Govt-linked funds selling shares, locking in gains

KUALA LUMPUR: With the sharp rise in share prices of big-cap companies on Bursa Malaysia and the benchmark FBM KLCI nearing the 1,500-point mark, government-linked investment funds appear to be paring down their stakes and taking profit on their equity investments.

Some investment analysts observed that government funds were rejigging their portfolios and broadening their net to other stocks besides the big-caps, which had performed well in recent months.

According to statistics from Bursa Malaysia, a number of government investment funds including the Employees Provident Fund (EPF), Lembaga Angkatan Tentera (LTAT), Kumpulan Wang Persaraan (KWAP) and Skim Amanah Saham Bumiputera have been trimming their shareholding in various equities (see table below).

Analysts cited profit taking as one of the main reasons for the divestments.

“We believe that a number of local institutions had been taking profit on the market as it rallied from its low in May. Some of this selling could be related to having to pay dividends based on a June 30 close, or linked to efforts by local institutions to diversify their portfolio outside Malaysia,” said OSK Research head Chris Eng.

“The government funds have been taking advantage of the upturn in the market to lock in their gains. It is a normal pattern for these government funds to take profit and reinvest at a later date when the market is more stable,” he added.

As at end-June, the EPF’s largest stake was in Malaysia Building Society Bhd, with 67.33%, according to its website, while its second-largest holding was in RHB Capital Bhd.

The provident fund had made known that it wanted to reduce its stake in RHB Cap to some 40% over the next year. According to the latest filings with Bursa, the EPF now holds 54.52% in RHB Cap, down slightly from 54.93% at end-June.

In the case of the EPF, according to analysts, the trimming of its holdings in Malaysian equities is part of its plan to diversify its holdings overseas.

“Although the recent selling is due to profit taking, the EPF has also announced that it intends to increase its level of overseas investments, possibly investing in property,” said an analyst.

Other funds have been trading actively on the market in an effort to tweak their collective portfolios.

“An example is Permodalan Nasional Bhd, which has also been actively trading in the stocks in its portfolio, selling and buying at opportune times,” said a local trader.

LTAT, meanwhile, has also trimmed its stakes in smaller companies like Hiap Teck Venture Bhd and Pelangi Publishing Group Bhd. It has ceased to be a substantial shareholder of the latter, according to latest filings.

Among the companies that saw government funds trimming their holdings are government-linked companies (GLCs) such as Axiata Group Bhd and Malayan Banking Bhd. Other stocks that the funds have been selling include Kinsteel Bhd, DiGi.Com Bhd, KPJ Healthcare Bhd and Kencana Petroleum Bhd.

Going forward, analysts expect the profit taking to continue although there will also be some reinvesting once the market stabilises, which is expected in the coming months.

“Although the government funds will continue to invest in GLCs, it can be seen that they are broadening their net and are looking at the broader market as well,” said an analyst.

This is in line with OSK’s October strategy report which recommends a switch to laggard small-cap companies, stating that defensive companies like KPJ and QL Resources Bhd would prove ideal picks.

Its top picks among the GLCs include Petronas Gas Bhd and MISC Bhd, although the caveat for both stocks is their low level of liquidity, according to analysts.


This article appeared in The Edge Financial Daily, October 6, 2010.

What is an Exchange Traded Fund?

An Exchange Traded Fund (ETF) is a new type of investment vehicle offered on the Bursa Malaysia. When you buy an ETF, you enjoy exposure to this entire portfolio of securities with only one purchase. And you can sell it in a single transaction as well.

Like a unit trust fund, an ETF allows you to have investment exposure to this collection of securities without the cost or hassle of buying all the securities individually. But unlike most unit trusts, it is traded on the Bursa, giving you greater flexibility to buy or sell it anytime, through any remisier or broker. And just like trading in specific stocks, you can buy or sell this fund through your broker at any time during the trading day.

There are many types of Exchange Traded Funds. Some may track specific sectors or industry groups; some may invest in bonds or other securities.

One common type of ETF is an Index Tracking Exchange Traded Fund. This kind of fund is made up of a basket of securities (equities, bonds, or a combination) designed to track the performance of a specific index. Being passively managed, the fund incurs less management fees, thus giving you cost-effective exposure to specific markets or sectors.

Key Features of an ETF

Exchange Traded
An ETF is structured like a unit trust but it is traded like a single stock on the Bursa Malaysia.

Trading Price
Each ETF has a Net Asset Value (NAV), calculated according to the market price of the individual securities in the portfolio. But just like a stock, an ETF’s trading price is determined by supply and demand on the exchange. So the ETF’s trading price may not be the same as its NAV. This can provide opportunities for arbitrage.

