Posted by NOBY > 2015-04-23 17:45 | Report Abuse

The statistics here are not as bad in the US I guess with 59% of the funds underperforming the benchmark whereas in US more than 80% underperform. But looking at the median and average return of the funds vs the KLCI which is so close, doesnt it make more sense for a person who doesnt want to invest directly in stocks on his own to just buy a KLCI ETF rather than risk underperformance by buying unit trust. After all, there is a 59% chance of him underperforming the market based on your results if he chose to buy a unit trust.

Posted by NOBY > 2015-04-23 17:53 | Report Abuse

KC, btw I must say this is a very good informative article... thank you...

Realistically, I think most investors who invested in unit trust will probably do worse than average because they may switch in and out often and try to time the market. Worse still they may not stick with the same fund and may move around year in year out trying to find the best performing fund. Personally, this is my experience and the money that I withdrew from EPF to invest in these Public Mutual fund is actually not earning much more than the EPF returns due my actions.

Posted by kakashit > 2015-04-23 18:29 | Report Abuse

thx for kcchong mutual fund myth debunked.
Actually no one including researchers wanna to conduct the study, our common knowledge is so poor on mutual fund area.

Thx for kcchong's generosity to conduct the study, and hope that theEdge can buy n post up this useful post on their paper

Posted by soojinhou > 2015-04-23 20:13 | Report Abuse

Thanks for the article KC, very informative indeed. I guess that's why more and more people just buy a low cost index tracking fund (as per Noby's comment) rather than make their fund manager rich.

Posted by chyokh > 2015-04-23 22:02 | Report Abuse

As Warren Buffet advises, just buy an index fund and you avoid paying all the unnecessary costs and expenses.

Posted by cola > 2015-04-24 11:02 | Report Abuse

can someone tell me where and how to buy KLCI ETF?

Posted by kcchongnz > 2015-04-24 13:52 | Report Abuse

There are only a few ETF traded in Bursa, just like other shares, including a bond fund and a couple of foreign indices etf. FBM KLCI etf is one of them. The choice is very limited. The annual fee charged for FBMKLCI etf is 0.5%, bond fund much less, and foreign index etf not cheap, I think.

The main problem is very few of them and you can't get what you want to invest in certain sector as you wish.

Posted by NOBY > 2015-04-24 14:00 | Report Abuse

I bought some CIMBC50 ETF earlier this year to get exposure to China mainland stocks. Their management fee is about 0.6%p.a and the performance of the ETF is better than active managed funds.

One of the problem with ETF is that there are limited number of units and there could be liquidity issues when you are trying to sell vs normal open ended fund. I know that there are more ETFs listed in US or Singapore with more exposure to other regions and also with lower operational costs. One of the areas I intend to explore to diversify out of Malaysia.

Posted by cola > 2015-04-24 15:17 | Report Abuse

Thanks for the info, kcchongnz and NOBY

Posted by wwwcomment > 2015-04-24 23:10 | Report Abuse

Some claim they outperform unit trust. For example 30% return in one stock counter. But probe further only realised they actually did not all in their capital to the counter. Maybe put 30% this stock, 40% that stock, 30% cash. So overall, it actually less than if they put all their capital into a good unit trust.

Posted by kcchongnz > 2015-04-25 11:36 | Report Abuse

Posted by NOBY > Apr 23, 2015 05:53 PM | Report Abuse
KC, btw I must say this is a very good informative article... thank you...
Realistically, I think most investors who invested in unit trust will probably do worse than average because they may switch in and out often and try to time the market. Worse still they may not stick with the same fund and may move around year in year out trying to find the best performing fund. Personally, this is my experience and the money that I withdrew from EPF to invest in these Public Mutual fund is actually not earning much more than the EPF returns due my actions.


Noby, you are not alone.

This is one of the biggest reasons for individual investor under-performance. The study done by Fidelity Investments should highlight this. Investors in Fidelity, one of the most successful mutual funds lost money during a period of time where the fund made 29% annually. Investors would pull their money out of the fund during periods of poor performance, and send it in during good periods.

I have the feeling that individual stock investors do the same thing, buy stocks (may be good stocks) when they are already chased up sky high by selling stocks (good stocks with fundamentals still intact) which have been beaten down,may be because of just a poor quarterly report, only to experience the power of mean reverting.

Posted by Tigerbeer > 2015-04-25 11:49 | Report Abuse

Www.. To calculate return, one must use profit/total capital to calculate, should not use a solely counter earning to measure...

If they use one counter earning to Tell the earning of his year.. U probably dont need to listen to his word anymore.

