Expert advice on investing


Property vs StockProperty Vs Shares : Discover your knock out investment strategy 

Author : Peter Koulizos and Zac Zacharia Genre : Business, Finance and Law Publisher : Wrightbooks >>

ABOUT three to four years ago, a friend in his 20s bought his first property. Prior to this, he was trading in stocks. His interest in the property sector came about when he saw the double-digit price increase during the run-up in the property sector in 2009/2010.

While his interest in shares continues, it was the property sector which became the main focus of his attention. His intention was to sell the serviced apartment once it was completed at a profit, a strategy taken by many during those heady days, and today. He has the same principle when it came to stocks. If he has read this book Property Vs Shares, he may have taken a different strategy for his investments.

This book serves as a guide for those who are interested in either or both forms of investments. While it was written with beginners in mind, it provides useful reference to readers on higher rungs of the investment ladder.

In Malaysia, the two most common investments are properties and stocks. While there are unit trusts, these are, at the end of the day, also linked to stocks. The last several years, a number of books on property investments have appeared on the shelves of our local book stores. Most, if not all of them, are focused on property investments alone and therein lies the difference.

Property Vs Shares compares one asset class against another. It has two authors. Peter Koulizos is the author of The Property Professor’s Top Australian Suburbs and lectures on the subject. Zac Zacharia lectures on share investment at TAFE SA and is a founder of a wealth management group.

Both of them provide some ground rules for investment decisions in today’s volatile economic climate. They look at how property and shares have performed historically and give pointers on research.

In today’s search for yield, all sorts of schemes have entered the market. They highlight some of these scams and schemes. In short, they look at investments much more broadly, and takes into cosideration the many who keep their money in time deposits.

Using the analogy of two boxers in a boxing ring, one representing real estate and the other shares, they begin with that all pertinent question Why Invest? and explains the importance of being a shrewd steward of one’s finances if one wants to retire early and richer.

They outline from the start that saving and investing are two different things. In order to invest, one must first of all, begin a journey in savings. But while saving, as in keeping money in a time deposit may be “safe” and “risk-free”, the returns are minimal. On this premise, the authors suggest other forms of investments which, if prudently selected and managed, and depending on when one enters and exits, may provide a better yield.

My 20-something friend could have just kept his money in a fixed deposit account but with the cost of living escalating, he figured he would be earning negative interest rates in no time. And therein lies the value in property and stock investments – they provide a regular income and have the potential for capital appreciation.

However, there are caveats to this and the authors explain the perils of both clearly and succintly, without diminishing the importance of diversification.

Although this book is based on the Australian property sector and the Australian stock market, it holds within its covers very insightful information and suggestions about property and stocks that are universal.

The last several years, there has been a great interest in property investments on a global scale with Malaysians buying real estate at home and abroad, and with it comes currency risks. The Malaysian stock market has generated both interest and returns for investors. What and where one buys, or feels most comfortable with, depends on many personal and individual factors as well as global and national events.

Investment markets are inter-related, like a big jigsaw puzzle. When property prices dip, the shares of property companies may dip. When interest rate goes up, there may be less application for housing mortgages, which in turn affects bank revenue and bank stocks.

The importance of having some knowledge of economic and investment cycles are clearly spelt out with graphs and tables. But these details are used sparringly.

As mentioned earlier, my 20-something friend may have taken a different route had he read this book because in the middle of this reference guide, the authors draw the distinction between trading, investing and speculating.

The main difference is the investment timeframe. Trading on the stock market can occur within seconds whereas speculating on property can occur within weeks or months. They suggest taking a longer time frame with both.

Only you can decide why you are in the game – is it for capital growth, or for income, or both? Do you want to fund a certain lifestyle, or are you hoping to retire richer and earlier? If you are able to answer the above, you will be guided as to what suits you best. This book will set you on the road to investing with some insightful information in hand.

There are many nuggets of gold to be found in this book. Whether your preference is for stocks, properties, or both, there is a place in your book shelf for this slim volume.

