Introduction

It has been a while since I’ve posted something about the top performing funds available in the Malaysian market. So I took a quick peek at the latest issue of Personal Money and found my way to the Lipper Tables which list the funds with the best results as of 29 February 2008. Since there are hundreds of funds in Malaysia, I’ve decided to just pick out the Top 12% (arbitrary % decided by me ) ) of funds in their asset class as follows:

  1. Bonds
  2. Equities
  3. Mixed Assets
  4. Guaranteed Returns
  5. Investment-linked Insurance

It’s important to note that this list is for your information only, and of course does not represent a recommendation to purchase. Note also that the usual caveats apply, for perfomance tables i.e. that past performance is no indicator of future performance. Some of the top funds of 6 months ago are languishing close to the bottom of their asset class….so beware when picking funds just based on their past returns. In your fund-selection decision, you should consider not just returns but also other performance indicators, such as:

  • consistency of the fund’s returns
  • the rate of risk or volatility (i.e. some top performing funds have a high volatility rate, which means when you could just as easily fluctuate to a loss position)
  • the risk-adjusted rate of return, in essence a combination of the two preceding items
  • capital preservation ratio – a measurement of the fund’s historical loss avoidance relative to other funds
  • track record of the fund manager
  • sales charges and annual management fees

Mutual funds are a mid to long-term investment vehicle so be prepared to hold your investment for at least 3-5 years before selling out or switching to other funds. Sales charges typically range from 5%-6% for equity funds and 1-2% for bond funds. You will usually also incur admin charges for switching between funds (around RM25). Because of these charges, I’m generally not an advocate of buying mutual funds for the short-term, or for investors to pursue a trading strategy for mutual funds i.e. buy and sell with the aim of making quick gains.

The funds range from conservative to medium to aggressive or high risk so understanding the nature of the funds that you are buying into goes a long way towards helping you in your decisions to buy, hold or sell during uncertain times.

Best Performing Funds as of 29 February 2008 – Equities

Equity funds are those that invest in stocks, whether in the Malaysian market, Asia market or global market. Equity funds come in all shapes and sizes. With the hotting up of competition between the fund companies, and as we in Malaysia continue to see high-growth in mutual fund investments, there will continue to be interesting and innovative products coming onstream.

In the last year alone, we’ve seen a plethora of foreign funds that invest in different markets such as South east Asia, the Far east, Asia (including or ex-Japan), Asia-Pacific, China and the Pan-China region, Europe and the World. Some equity funds just focus on large cap companies, while others specialize in small or mid-cap companies. Some funds focus on specific sectors, eg. growth sectors like technology and bio-technology, while others focus on the financial sector, consumer sector, commodities or property stocks.

And I guess, we’ll soon be seeing those that invest in the emerging markets, such as BRIC (Brazil, Russia, India and China) and CIS i.e. Commonwealth of Independent States (CIS) countries – Russia, Ukraine, Belarus, Kazakhstan, Turkmenistan, Tajikistan, Uzbekistan, Armenia, Azerbaijan, Kyrgyzstan and Moldova. These funds range from medium risk, to high to very high risk, and are generally riskier than your average bond and mixed asset funds.

Of course with such a wide selection, it’s wise to do throrough research on these funds before deciding to dump some of your hard-earned cash into them. Typically, foreign funds are considered to be of higher risk, since we may not have first hand knowledge of the macro and micro-econonomic factors that affects their performance. With emerging market funds, it’s not unusual to see triple digit returns over a short period of time (i.e. less than a year) but with this potential of higher returns also comes greater risk.

The adage “risk and return go together” should be remembered in all investment decisions. And strategies such as diversification and asset allocation should be practised. Remember also that there is usually currency risk involved in investing in funds that invest in overseas markets.  For example, the US$ has depreciated by approximately 17% to the Ringgit since it was depegged in July 2005 – and if you had invested in a fund that invests in the Dow Jones or Nasdaq companies, then any gains could potentially be offset by such a depreciation.

In the book Bogleheads’ Guide To Investing which I reviewed earlier, there was a chapter about asset allocation, in which the authors opined that investors should keep about 20% of their portfolio in a “broad-based international index fund” to provide additional diversification to their US portfolio. However, comparing between domestic US stocks or foreign stocks, the authors also had this to say: “US stocks represent about half the value of world stocks, with foreign stocks representing the other half. Foreign stocks offer diversification and possibly higher returns, but they also carry more risk in the form of political instability, weak regulation, higher transaction costs, and different accounting policies. Of particular significance is the fact that a foreign stock investments is really two investments – one in stocks and one in currencies.”

