Tuesday, September 23, 2008

Unit Trust Funds to Remain Resilient

KUALA LUMPUR: Unit trust funds’ net asset value (NAV) has fallen significantly due to the equity market downturn and volatility, though the industry will remain resilient, said fund experts.

When contacted, Fundsupermart told The Edge Financial Daily that local funds had been affected although they did not have a direct exposure to the United States’ financial crisis.

“Almost all equity funds were down while the returns for fixed income fund were also lower than over the last six months. Based on the 70 funds we sold, equity funds were down 11.9% on average over the last six months, with the majority of them falling in a range of 7% to 17%,” the online unit trust portal said in an email reply.

It said balanced funds dropped on average 7.3% over the last six months, while fixed income funds fared the best, with a declining average of 1.7% with a few managing to turn in a positive return of under 1%.

Fundsupermart said the resilience of fixed-income funds tended to be stronger during such times as investors took “flight to safety” as an option to stay out of equities.

The online portal added that apart from the US turmoil, rising inflation and slowing economic growth had also affected the market. Political instability was also a short-term worry for the Malaysian market.

It noted that volatility was likely to continue, and it was very difficult to time the market bottom but it believed that it was a good opportunity to start accumulating cheap securities by going through the fund investment route.

“Markets will not keep on dropping indefinitely. They will eventually recover. It is better to position for the recovery now in two to three years’ time, as there are attractive bargains to be had now.

“The industry will remain resilient even to market changes such as those we saw over the last two weeks. In fact, it should come out stronger when the worst is over and the dust has settled,” it added.

Fundsupermart said unit trusts would be appreciated as investors would realise the importance of diversification to access global markets and sophisticated sectors or asset classes, rather than risking putting their money into just one investment or stock in light of the vulnerabilities exposed by the fall of Lehman Brothers and AIG.

With the fall of giants such as AIG and Lehman Brothers, it has shown that no company, no matter how large, is entirely safe. This means that diversifying your holdings is now even more important. Markets will eventually recover, but the casualties from this financial turmoil, however, will not,” it said.

From a purely research point of view though, the online portal felt that equities generally looked more attractive at the moment as they had been sold down severely.

It likes Asian equities in particular due to their current low valuations, with forward price-earnings ratio (PE) of about 11 to 12 times, which is close to levels during the SARS outbreak in 2003.

It is not aware of any large withdrawals from the unit trust industry despite the battered investor confidence and bearish mood.

Meanwhile, HwangDBS Investment Management Bhd chief investment officer David Ng expects near-term volatility to continue in the global equity and fixed-income markets.

He said the fund management house would continue to hold a defensive posture with relatively high cash buffer and may re-deploy assets to work in Malaysia when local politics stabilised.

He added that the local market, particularly involving funds which had exposure in the equity market, was likely to underperform any global recovery unless there was a decisive resolution to the current political impasse.

Citing Bloomberg, Ng said global equity funds in general had fallen by 4.3% in the MSCI Emerging Markets Index.

“For the more aggressive investors, the coming quarter should present excellent opportunities to invest in equity funds. Meanwhile, the fixed-income fund is suitable for the conservative investor,” Ng said.

Kumpulan Sentiasa Cemerlang (KSC) Sdn Bhd director Choong Khuat Hock said some investors had redeemed their unit trust funds and switched to safer money market investments.

source : The Edge Daily dot com - http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_87e4d2c6-cb73c03a-1f195fc0-56229035

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