge surge in value from an all time low of USD26.20 (11th of February 2016) to the range of USD48 - USD50 as of end of May 2016. Shown below is the price movement of Crude Oil between 31 Dec 2015 till 31 May 2016:

Crude Oil price movement between 31 Dec 2015 to 31 May 2016

Despite the recent movement, price of Crude Oil is still at a level that's far from pre-2014 range of USD100+ per barrel.

Crude Oil price has got a long way to go

What caused the upward movement of Crude Oil price between April 2016 to May 2016?

Several key events which occurred recently have caused a dip in production of Crude Oil. Most significantly is the various attack on energy infrastructure by militant group in Nigeria. This has lead to a 36% fall in production of oil in Nigeria.

Militant attacks at Nigeria

Wildfires which blazed through the oil sands hub Fort McMurray at Canada is also another leading cause of shortage in supply of Canadian crude.

Canadian Wildfire

Three factors that could possibly drive Crude Oil prices higher

Factor 1 : Militant threat at Nigeria will continue to cause disruption to Nigeria's production

As recent as 31st May 2016, the militants are threatening more attacks on oil production facilities in retaliation of recent military attacks on them. This article from Platts.com clearly highlights further bloodshed is to be expected. 

Attacks will continue!

Factor 2 : The Saudis has pledged not to raise output despite the recent production shortage

In the latest OPEC meeting which ended on the 2nd of June 2016, Saudi Arabia, the second biggest oil producer in the world has pledge not to flood the oil market with extra barrels. In all honestly, I believe this pledge made by the Saudi Kingdom is largely correlated with Factor 3.

Top 15 Oil Producers

Factor 3 : Saudi Arabia's Aramco IPO

This is the biggest push factor for Crude oil price to rise. Over the last two years, Saudi Arabia has strive to maintain oil prices below USD40  by flooding the market with oil in order to kill off rival American fracking industry which produces shale oil. However the plan seemed to have failed as majority of US shale producers have a break even price that are below USD40 per barrel.

Shale break even price by county

Having the planned backfired, the Saudi Kingdom is itself hurting profusely as a result of low oil prices which are leading to budget crunches and domestic austerity such as soaring prices of gas and water.

As a result of the above, Saudi Arabia recently announced Vision 2030 with a mission to make its economy less dependent on oil. One of its key move is to sell a piece of Aramco as part of an IPO to raise funds and pay for the launching of new industries which are non oil related.

Saudi Aramco is the largest O&G company in the world in terms of revenue

In order for the Aramco IPO to be successful, the Saudi Kingdom has to whatever it takes to move oil prices higher. That includes cutting oil output and making peace with oil enemies as stated by this excerpt taken from the Forbes.

Crude oil price - Up, up and up!

According to Khalid Al Falih, Saudi Arabia's oil minister and chairman of Aramco, the IPO scheduled in 2018 would consist of less than 5% of Aramco.

An opportunity for Malaysian to invest? 

With Aramco's IPO scheduled in 2018, there's an opportunity for passive investment overa a period of 1 to 2 years. This is banking on possible initiatives from the Saudi Kingdom to bring up the price of oil again.

Crude Oil Price vs Saudi Arabia Oil Production

In addition, cheap oil prices has led to an increase in demand for oil. This was observed when oil prices started to fall from USD60 per barrel in the 2nd Quarter of 2015 and global demand for oil started to rise during the same period. 

Rise in global oil demand 

The rise in global oil demand is also the very reason why price of crude oil shot up recently when production disruption occurred at Nigeria and Canada. In summary, demand for oil exceeded the sudden shortage in supply, leading to rise in prices.

Using unit trust as a passive option for oil investment?
While majority of investors tend to go for Oil and Gas company stocks as the preferred choice of investment, I will be looking at a more passive unit trust investment with direct correlation to oil price movement.