- Contributed by Thean Lee Cheng The Star/Asia News Network

Investing in 2014


The end of the year is the time to reflect on the past and the beginning of the year is time to reflect on the future. 

SO how did your portfolio do last year?

The Dow Jones Industrial Average for US stocks hit 16,576 with a 26% gain for the year, the best year since 1996. By comparison, the Hang Seng Index performed 3%; Tokyo Nikkei did best at 57% and Bursa Malaysia ended 10.5% higher, just a tad off its record high.

On the other hand, the fastest growing economy in the world had the worst stock performance – the Shanghai A share index closed the year at -8%. Gold prices fell 27% to US$1,196 per oz, while property prices seemed to have done well in the United States and China. Bond prices are now extremely shaky, with the JPM Global Aggregate Bond Index falling by 2% during the year.

What is going on?

The answer has to be quantitative easing (QE) by the advanced country central banks. The world is still flush with liquidity and since investors are unclear on what direction to invest in, they have reversed investments in commodities (such as gold), avoided bonds because of prospective rises in interest rates and essentially piled into stocks.

Individual investors like you and I tend to forget that the market is really driven today by large institutional investors, including fast traders with computer-driven algorithms that have better information than the retail investor and can trade in and out faster and cheaper. It is not surprising that retail investors who have traditionally driven Asian markets have been moving more to the sidelines.

Even institutional investors are not equal. Long-term fund managers like pension funds and insurance companies are, by and large, highly regulated, with restrictions on what they can or cannot buy. So it is not surprising that the biggest money managers are today even larger than banks. BlackRock, the largest independent fund manager alone looks after nearly US$4 trillion, larger than most banks in emerging markets.

There are, of course, two types of asset management – active (where the managers actively invest according to their judgement on your behalf) and passive, where they simply follow the market indices or buy exchange traded funds (ETFs) that track market indices. According to the Towers-Perrin study of top 500 global asset managers, during the last decade, passive managers did better than the group as a whole.

So should we trust the market experts? I have been reading for years Byron Wien’s annual Predictions for Ten Surprises for the Year. Byron used to be a top investment pundit for Morgan Stanley but he is now working for Blackstone. His prediction of surprises is defined as events where average investor would assign one-third change of happening, but which he believed would have a better than 50% change of happening. He got roughly seven out of ten wrong in 2013, the more relevant mis-calls being the price of gold, a possible drop in S&P 500, the price of oil and the A share index.

Bill Gross, one of the top bond fund managers, pointed out that retail investors tend to be conservative, focusing largely on safe portfolios, such as investment grade and high yield bonds and stocks. But institutional investors have gravitated instead into alternative assets, hedge funds and more unconventional assets. Unfortunately, all these assets are “based on artificially low interest rates”. So if low interest rate policies are reversed, investors have to be prepared.

He rightly pointed out that the advanced country central banks are “basically telling investors that they have no alternative than to invest in riskier assets or to lever high-quality assets.” But if they withdraw QE or “taper”, then higher interest rates will cause a reversal of investment prices and also cause de-leveraging.

In other words, in order to bail out the world and keep the advanced economies afloat, their central banks are asking global investors to bear quite a lot of the risks of the downside. The smart money might be able to get out fast enough, but most retail investors do not have the skills to time their investments right.

So what should the retail investor do?

Peter Churchouse, who writes one of the best reports in Asia called Asia Hard Assets Report, quoted his son’s advice as “Buy good companies with strong earnings, strong growth and rock solid management. The world will go on.”

Quite right.

But how do we know which companies have rock solid management? My answer is: watch not what the annual report say (by all means read them), but look at what the management does. I have always tended to shy away from companies with high-profile CEOs who tend to win “Manager of the Year” awards.

There is, of course, no substitute for solid own research and look for yourself how the company or the economy that it operates in is doing.

The consumer or tourist is still the best investor because seeing for yourself gives you a feel of what is quite right or wrong with the country and just visiting the retail outlet, getting a sense of the service quality and the employee attitude would give you first hand what is right or wrong with the company you are investing in.