Distributions
An ETF may pay distribution. Check the individual fund’s distribution policy to know for sure.

Management Charges
As a managed portfolio of securities, the ETF incurs fund management and administrative fees, which are deducted from the ETF’s assets. The NAV is adjusted accordingly.

Transaction Charges
When you buy or sell the ETF, you will incur normal stock market transaction costs such as brokerage commission, stamp duty, and clearing fee, just as when you buy or sell an ordinary stock.

Market Risk
If you invest in an ETF, you will be exposed to risks similar to those involved in buying into individual securities. Investment returns are subject to market forces and to any risks inherent in investing in the specific country, industry, or type of security in which the ETF invests.

Management/Tracking Error
In the case of index tracking ETFs, there is no guarantee that the fund manager will successfully duplicate the performance of the index. The ETF could actually outperform or underperform the index. This could happen when a manager does not invest in exactly the same securities as the index but rather in comparable securities, and the performance of the comparable securities turns out to be different (positively or negatively) from those in the index. Differences in performance could also occur due to the manager’s choice of different security weightings from that of the index, and to the impact of administrative and other costs on the fund’s NAV.


Sources: http://www.ambg.com.my/abfmy1/etf/aboutexchangetradedfund.asp

Islamic Unit Trust in Malaysia - An Introduction

First launched in the UK in 1931 by M&G, unit trusts are a form of investment by companies or individual who pool their money to make large-scale investments in selected portfolio of securities. Within Malaysia, unit trust started with the formation of Malayan Unit Trust Ltd. in 1959. Government agencies started formulating regulations during the early years but it was in the 80s that the industry started to bloom. The setting up of Amanah Saham Nasional (ASN) by Permodalan Nasional Berhad (PNB) in 1981 drew overwhelming response. With an ingenious distribution channel, unit trusts nowadays are reaching the investing public even more. Post 1997-Asian financial crisis saw the emergence of Islamic funds as the popular type of unit trust issued by providers. Securities Commission regulates the Malaysian unit trust industry and it defines the Islamic capital market as “the market where the activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam.” In other words, the ICM represents an assertion of religious law in the capital market transactions where the market should be free from the involvement of prohibited activities by Islam as well as free from the elements such as usury (riba), gambling (maisir) and ambiguity (gharar), added the SC website. To better strengthen this new banking reality, the Securities Commission established a Syariah Advisory Council (SAC) in 1996, to advice on all matters pertaining to Islamic Capital Market, including that of unit trust. The eight members of the Syariah Council would naturally be best there is in Syariah – both knowledgeable and experienced as well as having a sound Islamic economics and finance background. The Chairman, Syariah Chief Justice Datuk Sheikh Ghazali Hj Abdul Rahman resides over seven other representatives from UIA, UKM, a Mufti, an Islamic bank’s securities director, a Human Rights Commissioner, and one each from Angkasa and a private company. To advise on all matters within the Islamic Unit Trust industry, SC has appointed a total 26 syariah individual advisers and 4 syariah corporate advisers, all distinguished scholars related to the industry. Broken into four main categories to reflect its investment emphasis, Islamic Unit Trust in Malaysia is made up of Equity Funds (40 funds), Balanced Funds (17), Bond Funds (15) and Other Funds (5). An equity unit trust is the most common type of unit trust where a major portion of its assets are held in equities or securities of listed companies in the Malaysian stock market, which is the largest equity market in South East Asia. The performance of the units is therefore linked to the performance of the market. A rising market will normally give rise to an increase in the value of the unit and vice-versa. In Islamic unit trusts, funds can only be invested in “halal” stocks that are not only involved in the Haram business like gambling, alcoholic beverages and the production of non-Halal products, but also exclude shares of companies that are involved in conventional banking, insurance or financial services. The returns of the Islamic Unit Trust will also avoid the incidence of 'riba' or usury interest through the process of cleansing or purification by the removal of such amounts representing the interest element. Such proceeds are normally donated to charities. As of September 2005, there are 36 unit trust management companies managing 331 approved funds in the overall unit trust industry that circulates some 99.6 billion units in the hands of 10.7 million unitholders. With the active role played by governing body the Securities Commission and the commitment showed by Malaysia’s Central Bank, the Islamic Unit Trust market has indeed played a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.

Foundation of Unit Trust

Unit Trusts are a form of collective investment that allows investors with similar investment objectives to pool their funds to be invested in a portfolio of securities or other assets.