By utilizing the fund's strategy of investing into over-the-counter (OTC) energy derivatives instrument, an investor investing into this fund can:-

• Enjoy direct correlation to oil price gains (or losses) 
• Eiminate other form of risks caused by investing into individual company stocks

Which unit trust fund is this?
Fund Background
Fund name : RHB Energy Fund
Launch Date : 23 March 2009
Available on eUnittrust : Yes
Fund benchmark : 60% S&P GSCI Energy Official Close Excess Return Index (RM) + 40% MSCI World Energy Index (RM)
Investment Strategy :

• 90% to 100% of NAV: Investments in Malaysian bonds, money market instruments, cash and deposits with financial institutions.
• Up to 10% of NAV: As capital payment for exposure to a derivative instrument in the form of a swap agreement that will provide the Fund with exposure to the global energy sector. With this capital payment, the Fund can have a notional amount of up to 100% of its NAV exposed to the Underlying which are linked to the global energy sector

Fund Performance Analysis
From the fund's factsheet dated 31 March 2016:

RHB Energy Fund Performance

Fund Performance vs Oil Price Movement
The comparison is made in terms of Year to Date (YTD) performance of RHB Energy Fund with that of Crude Oil Price movement from 31st December 2015 to 31st May 2016. The result are shown below:

• YTD for RHB Energy Fund : +18.87%
• YTD for Crude Oil Price : +32.53%

RHB Energy Fund vs Crude Oil Price (31 Dec 15 to 31 May 16)

It is clear that in terms of YTD performance, the fund was not able to return equal of the % gain made by Crude oil price. However before we make a judgement call, let's take a look a the volatility of this fund versus that of crude oil price.

Crude Oil Price volatility

RHB Energy Fund volatility

In order to make a simple comparison of volatility, I have taken major "rises and dips" of Crude Oil price between 31st December 2015 to 31st May 2016. Next I calculated the percentage gains and losses between each rise and dip for Crude Oil price and compare that with that of the RHB Energy fund. Details of the volatility comparison are then summarized in the table below:

Event	Period	RHB Energy Fund (%) Gain / Loss	Crude Oil Price (%) Gain / Loss
DIP	31 Dec 15 - 20 Jan 16	-1.75%	-28.35%
RISE	20 Jan 16 - 29 Jan 16	1.81%	26.64%
DIP	29 Jan 16 - 11 Feb 16	-0.95%	-22.05%
RISE	11 Feb 16 - 22 Mar 16	9.12%	58.21%
DIP	22 Mar 16 - 4 Apr 16	-4.85%	-13.87%
RISE	4 Apr 16 - 31 May 16	15.56%	37.51%

One positive outcome that can be derived about RHB Energy Fund is its low volatility. Major dips in crude oil prices as shown in the table does not generate equal percentage losses for RHB Energy Fund. For example between 31 Dec 15 to 20 Jan 16, crude oil price loss 28.35% in value while RHB Energy Fund only lost 1.75%. Similar outcomes are also seen for crude oil price dips during early February and late March.

In a nutshell, RHB Energy Fund is able to provide some form of protection (via low volatility) for investors whom intend to make a one time lump investment. However, the trade off for having low volatility is that the (%) gains made by this fund would not be able to match that of crude oil prices.

Summary

All in all, RHB Energy Fund is certainly worth the consideration for investors whom believe in the potential rise of crude oil price over the next few years. Availability of this fund at low sales charge via eUnittrust makes it cheaper and more convenient for Malaysian investors to invest.

If the words of the deputy crown prince of Saudi Arabia, Prince Mohamad were to be taken as a form of a hint...

We might actually see oil prices going back up to USD70 per barrel! That my dear readers is an opportunity worth considering.

Cheers and happy investing! 

P.S : 

• If you have any questions, feel free to drop me an email at shanesee03@gmail.com
• Don't forget to LIKE Invest Made Easy Fcebook by clicking HERE
• I've recently launched an online learning platform called Unit Trust Made Easy to help Malaysians to kick start their own unit trust investment. For further details, check it out HERE