My favourite economy in Asia right now has to be Indonesia. I spent nearly 10 days over Christmas going through the markets of the most densely populated cities in Java and my conclusion was that Indonesia is on the move – literally. The population is young, mobile and connected. Every other shop seems to be selling mobile phones, cars or motorbikes. The quality of the retail shops, design and service has been improving over the years. And despite the coming elections, there is hope for change.

My bet, therefore, for 2014 is that if we stick to the better-run companies in the stronger economies, we should be better prepared for any tapering of QE to come.

Contributed by Tan Sri Andrew Sheng

Tan Sri Andrew Sheng is president of the Fung Global Institute.

Investing in things that count


Investing_small-changesSometimes it is not what we want that bears the richest blessings, but where we are sent that makes the difference.

THERE must be moments in our life when we pass by, say, a high-end store, and wish that we could pick up the latest electronic gadget without even thinking about the price.

The young father who wants the best education for his son may be convinced that the correct route is through a private or international school, if only he has a million ringgit to spare.

Day by day, we may wish for a lot of things. But aren’t we thankful that we do not always get our prayers answered?

The August month on the calendar in my office has a poem supposedly written by an unknown Confederate soldier. Titled “Prayers and Answers”, it includes the following verses:

“I asked for strength, that I might achieve. I was made weak, that I might learn humbly to obey.
“I asked for riches, that I might be happy. I was given poverty, that I might be wise.

“I asked for power, that I might have the praise of men. I was given weakness that I might feel the need of God.”

A friend gave up a nice job in the city to “Teach for Malaysia” in a rural school. The stories she shares regularly on Facebook are truly touching.

The first time I met her was at Fraser’s Hill some years back, when I was one of the facilitators at a writers’ camp.

While the purpose was to teach them to write well, I also told them that I would not expect them to eventually become journalists.

What is more important, I said, is to have a passion for life and a desire to make a difference wherever one is placed.

This friend did go through a stint in journalism but I now see her blooming in her real calling, which is to teach – not to the children of the rich and famous at some private school – but children who still struggle with the basic necessities of life.

The skills she honed as a communicator have allowed her to be practical and creative in teaching these children even the simplest of words. Here is a recent example:

  •   She draws a picture of a globe.
  •   Students: World!
  •   Teacher: Very good! Another word that starts with “E”? We learned it recently.
  •   Student: Earth!
  •   Teacher: Ada nampak telinga dalam perkataan ini? (Do you see another word in ‘Earth’?)
  •   Student: EAR! Ear! Ear!
  •   Teacher: *smiling ear to ear* Thank you, Class!

I should add that this is a Form One class whose standard of English has recently been diagnosed at Level 1.
It is a long haul, certainly, but my friend perseveres.

Meanwhile, another friend is doing something similar among the refugee community somewhere in Chad. Back on home leave, she showed me a clip of the children learning the alphabet by writing on the sand of an outdoor classroom.

These two young women gave up the comfort of home to venture into places where there are no high-end stores and where richness is definitely not measured by material possessions.

In places like this, strength, power and riches do not matter. Faith, hope and love are what really count.

SUNDAY STARTERS BY SOO EWE JIN

> Soo Ewe Jin (ewejin@thestar.com.my), in this season of Merdeka, salutes the many people, unknown and unseen, making a differenc

Making monkeys out of markets


IT’S now official. Even monkeys can beat the stock market index. Cass Business School researchers in London simulated 10 million portfolios of US stocks selected at random. They found that a US$100 invested at the beginning of 1968 would have yielded US$5,000 by the end of 2011, but half the monkey (computer-simulated) portfolios managed US$8,700, one quarter made more than US$9,100 and 10% made more than US$9,500.

Monkeys

So, does the market beat all the professionals if monkeys beat the market?

There is a real lesson here for investors. I had a great debate with a good friend last month regarding the benefits of investing in a world where fast trading algorithms (using super fast computers to detect market opportunities to buy, sell or short stocks make it hard even for traditional asset managers to compete. So what chance is there for retail investors? My friend decided to get out of trading stocks.

