Should I invest in unit trust or property especially during the financial crisis?

Property is always the hedge against inflation as the property price is always increasing. But the of course there are cons/ disadvantage of investing in property.

First, property is not liquid. When especially you need cash immediately, you need to find agent or you have to look for interested buyer. This is not easy when the location and market value is not favorable. When you cannot sell the properties, you still owe the financial institution and pay interest in monthly basis. But when you invest in unit trust, you can sell back to the unit trust company and redeem your cash in the next few days. But, if the market is not favorable, you still can keep the unit and keep on top up to gain more units when the price is low.

Second disadvantage is that you need to fork out a large amount of money to purchase the property especially during the down payment. But, if you purchase unit trust, you can start off with as low as RM 1000.00 and RM 100.00 as subsequent top up.

Third, you need to do a lot of research on the property before you buy. Of course, location is the most important aspect, but you also have to consider the infrastructure and facilities such as schools, roads, mass transportation etc. Whereas when you buy unit trust, all you need to do is read the prospectus, research report at Lipper.com or Morningstar.com on the rating of the fund and past performance of the fund. Also, unit trust agent can give you consultation you on this based on your financial needs.

Fourth, when you invest in strata properties such as condominium or apartment, you need to set aside a certain amount every month to pay for sinking fund, maintenance fee, quit rent etc. And, as such, condominium does not appreciate as much as landed properties. But, if you were to purchase a landed property, it will cost more than RM 300,000 in Klang Valley area. Assuming that you are applying for loan at 8% for 30 years repayment, you required to fork out at least RM 1,000 a month. So, a lot of money involved in the process.

Fifth, the process of buying property is very tedious. You have to post your ads, get a real estate agent, find a legal adviser, etc. Compare to purchasing unit trust, you only need to prepare a payment cheque, your unit trust agent will do the rest for you. When you need to sell, you just need to fill in redemption form.

What if I had RM 10,000 in 2005 ?

For example, you had invested RM 10,000 in 2005 in unit trust

In year 1996, Annual returns for investment in unit trust (Public Ittikal) = 26.01%, minus service fee = 6.5%

Return = (10,000 X 26.01%) - (10000 X 6.5%) = RM1,951.00 per annum

Compare to investment in EPF (Employee Provident Fund),

Annual returns for investment in EPF (Employee Provident Fund) at 5%

Return = 10,000 X 5 % = RM 500.00 per annum

Difference = RM 1,951.00 – RM 500.00
= RM 1,451.00

This is only simple calculation, not taking into account the bonus units/dividends/free insurance when you invest in unit trust.

Dollar-Cost Averaging - Fight the Fluctuating Market

The Principle of Dollar-Cost Averaging involves a disciplined regular investment technique which may be applied to maximum effect in unit trust investing. This investing technique intended to reduce exposure to risk associated with making a lump sum purchase. All investor has to do is to invest a regular fixed sum of money with a selected unit trust fund over a period of time (daily, weekly, monthly, quarterly, etc.). This way, investor does not have to worry about market timing, or where shares prices or interest rates are headed. Regular investment will purchase fewer units when market is up and more units when market is down. It safeguards against the market losing value shortly after making investment and limit the downside of an immediate drop in asset value after a lump sum is invested.

Let us assume Investor ‘A’ decided to invest a monthly savings of RM400 with the fund over a period of 24 months. In the first 12 months, Investor A thus managed to accumulate 8,026.47 units at an average cost of RM0.5980 per unit at market uptrend whereas the average NAV per unit over the period was higher at RM0.6008. During the next 12 months, Investor A manage to accumulate a total of 9,270.36 units at an average cost of RM0.5178 per unit at market downtrend which is lower than the average NAV per unit over the period at RM0.5183. Units are bought at an actual cost which is lower than the average NAV per unit over the same period by regular investing the same amount of money in the fund irrespective of price fluctuations.