So what does this all mean for Malaysians? Does it mean that we start looking to invest more money in the US market since it represents half the value of global stocks? This is an interesting question that probably deserves its own post! I get what the Bogleheads mean about political instability, weak regulation and different accounting policies. We have seen how these have impacted the stock markets in Indonesia, Thailand and even Malaysia. However for me, the potential downside of:  1. currency losses 2. unknown or lesser known foreign market conditions (information is not as immediately at hand) and 3. high costs (when local funds invest in foreign funds, investors get hit by a few layers of fees) weigh heavily enough to tend me towards the Malaysian market and markets closer to home. 

Whatever you decide for your portfolio, the golden rules should be to diversify and stay up-to-date with the financial news!

The tables below indicate the best performing equities funds for the 5 year period ended 29 February 2008 in terms of returns:

  1. Table A – Non-Islamic Malaysian equity funds
  2. Table B – Islamic Malaysian equity funds
  3. Table C – Small and mid-cap Malaysian equity funds – Non-Islamic
  4. Table D – Small and mid-cap Malaysian equity funds  – Islamic
  5. Table E – Foreign equity funds

Please also read the Table Interpretation at the end of this post for more information on how to interpret the tables.

Table A – Best Performing Funds: Malaysian equities-Non-Islamic

 

Fund Name

Indices

5 years

3 years

1 year

 

 

       
 

Non-Islamic

       
1) PB Growth LL4 215.66% 100.19% 33.69%
2) AMB Value Trust LL4 167.05% 84.37% 28.94%
3) Public Aggressive Growth LL2 160.93% 85.12% 23.49%
4) OSK-UOB KLCI Tracker LLL 154.91% 78.31% 23.64%
5) Public Industry LL2 153.28% 74.52% 18.79%
6) CMS Premier L21 151.11% 66.87% -0.69%
7) AMB Ethical Trust LL3 150.54% 75.87% 23.83%
8) Public Equity 443 138.00% 65.12% 15.71%
9) CIMB-Principal Equity LL3 136.84% 74.67% 29.55%
10) Hwang-DBS Select Opportunity 211 136.02% 30.17% 0.90%
  Special mention:        
  OSK-UOB Smart Trust LL2 122.16% 27.82%
  CIMB-Principal Equity Aggressive LL3 78.05% 25.59%
  Pacific Dividend LLL 70.98% 24.51%
           
  Average return   100.67% 47.10% 14.49%
  No of funds 91 60 76 84

PB Growth, managed by Public Mutual and marketed by Public Bank, was the best performing equity fund for the 5 years ended 29 Feb 2008, with a total return of 215.66% in the non-Islamic category. This translates into an average return of 43.13% pa. In comparison, the benchmark KLCI achieved a return of 109%. According to Public Mutual’s website, the top 5 shareholdings (approx 34% of total NAV) held by the PB Growth fund as at 29 February 2008 were Public Bank, Sime Darby, UMW, DK Leather Corp and IOI Corp. In terms of geographical representation, 83% of its NAV was attributable to Malaysia, around 5% each to China and Hong Kong, and 4% to Singapore. For the financial year ended 30 June 2007, its distribution yield amounted to 9.7%. The fund’s prospectus state the fund’s objective as to achieve long term capital growth through investment in a diversified portfolio of growth stocks, and it’s targeted at investors with a moderate risk profile. The PB Growth fund is also the winner of the Best Equity Malaysia Fund – 5 years award conferred at the Edge-Lipper Malaysia Fund Awards 2008.

Hwang-DBS Select Opportunity, the 2007 Edge-Lipper winner for the Best Equity Malaysia Fund – 5 years,  fell to 10th position this year. It still showed a decent return over 5 years of 136.02%. For the 1 year period to 29 February 2008, however, it did not fare as well with a return of 0.90% only. So those who had purchased this fund on the strength of the 2007 award would have been disappointed thus far. This is especially when you consider that sales charges (typically around 5%) were not factored in the results shown above. Again, when investing in mutual funds, past performance is no guarantee of future returns. And the stars of today may just as likely become the “lemons” of tomorrow. As long as you keep this in mind, diversify (I know I osund like a broken record but it’s true 🙂 ) and remember that mutual fund investments are meant for the longer term, then things will be less stressful.

Another fund to note is the CMS Premier, which garnered the Edge-Lipper award for 2008 Best Equity Malaysia fund – 10 years. It sits at position 6 in the above table with a 5 year return of 151.11%.

I like the funds that consistently achieve a LLL (ie. leader or top 20% amongst peers) for Returns, Consistency and Capital Preservation. Both OSK-UOB KLCI Tracker and Pacific Dividend are LLL achievers in the table above. Because return and risk go hand-in-hand, we compare funds based on their risk-adjusted return. LLL means these funds are tops in terms of not just returns, but have lower risk and better capital preservation compared to their peers.

