Fundsupermart's Investment Philosophy
Recommended Funds Selection Methodology
Performance (60% weightage)
We believe that
the quality of the fund manager is the most important factor in picking the
right unit trusts. Good fund managers carry certain investment methodologies
and character traits that over time will ensure good investment returns. The
best and most objective way of determining the quality of the fund managers
is to look at the historical performance of the fund. Both the actual returns
over various periods of time - mainly 1 year, 2 years, 3 years, 5 years - and
the consistency of good returns, are important to us. Where the funds are new,
but are feeder funds to mother funds overseas with a long history, we would
assess the mother fund as well. We typically recommend funds of at least 3 years
operating history. We only look at returns over periods of no less than one
year. Anything less is not meaningful. We completely ignore the quarterly performance
rankings. We feel that focusing on that will simply encourage short-sightedness
- both on the part of the investors and on the part of the fund managers.
Expense ratio (20% weightage)
The expense ratio
is what you have to pay the fund manager on a yearly basis. This charge is deducted
from the value of the unit trust. It takes into account all the expenses that
the fund incurs, including management fee, administration and transaction costs,
and marketing. Expense ratios typically range from 1.5% to 2.5% (less for index
funds). The lower the expense ratio, the better it is for you, because you pay
less.
Risk (20% weightage)
Instead of purely
using statistics on standard deviation (volatility) as the measure of risk,
which is what most people do, we feel that it is more appropriate to look at
how well the funds hold up during periods when the relevant equity markets saw
substantial decline. (Using purely standard deviation statistics will penalize
the top performing funds as volatility data do not differentiate between a rising
fund from a declining fund).
Bond funds
The purpose of
bond funds are to reduce volatility in an investment portfolio. People buy bond
funds not to seek high returns (the best returns are derived from equity funds).
The people who buy bond funds want stability and consistency. Thus, in our analysis
of bond funds, we used a different weighting of Performance 30%, Expense 30%
and Risk 40%.
Currency risk
The currency risk consideration applies to both the analysis and selection of equity and bond funds.
majority of investors who buy unit trusts in Malaysia uses Ringgit Malaysia as their main currency.
As most of the equity funds that invest in other regions buy into companies that predominantly have their assets and
earnings streams denominated in foreign currencies, there is an exchange risk involved.
A gain in the Ringgit Malaysia against other currencies may reduce returns while a drop in the Malaysian Ringgit
against other currencies would magnify returns. Thus, currency risk is a factor that we often mention about when analyzing
markets and recommending funds.