Volatility means opportunities

Source: Ang of Phillip Capital Management Sdn Bhd

Volatility means more opportunities to make money especially when we are able to buy at a low and sell at a high. Hypothetically, substantial profit can be made if we are able to buy at the bottom of the market and sell at the top.
Because of the big swing in our market, partly due to frequent flow of funds by international fund managers, such opportunities always occur if we wait patiently.
Looking at past patterns, this sounds easy. In reality, spotting the bottom and peak of a market is not easy as we see the market evolve day by day, from bullish optimistic phase to bearish pessimistic period. By the time we notice a correction has evolved into a bear market, it could be too late to sell.
Similarly in a bull market, the initial run-up is always misunderstood to be a bear trap. It’s always easier to speak from hindsight. Even if we do not know exactly where the bottom of the market is, it is definitely a bargain to buy when the market has fallen 20-30% from its peak with some stocks plunging by 40-50%.
Because we are not sure whether the market has reached the bottom at the point of purchase, we can always keep some cash for future averaging purposes, just in case the market falls further. If the market recovers after the first purchase, we are happy because we have made some money from the shares just bought. If the market goes down further, we are also happy since we can now buy cheaper. In this way, we can benefit from the down market as well as manage our sentiment.
Similarly, when the market recovers substantially, perhaps it is time to lock in some profit by selling some of our positions. If the market goes up further, we still have some shares in hand to sell.
Investment guru Warren Buffett makes his money by buying into investment-grade stocks at market bottom. His cheaper entry cost allows him to keep the shares for many years without selling. If he could have sold some of those shares bought at market bottom when they are high, he could have made more.

Unit Trust Price as of 28th November 2008

Source : Public Mutual Bhd

Public Savings Fund** 0.5529
Public Growth Fund** 0.3411
Public Index Fund 0.5171
Public Industry Fund** 0.4098
Public Aggressive Growth Fund** 0.4979
Public Regular Savings Fund 0.4126
Public Balanced Fund** 0.5951
Public Bond Fund 0.9323
Public Ittikal Fund** 0.6660
Public Smallcap Fund** 0.5652
Public Islamic Bond Fund 0.9804
Public Equity Fund** 0.2004
Public Institutional Bond Fund 0.9992
Public Islamic Equity Fund 0.2418
Public Money Market Fund 1.0154
Public Focus Select Fund** 0.1635
Public Enhanced Bond Fund** 0.9371
Public Dividend Select Fund 0.2133
Public Islamic Opportunities Fund** 0.2178
Public Islamic Balanced Fund 0.2207
Public Far-east Select Fund** 0.1711
Public Select Bond Fund 0.9946
Public Islamic Dividend Fund 0.2343
Public Regional Sector Fund** 0.1484
Public Asia Ittikal Fund** 0.1805
Public Global Select Fund** 0.1552
Public Far-east Dividend Fund** 0.1686
Public Islamic Enhanced Bond Fund** 0.9673
Public Far-east Balanced Fund** 0.1644
Public Global Balanced Fund** 0.1759
Public Islamic Asia Dividend Fund** 0.1521
Public China Select Fund** 0.1277
Public Islamic Money Market Fund 1.0206
Public Far East Property & Resorts Fund** 0.1076
Public Islamic Select Bond Fund 1.0130
Public Islamic Asia Balanced Fund** 0.1724
Public South-east Asia Select Fund** 0.1419
Public Sector Select Fund 0.1660
Public Islamic Sector Select Fund 0.1702
Public China Ittikal Fund** 0.1373
Public Far-east Consumer Themes Fund** 0.1879
Public Islamic Select Treasures Fund 0.1997
Public China Titans Fund** 0.1817
Public Islamic Optimal Growth Fund 0.1888
Public Far-east Telco & Infrastructure Fund ** 0.2150
Public Capital Protected Select Portfolio Fund ** 1.0002
Public Islamic Select Enterprises Fund 0.2423
Public Islamic Income Fund 1.0042

Declaration of distribution

Source: Public Mutual

For the financial year ending 30 November 2008

Final Distributions to unitholders of Public Islamic Balanced Fund (“PIBF”) and Public Far-East Dividend Fund (“PFEDF”) respectively, who remain in the Register as at 30 November 2008.