 Table B – Best Performing Funds: Malaysian equities – Islamic

 

Fund Name

Indices

5 years

3 years

1 year

 

 

       
 

Islamic

       
1) CMS Islamic L31 163.10% 86.04% 17.73%
2) Public Ittikal LLL 147.59% 69.86% 21.19%
3) Hwang-DBS Dana Izdihar 222 135.76% 29.48% 11.92%
4) PRUdana al-ilham 442 132.69% 55.88% 23.00%
5) MAAKL Syariah Index LLL 127.27% 75.00% 23.02%
  Special mention:        
  ING Ekuiti Islam LL3 82.99% 32.99%
  CIMB Islamic DALI Equity Growth LLL 66.50% 30.50%
  CIMB Islamic Equity LLL 75.04% 28.71%
  MAAKL Al-Faid LLL 73.06% 24.45%
           
  Average return   84.07% 47.47% 17.25%
  No of funds 41 22 33 36

CMS Islamic fund, managed by CMS Trust and marketed by Kenanga and RHB Bank (I couldn’t find a comprehensive list of distributors on the web), topped the 41 funds in the Malaysian equity – Islamic category, with a return of 163.10% over 5 years. Dividing by 5 year, we have a simple average return here of 32.62% pa, slighly lower than its non-Islamic counterpart above. Its benchmark index, the FBMSHA (or FTSE Bursa Malaysia EMAS Syariah Index) achieved a return of 122% in comparison. The top 5 stockholdings (approx 46% of NAV) as at 29 February 2008 were as follows: Puncak Niaga, Dialog Group. Wah Seong Corp, Zelan and Naim Cendera.

According to the CMS website, the fund’s objective is to achieve steady capital growth and income distribution (incidental) over the medium and long term by investing in a diversified portfolio of “authorized investements” in accordance with accepted Syariah principles. It is suited to those investors with a moderate to high risk profile. For more information, please refer to the fund fact sheet which includes some interesting political commentary.

The 2008 Edge-Lipper winner for Best Equity Malaysia Islamic – 5 years and 10 years is Public Ittikal. This fund also won for the 5 years category in 2006. Certainly, this consistency is a good sign. It’s ranked no 2 in the tables above, as the Awards were taken up till 31 December 2007 only whereas the table relates to the 5 year period to 29 February 2008. According to its prospectus, the fund had a portfolio turnover rate of 0.62% and a management expense ratio of 1.56% for the FY2007. The top 5 stockholdings (approx. 30% of toal NAV) as at 29 February 2008 were: Sime Darby, Asiatic Development Bank, PPB Group, MMC Corp and China National Building Material Company. 81% of total asset investments was in Malaysia and 9% in China. The bad news though is that the last time I checked with my UT consultant, this fund is closed already. So until it reopens again, you’ll have to look elsewhere. Luckily for me, I put in place a little standing instruction a few years back before the fund closed, which means I can continue to invest. 🙂

Top funds in terms of returns, consistency and presevation (“LLL”) include Public Ittikal, MAAKL Syariah Index, CIMB Islamic DALI Equity Growth, CIMB Islamic Equity and MAAKL Al-Faid.

Up in the Next Post – Best Performing Funds: Small and Mid cap Malaysian equities

 Table Interpretation

  1. The ranking of returns is over 5 years. Returns do not take into account sales charges and are adjusted for dividends, which are assumed to be reinvested. However the funds’ performance over 3 years and the past 1 year to 29 February 2008 is also indicated.
  2. The fund returns shown for 5 years and 3 years’ period is the cumulative return for 5 years and 3 years respectively. Dividing the cumulative return by the no of years covered will give you the average annual return for the fund.
  3. The Average return row indicates the average return achieved by that particular asset class for the relevant period. So, over the last 1 year, we know that non-Islamic bond funds as a whole achieved a return of 2.81%. That’s lower than the fixed deposit rates!! And we haven’t even factored in the sales charge yet!
  4. The  No of funds row (last row) tells you how many funds are in that asset class for the relevant period. For example, in the case of Non-Islamic Bonds asset class, there are a total of 39 funds of which funds that have been in existence for at least 5 years total 17, and those that have been around for at least 3 years total 24.
  5. Special mention lists down funds that have performed well over the 3 years to 29 February 2008, but have not been in existence for 5 years so were excluded from the Top 5.
  6. Indices refer to the 3 key indices: a) Total return b) Consistent return and c) Preservation.  a) Total return is a measure of a fund’s historical total return relative to its peers within the class b) Consistent return is the historical risk-adjusted return of the fund relative to its peers within the class c) Preservation is an indicator of the historical loss avoidance by the fund relative to its peers within the class. Each character in the 3-character ratings refer to the ranking for a) b) and c), in the sequence shown  i.e. the first character gives the ranking for a) Total Returns, the 2nd for b) and the 3rd for c). A rating of L indicates that the fund is a leader and in the top 20% in its class for the index being measured, a rating of 4 indicates that the fund is in the next 20% in its class, a 3 rating indicates that the fund is in the middle 20%, a 2 the next 20% and a 1 rating indicates that the fund is in the bottom 20% of its class for the index being measured.
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