A professional fund manager then invests the pooled funds in a portfolio which may include the asset classes listed below:

• Cash
• Bonds & Deposits
• Shares
• Properties
• Commodities

Unit holders do not own the securities in the portfolio directly. Ownership of the fund is divided into units of entitlement. As the fund increases or decreases in value, the value of each unit increases or decreases accordingly.The number of units held depends on the unit purchase price at the time of investment and the amount of money invested.

The return on investment of unit holders is usually in the form of income distribution and capital appreciation, derived from the pool of assets supporting the unit trust fund. Each unit earns an equal return, determined by the level of distribution and/or capital appreciation in any one period.

Unit trust investors are typically those with savings to invest, who neither have the time nor the inclination to hold portfolios of direct investments or shares. Rather, they prefer to invest in a secure, reputable investment vehicle which suits their purposes. Unit trusts allow investors to have easy access to a wide range of investments not normally available to them.

As investors seek to maximise returns on their financial resources, unit trusts provide an ideal way for them to gain exposure to investments that, in the long run, should produce returns superior to cash savings and fixed deposit investments.
The cost of these potentially higher returns is of course the risk that accompanies the investment. In the short term, the certainty of investment returns of most unit trust products is less than those offered by fixed deposits. However, in the medium to long term (i.e. 3-20 years), unit trust investments generally provide better returns at acceptable levels of risk.

Source: http://www.fmutm.com.my/contents.asp?id=100049&sid=100036&cid=100030&zid=100008

Your Benefits With Unit Trusts

Professional Investment Management

A unit trust combines the capital of many investors to employ experienced management in purchasing securities of many companies. The management of a unit trust provides diversification of investments and supervision which few investors could individually afford. Investment management is a full time job which requires specialised knowledge and training.

The most common investing strategy employed by fund management companies is a combination of the ‘top-down’ approach, ‘bottom-up’ approach or a combination of both. The top-down approach takes into consideration factors such as macroeconomic outlook, the current business cycle, interest rate trends and other economic factors. Meanwhile, the bottom-up approach, also known as stock picking, looks closely at the fundamental strengths of a company based on management credibility, financial track record and market share. For fixed income securities, the key factors are credit quality, interest rate risks and managing the bond portfolio’s exposure to changes in interest rates.

Diversification

Diversification involves the process of spreading risk over a broad portfolio of stocks and bonds in different companies, sectors, countries or regions. This can only be done with substantial amounts of monies to buy a wide variety of stocks.

Unit trusts facilitate the diversification process by providing small investors with an avenue to pool their savings for the purchase of a diversified portfolio of stocks and/or bonds that will bring higher potential returns at lower risks to unitholders compared with investing directly in stock markets.

Liquidity

Unitholders may redeem all or part of their units on any business day and the unit trust management company will be obliged to purchase them. This means unit trusts come with high liquidity whereby they can be readily converted into cash. In fact, the Securities Commission requires that investors must receive their monies within 10 days from the receipt of the repurchase request by the fund management company, and the value of the redemption will be based on the price determined at the close of the business day in which the request for redemption is received.

Advantages of Compounding

Many unit trust funds provide facilities for investors to reinvest their distributions. For those who opted for distribution reinvestment, the fund will automatically credit the distributions into the account, rather than sending distribution warrants. This process of reinvesting the income from the original investment and also of reinvesting the return on the total accumulating investments is called compounding.

To illustrate, let’s say you invested RM100 at the beginning of every month at 25 with an interest growth of 10% per annum. By age 65, your investment would have grown to RM638,000! The key element to compounding is time - the longer the period of time, the greater the growth.

Regularity of Investing

Many people do not have substantial sums of cash available to invest, but they can develop an investment account by investing smaller sums regularly in a unit trust.

Most unit trust funds have plans available to make it possible for smaller investors to invest relatively small amounts monthly. It is easy and inexpensive for an individual to acquire units through deposits of RM100 or more a month in a unit trust fund.

Fund Administration

Few people have the experience, time or facility to properly set up an investment programme, much less to supervise it constantly. Unit trust managers are professionals who are devoted to solving the investment problems of people from all walks of life.

Unit trusts relieve their investors of the need to handle their own securities transactions. Investors in unit trust funds are not obliged to concern themselves with matters such as:

1. Obtaining quotations on securities being bought and sold

2. Delivery and payment for the securities involved in each transaction

3. Safekeeping of cash and securities

4. Accounting and bookkeeping procedures, etc

Investors of unit trust funds will receive interim and annual reports which describe:

a. The portfolio of the funds

b. Investment changes made in the period

c. Distributions paid, if any

Sources from : http://www.publicmutual.com.my/article.aspx?id=87

Secret of Investing Unit Trust

There are 3 common strategies used in unit trust investment.