Fund Gross Distribution:
PIBF 1.00 sen per unit
PFEDF 0.35 sen per unit

Dollar cost averaging during recession

Dollar cost averaging is a technique designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Many successful investors already practice without realizing it. Many others could save themselves a lot of time, effort and money by beginning a plan. In this article, you will learn the three steps to beginning a dollar cost averaging plan, look at concrete examples of how it can lower an investor’s cost basis, and discover how it reduces risk.

Dollar Cost Averaging: What is It?
Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price.

Setting Up Your Own Dollar Cost Averaging Plan
In order to begin a dollar cost averaging plan, you must do three things:

Decide exactly how much money you can invest each month. Make certain that you are financially capable of keeping the amount consistent; otherwise the plan will not be as effective.

Select an investment (index funds are particularly appropriate, but we will get to that in a moment) that you want to hold for the long term, preferably five to ten years or longer.

At regular intervals (weekly, monthly or quarterly works best), invest that money into the security you’ve chosen. If your broker offers it, set up an automatic withdrawal plan so the process becomes automated.

Source : about.com

Unit Trust Price as at 22 November 2008

Source : PUBLIC MUTUAL BHD

Public Savings Fund** 0.5530
Public Growth Fund** 0.3388
Public Index Fund 0.5209
Public Industry Fund** 0.4276
Public Aggressive Growth Fund** 0.4926
Public Regular Savings Fund 0.4135
Public Balanced Fund** 0.5886
Public Bond Fund 0.9270
Public Ittikal Fund** 0.6603
Public Smallcap Fund** 0.5741
Public Islamic Bond Fund 0.9747*
Public Equity Fund** 0.1997
Public Institutional Bond Fund 0.9945
Public Islamic Equity Fund 0.2407
Public Money Market Fund 1.0147
Public Focus Select Fund** 0.1642
Public Enhanced Bond Fund** 0.9313
Public Dividend Select Fund 0.2133
Public Islamic Opportunities Fund** 0.2205
Public Islamic Balanced Fund 0.2233
Public Far-east Select Fund** 0.1652
Public Select Bond Fund 0.9908
Public Islamic Dividend Fund 0.2335
Public Regional Sector Fund** 0.1432
Public Asia Ittikal Fund** 0.1751
Public Global Select Fund** 0.1502
Public Far-east Dividend Fund** 0.1663
Public Islamic Enhanced Bond Fund** 0.9608
Public Far-east Balanced Fund** 0.1596
Public Global Balanced Fund** 0.1720
Public Islamic Asia Dividend Fund** 0.1475
Public China Select Fund** 0.1200
Public Islamic Money Market Fund 1.0201
Public Far East Property & Resorts Fund** 0.1049
Public Islamic Select Bond Fund 1.0102
Public Islamic Asia Balanced Fund** 0.1690
Public South-east Asia Select Fund** 0.1396
Public Sector Select Fund 0.1655
Public Islamic Sector Select Fund 0.1711
Public China Ittikal Fund** 0.1322
Public Far-east Consumer Themes Fund** 0.1825
Public Islamic Select Treasures Fund 0.2009
Public China Titans Fund** 0.1738
Public Islamic Optimal Growth Fund 0.1907
Public Far-east Telco & Infrastructure Fund ** 0.2071
Public Capital Protected Select Portfolio Fund ** 1.0017
Public Islamic Select Enterprises Fund 0.2419
Public Islamic Income Fund 1.0021
Pb Balanced Fund** 0.7208
Pb Growth Fund** 0.6400
Pb Fixed Income Fund 0.9929
Pb Islamic Equity Fund 0.1826
Pb Islamic Bond Fund 1.0151
Pb Asia Equity Fund** 0.1630
Pb Islamic Asia Equity Fund** 0.1477
Pb Cash Management Fund 1.0156
Pb Cash Plus Fund 1.0020
Pb Asean Dividend Fund** 0.1462
Pb Islamic Cash Management Fund 1.0112
Pb Euro Pacific Equity Fund** 0.1285
Pb Islamic Asia Strategic Sector Fund** 0.1275
Pb China Pacific Equity Fund** 0.1110
Pb Asia Real Estate Income Fund** 0.1471
Pb Islamic Cash Plus Fund 1.0028
Pb China Asean Equity Fund** 0.1686
Pb Capital Protected Dragon Fund** 0.9581
Pb Capital Protected Resources Fund** 0.9937
* Profit sharing based on the net income before tax
**Price Of 2 preceding business days