Posted by CHONG Kong Hui > 2015-04-25 12:03 | Report Abuse

Invest UT with Wrap Account, pay lowest fee, increase the probability of high return.
Open Wrap Account with Financial Adviser, they are independent from fund houses.

www.AskChong.com

Posted by kcchongnz > 2015-04-25 12:31 | Report Abuse

Posted by CHONG Kong Hui > Apr 25, 2015 12:03 PM | Report Abuse

Invest UT with Wrap Account, pay lowest fee, increase the probability of high return.
Open Wrap Account with Financial Adviser, they are independent from fund houses.

www.AskChong.com


Kong Hui, how much do you charge for the wrap account per year? And how does this wrap account fees impact on the return?

My opinion is the value of a professional adviser should be his sound advice to his clients with a fee, not from any value added from unit trust investment with him. Wrap fee only extract more value from investors.

Posted by CHONG Kong Hui > 2015-04-26 10:30 | Report Abuse

Hi KC,

If a guy to invest RM1,000 and the UTC (unit trust consultant) only makes RM50 (if sales charge 5% all goes to him/her).

If that guy invest RM100,000 and the sales charge stays at 5%, then it is RM5,000 (a lot of money).

UT investors can make good return if
1) The Fund perform well AND
2) The cost of investment is low.

Wrap Account helps to achieve # 2 above.

I recently open an account for a client for RM200,000 he will pay only 1% Service Fee (upon injection of fund into the Wrap Account), and we negotiated a 0% Wrap Fee (Advisory service) and he can choose any funds out of total 300 over funds available in the platform at 0% Sales Charge.

Subsequent switch among the 300 over funds mostly at 0% sales charge, or about 1/10 of normal sales charge.

We help our client make money by giving advisory and setup a way to invest with lowest possible cost.

Wrap Fee may be adjust to 1% if the client's portfolio making good return.

Posted by kcchongnz > 2015-04-26 11:09 | Report Abuse

Kong Hui,

You are a fair financial adviser. Your type of financial adviser who align the interest of clients' with his own is hard to find. It is a secret recipe for success.

Wish you success. You will.

Good on you.

Posted by kcchongnz > 2015-04-26 18:56 | Report Abuse

A truly professional financial adviser, one who adhere to the code of ethics of professionalism, who are following a proper process, take care of clients' interest, sense of fiduciary duty,etc.

ks55,your son's problem was a mis-presentation by the planner. A with profit insurance policy can never yield a return of even 5%, considering the upfront fees paid to the insurance agent/financial planner,and the insurance coverage.

Yeah, often the financial himself is in the dark about it. Those who know have their own interest first, not yours.

Posted by TAFA > 2015-04-27 15:46 | Report Abuse

i have invest in UT using fundsupermart platform towards the end of 2012..the return is quite good for my investment.So far i have gain 25.79% and 17.44% respectively for AMB Dividend Fund and Kenanga Syariah Growth Fund..If not due to oil price crash my return would be better..As long as my fund are outperforming EPF return it's good enough for me..

Posted by kcchongnz > 2015-04-27 16:29 | Report Abuse

Posted by TAFA > Apr 27, 2015 03:46 PM | Report Abuse
i have invest in UT using fundsupermart platform towards the end of 2012..the return is quite good for my investment.So far i have gain 25.79% and 17.44% respectively for AMB Dividend Fund and Kenanga Syariah Growth Fund..If not due to oil price crash my return would be better..As long as my fund are outperforming EPF return it's good enough for me..

Your Dividend fund returned 9.6% a year, certainly not bad.

Your Growth fund returned just 6.6% a year, just equals the EPF dividend last year. Don't forget any fund comes with risk, whereas EPF is almost risk free.

So your Dividend Fund may or may not outperformed EPF in term of risk-adjusted return, but your Growth Fund definitely is not better than EPF, risk-adjusted wise.

Posted by dennisylw > 2015-07-19 01:12 | Report Abuse

Hi KC,
Referred to your post on 26/04/2015 18:56,
"A with profit insurance policy can never yield a return of even 5%".

Do you mind to share more details on that? I know it's kinda out of topic, but following the link below,

http://www.investmentmoats.com/budgeting/do-your-insurance-saving-plans-endowment-give-you-3-to-5-returns/

From the research done by Kyith, most of the endowment policies returns stood at around 2% to 4% or even worse, as same as your statement here, does it included those savings plans and investment-linked insurance policies?

Thanks,

Posted by CFTrader > 2015-07-19 02:02 | Report Abuse

A lot of people only look at something at superficial layer.

