Business

Saturday August 15, 2009

Basket of options

Stories by LEONG HUNG YEE


SINCE the easing of rules in the fund management industry in 2005, some 140 offshore-type open-ended funds have entered the market providing local retail investors an investment conduit to buy equities abroad.

These offshore funds are determined by type, sector as well as geography and are named accordingly such as commodities, equity global, equity gold and precious metals, equity natural resources, equity real-estate, bond global and bond Asia-Pacific, equity Asia-Pacific, equity China, equity Greater China, equity global emerging markets or equity Europe.

Between 2005 and 2007, these offshore funds were off to a great start with many reaping double-digit gains.

Pouring cold water over that is the global financial and economic crisis which slammed the brakes on the feel-good investment climate beginning late 2007 and a year later, saw some 40%-50% loss of value in asset classes across the board.

Gan

Yet, fund managers say the local unit trust industry has not witnessed panic redemption.

And for those who managed to ride the storm out and accumulate their global funds, the recovery in key equity markets in the past three months may hold handsome rewards.

For local retailers with an appetite for foreign equities, apart from directly investing in these stocks, several other options are provided to them by the fund management companies.

For example, HwangDBS Investment Management Bhd offers a range of funds with differing structures such as direct exposure, a feeder structure or a basket of options for those seeking offshore exposure, says its head of equities Gan Eng Peng.

“Our offshore exposure at this point is 15.36% of our total asset under management (AUM) of RM6.12bil. In fact, 23 out of our 32 listed unit trust funds have offshore exposure (as at June 30),” he says.

He adds that these packages may offer exposure to not just a single market overseas or a particular sector but a combination of both.

This year, the company launched the HwangDBS US Access 80 fund, which Gan describes as a bold and contrarian move, as it took place in March when the markets were tumbling.

“At a time when most investors were shying away from investing and the US market was at its most depressed and erratic state, we saw an opportunity,” he says, adding that the fund has since invested in the financial, plantation and construction sectors.

While it is understandable that most of these funds have noted lacklustre performance given the volatility of the markets since the US subprime crisis reared its ugly head, there are some funds currently faring well, considering the recovery in key major markets.

Gan says that since the first quarter of 2009, the company’s key offshore funds – HwangDBS Select Opportunity Fund, HwangDBS Global Opportunity Fund and HwangDBS Global Emerging Markets Fund (GEMF) – have bounced back by about 59%, 8% and 25% respectively compared to last December.

Typically, the yields or returns of the various types of funds vary. For example, he says the guided returns for equity funds are between 10% and 12% per annum for balanced and income funds within the 6%-8% range and local bond funds within the 4%-6% range, whereas for global bonds, it’s an average of 6%-8%.

“Opportunities to maximise returns exist, irrespective of bull or bear market. We practise a tactical asset allocation approach, whereby our fund managers have the flexibility to remain invested during the market upturn, or liquidate investments before values are eroded. While the selection of stocks is based on fundamental analysis, timing of purchases and sales will be aided by technical analysis,” he elaborates.

Gan expects the uncertain economic environment to continue to pose challenges in the second half.

His advice to investors – no one can actually predict (accurately) the markets’ bottoms, investors should have a mid- to long-term investment horizon and cost averaging is a wise approach compared to lump sum investment as it takes much of the emotional aspect out of investing.

And he adds: “Additionally, it is best to start investing when one feels most uncomfortable with the economic outlook.

“We are not advocating investors to plough all their savings in, but rather, to set levels and employ this method to capitalise on the current opportunity.

“As economic conditions decline, there will be bargain opportunities in different investment instruments and asset classes which are made available to retail investors through unit trust investments,” he adds.

According to Pacific Mutual Fund Bhd general manager (business development and marketing) Gary Gan, the firm is invested in all the major stock exchanges namely US, UK, France, Germany, Japan, Australia, Hong Kong, South Korea, Thailand and Singapore.

To date, Pacific Mutual has launched seven offshore-type funds, each with its own unique foreign investment theme; some are global funds, some with local-foreign combinations while others are balanced offshore funds. It recently launched its first Greater China themed fund.

He adds that currently, its global funds are heavily focused on Asian equities and grossly underweight in Europe and the United States.

He says the most popular funds in the industry often follow the prevailing hot retail themes.

“For example, during the Nasdaq boom in the late 1990s, a lot of local technology funds were launched.

“Unfortunately, hot retail themes usually come into the market at the tail-end of the bull run where the risk of correction is very high and this may explain why for unit trust investors, it is often better to invest gradually over time rather than trying to plough everything into the latest theme hoping for quick short-term big gains,” Gary adds.

Despite the “roller coaster ride”, Gary expects the funds to continue to maintain its strong position in a highly competitive sector.

OSK-UOB Unit Trust Management Bhd says all investments involve a certain degree of risk.

“The lower the risk, the more stable and predictable the return. Conversely, the riskier investments are generally associated with high returns as well as volatility. Unit trust funds work best as long-term investments,” it says.

On investment return, OSK-UOB says there are many possible outcomes associated with an investment and there are a multitude of factors such as inflation, interest rates and global economic conditions, many beyond the control of investors, that affect investment returns.

“To reduce the overall risk exposure, a fund manager may adopt an investment strategy that diversifies the investments in a portfolio into different asset classes.

“By investing in different market segments and by staggering the maturity dates of fixed income securities, the overall portfolio risk can also be significantly reduced,” OSK-UOB says.

According to the Federation of Investment Managers Malaysia, there are a total of 551 approved funds as at June 30. The federation says the total funds include approved funds but not yet launched. Of the total funds, 408 are conventional funds while the balance are Islamic-based funds. As at June 30, a total of 539 funds have been launched.

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