Unit trust industry to continue good showing

Source : The Edge Financial Daily, 21 January 2008

The Malaysian unit trust industry will continue its sterling performance this year as a result of ample liquidity in the banking system, according to unit trust companies.
HLG Unit Trust Bhd executive director and acting chief executive officer Teo Chang Seng told The Edge Financial Daily that the wealth management unit of banks had been entrusted with higher fees income from investment services.
"All banks are looking for suitable products to turn the deposit base into fees base asset under management while helping their customers to achieve their financial objectives," he said.
He said front load charges were lower now and it cost less for customers to invest in unit trust funds in view of more products that invested in the local bourse or overseas markets with different risk profiles and investment objectives.
On whether the time was right to launch more funds because of the current bullish local stock market, Teo said: "We have to recognise that the 2007 super bull is unlikely to repeat this year. The US is showing signs of slowing and has its own set of challenges.
"We prefer investments in diversified large-cap blue chip global ex-US, particularly investments which are more resilient in current conditions such as value investment."
Asked about product trends among the investing public, he said Malaysian investors had diversified their investments globally over the past two years after Bank Negara Malaysia relaxed restrictions on investing overseas.
"Investors are becoming more sophisticated. Past one-and-a-half years was a super bull year with investors focusing on return," he said.
Teo said investment risks must be evaluated on total risk and reward basis as the market may turn volatile, and investments in certain high beta markets had higher downside risk.
ING Funds Bhd chief executive officer Steve Ong said investors could make more accurate investment decisions with the introduction of the single pricing regime in July 2006, which had made front-end charges more transparent.
He said the current low interest rate environment and high liquidity had resulted in unit trust funds becoming alternative investment vehicles for the mass retail market in Malaysia.
"We still think the market offers (local investors) good investment for high dividend yield stocks although valuation has gone up," he said.
He said ING used the portfolio approach to identify a comprehensive range of asset classes that would provide investors with adequate portfolio diversification and more consistent returns.
Ong said product trends were driven by investment opportunities as the market cycle changed from time to time, and the critical component of a product strategy was re-marketing existing funds.
"Our strategy is to have at least 50% of our funds invested locally in view of exchange rate fluctuations," he said.
He said current local investment themes were plantation, oil and gas, and infrastructure while globally, the company was bullish on selected markets such as China.
"We are looking at picking up selected global growth thematics that are experiencing high growth of between 10% and 12% annually like the energy and biotechnology sectors," he said.
Meanwhile, Inter-Pacific Asset Management Sdn Bhd chief executive officer Paul Khoo believed that unit trust companies could sustain the growth rate for new investments in 2008, as demand for new innovative funds would remain robust with investors continuing to demand diversification.
He expected the upfront fee or service charges in Malaysia to moderate further from 5% to 6% currently, as most mutual funds in developed markets did not charge upfront fees.
He said lower fees would translate into higher investment value and generate more returns for investors when the fund was performing.
Khoo said external factors such as economic growth and inflation trends would drive launches of investment products this year, and expected more defensive funds such as income and value portfolios with the anticipated slower global growth and cost-push inflation.
"Alternative asset classes such as commodities and foreign currencies should be part of investors' portfolio for diversification. I would expect more diversification across various asset classes from the current holdings in cash, property, stocks and bonds," he said.
Asked about the funds' investment themes for 2008 and beyond, Khoo said industry and sector funds such as Asian consumer, Asian infrastructure and commodities would be very popular with demand for more goods and services from China and India.
However, he said Inter-Pacific did not have any immediate plan to launch a China-focused fund as Chinese companies were currently fairly rich in valuation.

