Wednesday, July 29, 2009

Unit trust industry expected to grow 25% to 30%

PETALING JAYA: The net asset value (NAV) of the unit trust industry is expected to chart 25% to 30% growth this year underpinned by growing investor confidence from improving global capital markets, according to Federation of Investment Managers Malaysia (FIMM) president Tunku Ya’acob Tunku Abdullah.

He said the 25% to 30% improvement in NAV for the year was a reasonable expectation, given the country’s strong economic fundamentals.

As at end-June, the NAV of the industry was RM164bil, an increase of about 22% against RM134bil at end-2008. NAV refers to the value of the underlying assets held by a fund, minus liabilities.
Tunku Yaacob

Tunku Ya’acob said the recent stabilisation and gradual improvement in the world capital markets would bring about better investor sentiment.

Once confidence was restored, investors would be more comfortable taking on higher risk levels, he added. He said to date, there had been no major redemptions or panic selling of unit trust funds by investors in Malaysia compared with other markets worldwide.

“According to Bank Negara’s statistics as at April, there was more than RM300bil in savings and fixed deposit accounts. In view of the current low interest rate environment, some of these funds will eventually find their way into unit trust funds which offer better growth potential,” he said in an email reply.

MAAKL Mutual Bhd CEO Wong Boon Choy said the company expected to see continued improvement in investor confidence in the second half of this year.

The Government’s stimulus packages and their related multiplier effects would help cushion the impact of the sharp external downturn and set the stage for economic recovery in the second half year, he added.

Public Mutual Bhd CEO Yeoh Kim Hong said with risk aversion receding, investors were now selectively repositioning their portfolios to participate in the market uptrend.

This had helped the industry pick up in terms of NAV and sales of equity funds, she said, adding that the company expected the industry to remain resilient in the second half year.

However, HwangDBS Investment Management Bhd head of equities Gan Eng Peng felt that the investment appetite of investors had been affected in the last few months as only a small number was focused on making money, opting instead to preserve wealth and “bullet proof” their finances and businesses.

On fund performance, Tunku Ya’acob said judging from the six-month data, local conventional and Islamic equity funds had been doing relatively well.

“Over the six-month period, the conventional or non-Islamic equity fund sector gave an average return of about 17%. Over the same period, the local Islamic equity fund sector recorded an average return of about 16%,” he noted.

Yeoh said on a year-to-date basis, funds invested in regional markets had outperformed those invested solely in the local market as regional markets had broadly outperformed the domestic market.

Selected sector funds such as real estate funds had outperformed other funds as the regional property markets had stabilised, she added.

Gan said the new stock exchange barometer, the FTSE Bursa Malaysia KL Composite Index (FBM KLCI), was expected to further lift the industry in terms of institutional investor participation.

Institutional investors would not confine their investment portfolio to the 30 counters but also tap the larger opportunities available in the market, he said, referring to the 30 index-linked stocks that make up the FBM KLCI.

According to Wong, the soon-to-be-launched online electronic system, known as E-Pilihan Pelaburan Ahli (E-PPA) for the withdrawal of EPF savings for members to invest in unit trusts, will also help improve the industry’s growth.

The new system is expected to cut the current withdrawal process time from one to two weeks currently to three to five days.

Tunku Ya’acob said investor education was essential to push the industry to a higher level as it was vital for investors to understand the merits of investing early and for the long term.

To better communicate the risk profile of each fund to investors, FIMM has introduced the Fund Volatility Factor (FVF) disclosure for unit trust funds of at least three years.

The FVF is a measure of the rise and fall of a fund’s returns over a period of time relative to its average returns.

Tuesday, July 28, 2009

Tips for retail investors to stop losing money in stock market

IN the stock market, there are two main types of investors – smart investors and retail investors. While smart investors have been able to make money from the stock market, the majority of retail investors suffer losses most of the time.

As the market saying goes, only one out of 10 investors can make money from the stock market. The rest always incur losses in the stock market.

Some retail investors believe they can make quick money from the stock market. They believe that investing in the stock market is one of the best ways to accumulate wealth in a short period of time.

However, due to lack of proper financial training, investing knowledge and intelligence, they always find themselves at the losing end. When they are excited about investing, the stock market may be nearing to the peak.

On the other hand, when they are suffering losses, losing patience about investing and intending to cut their losses in the stock market, the market may be touching the bottom, and that, in fact, is supposed to be the best time to invest.

A majority of retail investors seldom pay attention to the stock market. They will only start doing so when newspapers or TV news headlines show that the market is touching a new high.

Driven by greed and the thought of making fast money, they will follow their friends or tips from their brokers to invest without paying much attention to the fundamentals of the stocks.

Due to lack of discipline to cut losses, more often than not, they find themselves holding on to a lot of poor quality stocks when the market collapses to a very low level.

We believe that the majority of retail investors do buy a mixture of good and poor quality stocks. However, they tend to hold on to poor quality stocks and sell the good ones when the stock market collapses.

This is because when the stock market crashes, poor quality stocks will drop much faster than good fundamental stocks.

Most retail investors find it difficult to sell poor quality stocks as the stocks may drop far lower their buying prices within a short period of time.

As retail investors refuse to admit their mistakes, they will hold on to these stocks, hoping to break even again in the future.

Unfortunately, they overlook one important market saying, which is: What goes up may come down, what goes down may never go up.

We may have emotional feelings about stocks but we should not refer to our purchase prices to determine whether we can cut our losses.

Our purchase prices are only important to us; they mean nothing to the overall market.

As our purchase prices may be much higher than those of other investors, even though we may not be able to sell the stocks, other investors, especially the company owners, can still liquidate their stocks.

We need to be careful when trading in speculative stocks especially those with prices that are much higher than the book values of the companies. The book value of a company reflects the owners’ costs in the company.

Hence, even though the stock prices tumble to a very low level, as long as the prices are still higher than the book values, a lot of company owners can still liquidate the stocks as their market prices are still higher than the cost invested.

For example, assuming the stock of a company is at the book value of only 30 sen and the stock price before the rally is 50 sen.

Due to the bullish sentiment and speculative play, the stock price may be pushed up to RM3. If our purchase price in the company is RM2, selling lower than RM2 means cutting a loss.

However, unfortunately, a lot of retail investors, instead of cutting losses continue to average down their purchase prices.

They may start averaging down their purchase prices at RM1.50, RM1, 80 sen and 50 sen.

If the company has poor fundamentals and has been incurring huge losses over a long period of time, averaging down our purchase prices this way means we will be incurring more losses.

While we are doing this, the owner of company can still sell the stock at 50 sen as his investment cost is only 30 sen!