Key Points:
As a continuation of a similar article we wrote at the beginning of last year, we reviewed the performance of the Malaysia equity funds on our platform. There was a lot of uncertainty in 2011 and 2012 is expected to be a continuation of previous years; no different in terms of the amount of volatility besetting the financial markets globally. Though the FBM KLCI only gained 4.5% in terms of total return in 2011 (a pale comparison to 23.8% a year earlier), it was among the best performing markets under our coverage.
Within the Malaysia equity space, how many funds on our platform bested the KLCI's performance? See Table 1 below for our findings.
TEN FUNDS OUTPERFORMED THE KLCI
| Table 1: Funds that have outperformed the KLCI | ||
# |
Fund | 2011 Return |
1 |
Kenanga Growth Fund | 19.1% |
2 |
Kenanga Syariah Growth Fund | 16.9% |
3 |
Prudential Equity Income Fund | 10.7% |
4 |
Alliance Optimal Income Fund | 9.2% |
5 |
Prudential Dana Al-Ilham | 9.0% |
6 |
AmIslamic Growth | 6.0% |
7 |
AmIttikal | 5.4% |
8 |
OSK-UOB Emerging Opportunity Unit Trust | 5.2% |
9 |
RHB Malaysia DIVA Fund | 5.1% |
10 |
OSK-UOB Malaysia Dividend Fund | 5.0% |
| FTSE Bursa Malaysia KLCI | 4.5%* |
|
| Unit trust performance is based on NAV with dividends reinvested *Based on total returns, i.e. inclusive of dividends reinvested Source: Bloomberg and iFAST |
||
Top Performing Fund
The top performing fund - Kenanga Growth Fund - has been a fund that everyone at Fundsupermart unanimously loves and is also one of the top-selling funds on our platform. The fund manager is particularly proud that they "try to minimise as far as practicable the volatility" of their funds, and that investors "will notice that our funds in general have lower volatility than their peer group." This concurs with our findings when we analysed the fund's performance in a Chart Talk article, in which we concluded that the Kenanga Growth Fund is a relatively slow and steady performer as shown by the data.
The top performing funds mostly had significant exposure to sin product manufacturers (i.e. breweries and tobacco companies), oil palm plantations, telecommunication services companies, commercial banks and real estate investment trusts (REITs), all of which performed particularly well in 2011. Going forward, we expect Malaysia's economy to grow at 4.0 - 4.5% year-on-year in 2012, with the economy supported by domestic consumption and private and public investments under the Economic Transformation Programme (ETP).
Traditionally, the higher the gains, the higher the risks. So let's take a look at the downside risks of these ten funds and of the KLCI.
| Table 2: Downside Risks | ||
# |
Funds | 2011 Downside Risk* |
1 |
Kenanga Syariah Growth Fund | 7.4% |
2 |
Prudential Equity Income Fund | 7.6% |
3 |
Alliance Optimal Income Fund | 8.2% |
4 |
Kenanga Growth Fund | 8.6% |
| FTSE Bursa Malaysia KLCI | 9.8% |
|
5 |
RHB Malaysia DIVA Fund | 9.9% |
6 |
OSK-UOB Malaysia Dividend Fund | 10.1% |
7 |
Prudential Dana Al-Ilham | 10.4% |
8 |
AmIttikal | 10.4% |
9 |
AmIslamic Growth | 11.4% |
10 |
OSK-UOB Emerging Opportunity Unit Trust | 16.2% |
| Source: Bloomberg, iFAST *Downside risk is the annualised standard deviation of daily losses |
||
Lower Risk, Higher Returns Than The Market
Table 2 shows how risky the funds were with respect to making losses. Just to be clear, downside risk is not a measure of risk-adjusted returns. A low downside risk indicates that the losses (if any) tend to be very consistent, whereas high downside risk indicates that the losses (if any) could be anywhere in between mild and extreme. The results show that six better-performing funds had more erratic downward movements than the market (as represented by the broad-based KLCI). Although a fund might have higher gains, investors would also need to be able to ride out periods of losses when markets turn bad.
That said, investors who are risk-averse could consider those funds which have lower downside risks than the broad-based KLCI, yet achieved higher returns than the index. The top four funds in Table 2 certainly fit the bill.
Fancy Small Caps?
The definition of a small cap company within the context of Malaysia is not defined accurately as different fund houses apply different criteria. In the simplest terms, a small cap company is one that is listed on the Main Board, and is not part of the top 100 companies based on market capitalisation. Of the ten funds that outperformed the KLCI, one of which invests in small cap companies - the OSK-UOB Emerging Opportunity Unit Trust.
OSK-UOB Investment Management Berhad defines a small cap as a company with a market cap of less than RM750 million. In 2011, sentiments were weak and riskier assets were under immense selling pressure, which resulted in the benchmark FTSE Bursa Malaysia Small Cap Index recording a total return of -4.0%. The OSK-UOB Emerging Opportunity Unit Trust had an average cash holdings of 11.0% in 2011 which probably helped cushion stock market losses and enhanced the performance of the fund. Not surprisingly, this fund also has the highest downside risk as seen in Table 2.
IN CLOSING...
... ten funds on our platform managed to beat the KLCI in terms of total returns, and only four funds did so in a less risky manner. Our analysis is based on 2011 total returns, and investors with longer-term investment time horizon should look into the longer-term performance and downside risk of the funds before making an investment decision. It's hard to say that would happen in 2012, suffice to say that there remain dark spots in the US, Europe, Arab nations and China at the time of writing.
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