Relatively stable Unit trusts still holding back 40%-50% allocations

By The Star; LOONG TSE MIN and LAW KAI CHOW

PETALING JAYA: The global financial turmoil has not resulted in a mad rush to get out of the Malaysian unit trust sector, but investors have been pulling out of the stock market and putting their money elsewhere as funds posted mostly negative returns, fund managers said.
Areca Capital Sdn Bhd’s chief executive officer Danny Wong told StarBiz: “Contrary to what people believe, while the equity market has fallen some 20% year-to-date, there has not been panic selling in unit trusts.”

The size of funds had remained quite stable, he added, observing that the funds had invested 50% to 60% of their allocations in the stock market. “This also means that there is 40% to 50% left to return to the (equity) market when things recover,” he said, acknowledging that there had been some selldown by equity-based unit trust funds in the first half of the year.

Wong said he has seen shifts in funds from equity funds to short-term fixed income funds unit as investors shunned long term bets. Investors have been “sidelining,” that is reducing exposure to capital markets by going into more liquid and conservative investments, he said.
At the same time, unit holders have also shifted away from bond funds which were longer term in favour of money market funds.

The take-up rate of new funds was about 50% slower than last year as investors were more cautious amid the current volatility, he noted. Ng advised investors to continue to invest in the stock market as it was oversold.

“We think the market will continue to slow down for the next 6 months and we may be at near bottom now,” he said. “Next year, the market will be at a better position and we could see the funds and equity market (coming in) to pick up momentum again.”

Meanwhile, fund research house Lipper’s latest Fund Market Insight in a report for August said funds registered for sale in Malaysia had made losses for the third consecutive month.
In August, Malaysian funds posted an average loss of 1.65% with commodity-linked funds sliding 5.58% and equity-based funds dropping 2.98%.

Remain Calm Through Market Turbulence

Source: Public Mutual Berhad

In the wake of the turbulence of stock markets in recent months, unit trust investors may be tempted to either sell or buy. However, investors are advised to remain calm and practise dollar cost averaging with their long-term goals in view.

When regional and global markets succumbed to panic selling in August 2007 and more recently in January 2008, the severity and sharpness of the correction was large enough to make unit trust investors ask themselves whether they should redeem now to stem further losses or buy more units at currently low prices. In fact, if they practise dollar cost averaging, they need not concern themselves with these timing issues. Dollar cost averaging enables investors to automatically buy more units when prices fall and fewer units when prices rise.

It is especially during times of market volatility that individual investors should remain focused on their long-term investment goals and keep their emotions from influencing their investment decisions. A disciplined and methodical approach to investing is the key to long-term investment success.

Unit trust investors are advised to buy and hold their investments for the medium to long term. The buy-and-hold principle is based on the notion that a good investment will generate reasonably attractive returns over the medium to long term. This also means that investors are able to distinguish between daily movements in the market and the underlying long-term value of their investments. Professional fund managers buy and hold for the medium to long term as they are prepared to wait patiently over several years for their investments to reach their intrinsic or fair values. For the unit trust investor, the 'buy-and-hold' strategy can also be applied by holding on to a well-selected unit trust fund over a period of at least three years.

There are some investors who believe they can achieve superior returns by timing the purchase and redemption of equity funds to profit from the stockmarket's short-term movements. These investors are tempted to engage in timing the market especially in an environment where equity markets are volatile. Such investors who wish to make quick gains in the stock market by switching from one fund into another fund will often be disappointed. Market timing strategies that are often recommended by 'investment experts' have seldom been successful. This is because stock markets are inherently volatile and are impossible to predict with numerous factors, both domestic and foreign, affecting daily and weekly fluctuations in stock prices.
Investors who wish to take a more active approach with their investments by timing the market will expose themselves to many risks. In order to profit from the market's short-term trends, the investor has to correctly predict the market's trend and its turning points.