Sometimes when I speak to the elders about personal finance , they would tell me 12% total portfolio return (not a single stock only, overall return) in stock market is enough.

12% vs 6.35% average return of KWSP . Is it good enough ?

As what you state out, stock market has it's own risk. And in order to expose ourself to the stock market, the risk must come with a premium.

Posted by CFTrader > 2015-07-19 02:08 | Report Abuse

2015 , KLCI started with opening of 1722 points ; reached highest point of 1864 and currently stand at 1728.

The highest risk possible you suffered is 136 points , which is a loss of 7.296%
While the highest rewards is just a mere 6 points, which is a gain of 0.348%

Posted by CFTrader > 2015-07-19 02:17 | Report Abuse

While your portfolio suffered a potential loss of 7.296% to gain a 12% ; KWSP offers zero-risk return of 6.35%.

Note of some risk free investment vehicle.
1. ASB (Bumiputera sahaja) - 7.75% + 1.00%
2. KWSP - 6.35%
3. ASW 2020 - 6.6%
4. ASM - 6.6%
5. ASD - 6.6%
6. AS1M - 6.6%
7. ASB 2 (Bumiputera Sahaja) - 6.6%


Its up to personal preference in calculating desired return, thou.

Posted by kcchongnz > 2015-07-19 05:45 | Report Abuse

Posted by dennisylw > Jul 19, 2015 01:12 AM | Report Abuse
Hi KC,
Referred to your post on 26/04/2015 18:56,
"A with profit insurance policy can never yield a return of even 5%".

Do you mind to share more details on that? I know it's kinda out of topic, but following the link below,

http://www.investmentmoats.com/budgeting/do-your-insurance-saving-plans-endowment-give-you-3-to-5-returns/

From the research done by Kyith, most of the endowment policies returns stood at around 2% to 4% or even worse, as same as your statement here, does it included those savings plans and investment-linked insurance policies?


Me: Endowment policies, saving plans, investment-linked insurance policies won't give you a return anywhere near 4% as stated by you. Bear in mind, firstly they serve other purpose such as life insurance coverage which comes with a cost and part of your regular premiums go towards that, and only part of them go to investment. Secondly the insurance adviser/agent will get a very big junk of your premiums for the first few years as their agent fees, and there are annual fees in the fund management, by the fund managers, as well as the insurance companies. So how much of your premium is left for investment? Even though the long-term return of equity investment is say 10%, your investment return will still be far away from that 4% return a year in the long term. Bear in mind, few funds, including insurance funds can beat the market return.

Insurance agents or financial advisers wont tell you that, a big proportion of them, even those licensed qualified financial planners/advisers don't even understand it.

Am I badmouthing the industry? No, I worked as one before and know it very well.

In this world, there is no free lunch.

Posted by dennisylw > 2015-07-19 20:33 | Report Abuse

Hi KC,

Thanks for the sharing, very much appreciated!

"licensed qualified financial planners/advisers don't even understand it", that's the scariest part of all. They're the one suppose to guide and explain to customers at first place. So the issue is not at the insurance plan itself but on the peoples who selling it, as always.

Anyway, thanks again!

Posted by dennisylw > 2015-07-19 20:51 | Report Abuse

Just for curious, I couldn't apply CAR calculation on the insurance plan due to the on going annual/quarter/monthly insurance premium payment along the period. CAR only taking initial and final value to calculate the return.

To calculate CAR,

Formula: ((Final Value / Initial Value)^(1 / number of years)) - 1 (X 100 for %)

If you don't have an even number of years, use (12 / number of months) or (4 / number of quarters)

Is there any better way to calculate return of the insurance plan?

Thanks,

Posted by NOBY > 2015-07-20 10:05 | Report Abuse

dennis, you can use the IRR method to calculate the annualized return if there are frequent contributions to the plan.

http://www.oldschoolvalue.com/blog/investment-tools/calculate-xirr-annualized-returns/

Posted by Muhammad Faris Idrus > 2016-12-27 12:54 | Report Abuse

Thanks KC.I'm a UT agent myself since 2011 and qualified myself as CFP graduate (didn't register for the license though). Found your article since now i'm having tough time 'answering' my clients fund performances especially those who got into the market since the last OnG crash.

I'm a guy who 'feels shxtty' when i could go for the free incentive trip provided by the company due to my 'sales achievement' while the ones who entrust their money with me are losing their retirement savings.

3 years, either stay, DCA or even switchings, still hasn't break even..that's very frustrating for me. I might do it less effectively, well.. 5 years technical and sales experience still having tough times, couldn't imagine those newbies agents, sorry for them and their clients.