1. Ringgit Cost Averaging

Regularly invest a fix amount in a unit trust fund regardless of market trend is called the Ringgit Cost Averaging strategy. The actual market performance is fluctuating. When the equity market is high, you buy less unit with the same amount. When the market is low, you buy more unit. For long term, you will get much more unit in the lower price range.
2. Portfolio Re-balancing

Portfolio re-balancing is the process of bringing the different asset classes back into proper relationship following a significant change in one or more. More simply stated, it is returning your portfolio to the proper mix of stocks, bonds and cash when they no longer conform to your plan.

Example:

You start investing 50% in equity and 50% in fixed income fund.
1 year later, the equity rises and now your portfolio consist of 80% equity and 20% fixed income fund.
To re-balance your portfolio, you should sell 30% of your total fund in equity and invest it in fixed income fund so that the portfolio is maintained.

This is the simple principle of buying low, and selling high.

3. Switching

Switching will lock in the gain you made in your unit trust investment. Switching fees are low and definitely lower than the upfront service charge. When you are making profit from an equity fund, you can switch it to some lower risk fund to lock the gain instead of selling it for cash. When the market turn low, you can switch it back to equity fund.

Introduction: Unit Trust

A unit trust is a financial vehicle through which individuals may invest their money. The idea behind unit trust is better returns through collective investing. In other words, it means pooling the investments of many investors, individuals and institutions.

Investing in a unit trust offers investors numerous advantages, including:

a. Professional management at a low cost

b. Safety through the spreading of risk (diversification)

c. Liquidity

d. Ease of transaction

e. Capital appreciation/income stream

The operation of a unit trust may be best explained by outlining its similarities with the operation of a bank. Many individuals deposit money in the banks, for which they receive interest. These individuals expect complete liquidity where they are able to withdraw their deposits in cash at any time. The banks employ professional managers to look after the deposits, which are invested. These managers lend the deposits to other individuals requiring funds and a host of other profit generating facilities of the banks.

Similarly, unit trust holders wish to put their money to generate higher returns. The goal of all investments is to make money work harder, either through producing income or growth. Unit trust holders have liquidity because their units can be readily converted into cash at any time. By investing in unit trusts, it allows them to engage professional fund management companies at a low cost to the individual investors. These management companies diversify the investible funds in many different securities and other approved channels to spread the risk.

The unit trust is constituted through a document known as a Deed which brings together and binds the various parties to the deed:

*
The trustee, who holds the assets of the trusts on behalf of the unitholders.
*
The management company, who is the promoter of the scheme and provides investment and administrative expertise as well as markets units to the public.
*
The unitholders who provide the funds for investment and expect to receive the benefits derived from the investment. The effect of dividing the beneficiaries' interest in the trust into units is that their interest is quantified into discrete portions.

Particular advantages of unit trusts over the pooled investments include:

*
The provision of an independent trustee to hold the trust's assets on behalf of unitholders and to watch over their interests on an on-going basis.
*
The deed and prospectus are scrutinised by government authorities, prior to an offer of units being made to the general public. The management companies and trustee are themselves approved by the regulators.
*
A buy back provision or covenant in each deed which requires the management company to redeem an investor's units within a specified time limit at a price determined in accordance with the deed.
*
Provisions in the deed under which the management company and trustee are in a fiduciary position in relation to the trust (i.e. they can only profit in ways laid down under the deed). The investor can determine in advance what costs and charges they will be required to pay to join and stay in the trust.

Source from: http://www.publicmutual.com.my/article.aspx?id=86

Dollar Cost Averaging

Dollar cost averaging is a timing strategy of investing equal dollar amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

Dollar cost averaging is also called DCA and constant dollar plan in the US, pound-cost averaging in the UK, and by the currency-neutral terms unit cost averaging and cost average effect.

Parameters
In dollar cost averaging, the investor decides on three parameters: the fixed amount of money invested each time, the investment frequency, and the time horizon over which all of the investments are made. With a shorter time horizon, the strategy behaves more like lump sum investing. One study has found that the best time horizons when investing in the stock market in terms of balancing return and risk have been 6 or 12 months.
One key component to maximizing profits is to include the strategy of buying during a down trending market, using a scaled formula to buy more as the price falls. Then, as the trend shifts to a higher priced market, use a scaled plan to sell. Using this strategy, one can profit from the relationship between the value of a currency and a commodity or stock.

Source from: http://en.wikipedia.org/wiki/Dollar_cost_averaging

What is Unit Trust?

A unit trust is a form of collective investment constituted under a trust deed.

Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore[1], and the UK, unit trusts offer access to a wide range of securities.

Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations.


Resource: http://en.wikipedia.org/wiki/Unit_trust