We are often told that we should leave investing to the experts. What defines this expertise?
This is a good time to ask this question since 2017 is a watershed year of sorts. 10 years ago marked the eve of the global financial crisis when financial markets around the world collapsed in 2008. And we have also just commemorated the 20th anniversary of the Asian financial crisis.
Since financial planning is about very long time frames, think retirement, housing, children’s education etc, it is also the right time to ask how our investments have fared when the timeframe has to envelop the performance of a crash year and the very challenging subsequent years.
Did the experts manage our money well in the volatility? Did their fund marketing activity reflect the best interests of unit trust holders?
To answer this, we can compare funds’ performance to do-nothing, non-expert market portfolios of diversified markets around the world represented by their respective indices. Should one pay premium prices to invest into Malaysian-focused funds or invest cheaply into regional/global index funds or ETFs?
Methodology and assumptions
- Returns are examined only for the fund universe with a 10-year history to 30 June 2017.
- 10 years is a good time-frame to send clues about long-term track record and consistency
- Only equity-centric funds are considered to objectively compare fund performance with global indices. No balanced funds or bond or income funds although many have 10-year track records.
- High-risk income centric equity funds have been included.
- Unless otherwise stated, all return numbers are quoted in returns p.a. over the last 10 years. Prices are as at 30 June 2017.
- “Fees” represent sales fees. Other fees have been adjusted in fund prices
- All indices are from MSCI.
- Market returns are attributed to broad MSCI indices which include investible large+mid+small cap stocks.
- Average returns are weighted according to fund sizes.
- Funds data are sourced from Morningstar which includes dividend payments.
- Source data is available upon request
- Feedback is welcome.
10 observations of funds with 10-year track records
- Funds’ long term track-records are emerging
There are 157 equity funds with a 10-year track record managing US$13.5b in assets or about 15% of industry assets. I look forward to the day when funds begin to have multi-decade track records.
- A case of too many Malaysia-focused funds?
85% of funds invest primarily in Malaysia and only 15% in foreign markets. This opens up a whole Pandora’s Box for the local investment industry. Have Malaysia-focused funds been over-marketed? Have Malaysians lost out on the growth and innovation of the rest of the world in the last decade? Are Malaysian managers equipped to handle foreign markets? Are local advisors/agents comfortable in giving proper advice on global diversification? There could, of course, be more foreign funds but with less than 10 years track record which are not covered by this survey.
- Malaysia has underperformed a diversified portfolio of world markets
Malaysia-focused funds on average returned 6.4% and 5.9% before and after selling fees respectively. This is less than returns given by World (6.9%), Developed Markets (7.2%), US (9.8%!), Asia ex-Japan (6.7%) and Asean (7.4%).
- The ringgit’s 2.4% p.a. decay is to blame for poor performance
The ringgit was about 3.37 in mid-2007 and 4.28 to the USD at the end of June 2017. This is a USD vs RM annualised gain of 2.4% p.a. which must be added to all fund/index returns to arrive at ringgit returns. Whatever your nuanced opinion of the ringgit, we return to the question of what experts would advise for the next 10 years: to have a “home is best” mindset or to decide whether global diversification gives superior growth-risk exposure.
- US returns were insane despite causing a global financial crisis
The US returned 7.4% or a whopping 9.8% in ringgit terms! This is insane because the US is the world’s biggest market and it’s not easy to get double digit returns out of a “mature” market. Investing at the market’s bottom during the crash in March 2009 would give even crazier returns. Thank Silicon Valley, the Fed, Bush Jr, Obama, Trump and the folly of emerging market leaders.
- China returned a ringgit-adjusted 6.7% despite the hate
China is supposed to be slowing down and has to contend with geopolitical risks. On the upside there’s a lot of restructuring and tech. So who knows whether this will sustain. Even Hong Kong, China’s erstwhile gateway, returned a delicious 8.6%.
- Malaysia mostly only outperformed “troubled” regions
Malaysia-focused funds on average did better than problematic regions like Europe (4%), Japan (4.4%), Asia including Japan (5.4%) and Emerging Markets (4.8%)
- Malaysian fund managers aren’t adept at global markets?
Malaysian-managed foreign funds mostly underperformed their respective indices. The exceptional performance for Asia ex-Japan is mainly attributed to one fund: the Affin Hwang Select Asia (ex Japan) Quantum fund which gave a 14.3% net return! Otherwise, performance for that sector, including for Affin-Hwang’s other funds in the category, remains similarly pitiful.
- Mega fund houses had significant impact on regional/global fund returns
You can say that, if you had decided to buy a unit trust investing in foreign markets, this is where most of your money went to. Public Mutual is a significant player in the foreign unit trust sector with most of their funds underperforming.
- A handful of funds had commendable performance
With net returns (after sales fees) of at least 7%, a few Malaysia-focused funds managed to hold up well against the returns of global and regional indices. But with asset sizes totaling about US$640m, this is less than 5% of total funds surveyed.