My advice to the general public here, not to say UT is a bad investment instrument. However, always understand the calculated risk VS potential return and the strategy to optimize your investment objectives especially your time horizon. Never consider UT if you are going to stay lesser than 5-6 years. (finger cross, if switchings are done very effectively between high volatility funds, exceptional results could be obtained)

but if more, focus on funds that give you at least consistent 'distribution' if switchings are not done very effectively. this is to ensure the DCA principle applies almost 'automatically' by having the distribution reinvested. (just another way, there are other ways to obtained great results though)

All the best y'all. Thanks again KC, really appreciate your article here. keep up bro!!

Posted by kcchongnz > 2016-12-27 13:18 | Report Abuse

Posted by Muhammad Faris Idrus > Dec 27, 2016 12:54 PM | Report Abuse
Thanks KC.I'm a UT agent myself since 2011 and qualified myself as CFP graduate (didn't register for the license though). Found your article since now i'm having tough time 'answering' my clients fund performances especially those who got into the market since the last OnG crash.
I'm a guy who 'feels shxtty' when i could go for the free incentive trip provided by the company due to my 'sales achievement' while the ones who entrust their money with me are losing their retirement savings.
3 years, either stay, DCA or even switchings, still hasn't break even..that's very frustrating for me. I might do it less effectively, well.. 5 years technical and sales experience still having tough times, couldn't imagine those newbies agents, sorry for them and their clients.


Muhammad Faris Idrus,

You are a responsible Unit trust agent as I can see. Help your folks in investing in unit trust if they want to invest in equity, with the lowest cost possible, for long-term, but of course, You must be rewarded somehow.

Nothing wrong for losing money for your clients the last three years as the broad market actually has gone down. It is extremely hard for a unit trust to beat the broad market as I have explained in this article.

Posted by Mohd Abd Hafiz Zakaria > 2017-02-20 19:08 | Report Abuse

Hi KC its a very noob question.. Is it a good choice if i invest in PM using my EPF. I am 32 yrs old and have excess of 80k (from EPF basic acc1 limit). My monthly EPF contribution is about 3k (me+employer). Is it a good choice if i start with 10k and DCA 5k (every 3months) for 10yrs period? As a starter. I dont want to risk losing my already accumulated EPF and my risk tolerance is also very low. Thank you so much for your kind reply. May god repay ur kindness with great success..

Posted by kcchongnz > 2017-02-20 19:58 | Report Abuse

Mohd Abd Hafiz Zakaria,

My opinion is No.

I guess you are not good or confident enough yet to invest on yourself. Take the alternatives given below. What we should look at is risk-adjusted return.


Posted by CFTrader > Jul 19, 2015 02:17 AM | Report Abuse

While your portfolio suffered a potential loss of 7.296% to gain a 12% ; KWSP offers zero-risk return of 6.35%.

Note of some risk free investment vehicle.
1. ASB (Bumiputera sahaja) - 7.75% + 1.00%
2. KWSP - 6.35%
3. ASW 2020 - 6.6%
4. ASM - 6.6%
5. ASD - 6.6%
6. AS1M - 6.6%
7. ASB 2 (Bumiputera Sahaja) - 6.6%

Posted by Mohd Abd Hafiz Zakaria > 2017-02-21 10:42 | Report Abuse

Thanks for your reply KC. Appreciate it so much. My main idea is to explore the Mutual Fund, and I think to invest using cash that I put aside. But when i met PM agent, she told me that it is better to invest using EPF and in long run with constant DCA, sure will not losing money and will give better return. That is why I am in dilemma wthether to
1) Use EPF or cash as start
2) Is the agent telling me the right things?
3) Is my plan is OK - (if use cash, I have 20k (and my plan is 2k initial, monthly DCA 300 for 5yrs) which I am OK to lose and at the same I will learn about mutual fund.
4) I have also offered by my friend who is an agent of Philips Mutual. Therefore, Where is the best place to start (PubMut, or PhilMut).

I already have ASB1 and ASB2 account with total saving 400k (from ASB loan & cash). I have made a plan years back to maximize my ASB then only try Mutual Fund, in search of slighty higher risk and return.

Thanks for your kind reply.

Posted by stockraider > 2017-02-21 10:45 | Report Abuse

Investment in Unit trust may not give u the high return people aspire, unless PNB guarantee capital guarantee fund like ASB loh...!!

This bcos most of unit trust has high loading and management fees, something like 2% pa mah....!!

Think of individual stock picking better loh....raider say buy hold strategy on good stocks...your long run return will beat unit trust loh...!!