Without the appropriate skills to discern signals and time the entries and exits, the market timer may not only miss opportunities, but also potentially suffer the blow of rapid losses. Also with a higher frequency of fund switching, investors will have to incur increased transaction costs.

Investors who are concerned about market volatility are advised to practise dollar cost averaging as this strategy enables investors to focus on the long-term investment goal and not worry about the prevailing level of the market. Dollar cost averaging is simply investing a fixed amount of money in a financial asset (such as a unit trust fund) on a regular basis (monthly, quarterly, biannual) regardless of the market cycle. By investing a fixed amount on a regular basis, investors will buy more units when the market is lower and fewer units when the market is higher. This strategy will produce a lower average cost of investment than the average market price over any given period.

In addition, investors are also advised to rebalance their portfolios regularly at least once a year to ensure that their portfolio allocation reflects their investment objectives and risk profile. Thus if, as a result of an uptrend in stock prices, an investor's equity exposure has exceeded a level consistent with his risk tolerance, he can trim a portion of the equity funds and switch into bond or money market funds to rebalance the asset allocation accordingly. Maintaining a target asset allocation reduces the risk that the portfolio becomes too concentrated in a single asset class.

In conclusion, unit trust investors should always focus on achieving their medium to long-term investment goals. The practice of dollar cost averaging and regular portfolio rebalancing are effective tools that help investors remain focused on the long term horizon and prevent them from over-reacting to short-term movements of the stockmarket.

Choosing The Right Funds

Before investing in any unit trust, investors are advised to evaluate and determine their own individual financial needs and goals. Once these financial goals are quantified, investors can then construct a practical investment portfolio to achieve these goals. The choice of fund would then depend on the following key aspects of the investment portfolio:

1) Investment objectives/Risk-return targets
What annualised returns do I need to achieve my financial goals? Can I tolerate the risk associated with these return targets?

2) Time horizon
What is my investment time horizon? Can I leave my money there without drawing from it over the next few years? Can I afford to invest or maintain my investment portfolio?

3) Asset allocation
What is the optimal asset mix for my investment portfolio to achieve my investment objectives?

Understanding the Risk of Unit Trust Investments

The fundamental rule of risk applies, where higher risk is a directly correlated with higher returns and vice versa. Investors must first and foremost understand the risk of unit trust investment before investing to avoid future distress. Risks can be quantified in 2 major categories, general risks and investment risks.

General risks are risk largely influenced by the economic forces, such as management risk, liquidity risk, loan financing risk, compliance risk and inflation risk.

Investment risk, as its name denotes, are risks related to the management of the fund, for example, fund management risk, bond credit risk, interest rate risk, market risk, specific risk and so on.

Understanding the different risk level can help choose the fund that is compatible to your financial needs and risk appetite. Equity type funds have the highest risk among the 3 categories of funds, followed by balanced type funds and fixed income type funds.

Benefits of Investing in Unit Trust

Convenience
A simple, convenient and less time-consuming way of investing in securities.

Professional Management
Benefit from the expertise of professional investment managers who in turn are able to draw upon specialised research, market information and the expertise of a variety of third party investment analysts.

Diversification
Exposure to a diversified portfolio of securities, which results in a lower level of risk and volatility as compared to a single stock investment which contains a higher level of specific risk.

Liquidity
Investors are able to buy and sell units on any business day provided that pricing for the fund is available, retaining a relatively higher degree of flexibility and liquidity.

Next, I will discuss on the risk of investing in unit trust.

Unit Trust - An Introduction

Unit trust funds are investment schemes structured to allow investors with similar investment objectives to participation in the money, debt, equity and derivative markets. Professional investment managers, who channel their efforts towards achieving investment objectives ranging from regular income to capital growth, will manage funds collected from the schemes.

Unit trusts are excellent vehicles for individual and corporate financial planning due to their affordability, liquidity and relatively low rish nature.