Investing has been such complicated business because there are just too many variables to handle. Gone are the days when you think you can understand how markets perform. The rules of the game changed when policymakers began intervening through unconventional monetary policy and politics become part of the equation.

You would have thought logically that growth economies should produce growth stocks. The BRICS economies (Brazil, Russia, India, China and South Africa) met in Durban at the end of March. These five countries accounted for over half of total global growth since 2001, but their stock markets have not done that well. Since its peak in 2007, the BRICS index is down 37%.

Chinese retail investors have declined in number, based on the number of accounts closed. The A share index is down 31% since its peak in 2009, and the Brazil, Russia, India and South Africa stock market indices are all in negative territory since the beginning of this year. On the other hand, both the US and Japan are sluggish in growth and their stock markets performed 11.1% and 20% respectively since the beginning of this year.

Despite being overall in crisis and negative growth, even the European stock market performed in positive territory, mainly due to better performance in Germany and France. There are globally diversified companies in these economies that can outperform despite the slowdown in the European economy.

The real problem is that negative real interest rates around the world are truly destroying the ability of investors to judge what is the right asset to invest in. Markets are clearly bubbly when emerging market investors start investing in taxi licenses.

Accordingly to a Bloomberg report, Turkish taxi licenses today trade for US$580,000 each. My Hong Kong taxi driver was complaining to me that a Hong Kong taxi license was trading over HK$7mil (just under US$900,000) and yielding next to nothing.

It made no sense to him as a taxi driver himself to be an owner. This reminded me that in 1996, golf club membership was being touted as the best investment ever, with the 1997 Asian financial crisis wiping out all gains thereafter.

So what should an honest, no-inside information retail investor do? I guess the old-fashioned advice to invest in diversified and value stocks and maintaining ample liquidity is still sound. Global bonds have done well since the financial crisis due to the massive quantitative easing.

Even those who have speculated on Greek bonds when they were yielding more than 20% have done well. But it is difficult to argue that ten year US Treasuries and German Bunds at under 2% per annum represent no risk. Certainly, Japanese 10 year bonds at 0.55% per annum, when the official inflation target is 2% per annum, must carry considerable interest rate risks.

Over the long-term, there is no question that investing in one’s own home has been good investment. This is officially supported leveraged investment, since most mortgages still require not more than 30% down payment for the first home. The fact that there is a growing middle-class in most emerging Asia means that demand for housing is still on the increase, but given such low interest rates, it is hard to imagine how much further can house prices rise relative to the affordability index.

My own inclination is to go for high yield, solid growth companies that are globally diversified. You basically invested in the region that you are most familiar with, and in companies that demonstrate good governance and know what they are doing. The average price/earnings ratio of Hong Kong, Singapore, Malaysia and Thailand markets are still below those of the US (17.7). China A share has a PE ratio of only 8.1 and a yield of 3.7%.

Of course, the art of investing depends completely on the investor’s risk appetite, age and liquidity requirements. If you are fully invested in illiquid assets or in illiquid markets, you cannot get out even though the returns look good. Property markets are notoriously easy to get into and difficult to cash out, especially in the smaller markets. Bond investments may look good on paper, but when you want to exit, the selling price may be lower than what you think you can get, especially for retail investors.

Knowing that even monkeys can beat the market gives one food for thought. You can do better, but you must invest the time and energy to think through what you are investing in, what risk you are taking and what you want to achieve. My friend in Australia had no formal training in investments, decided that she could outperform the market, relied on her instinct and own research into companies and is now doing pretty well on her own.

Even monkeys know how to survive, so don’t look down on monkeys.

THINK ASIAN By TAN SRI ANDREW SHENG

Tan Sri Andrew Sheng is president of the Fung Global Institute. He was recently named by Time magazine as one of 100 most influential people in the world.

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Financial crises a result of governance failures 
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The rotten heart of capitalism: interest rate-fixing 

Tips on courting investors


IN this penultimate column, I would like to explore the world of romance, courtship and partnership. Why some marriages are happy and long lasting and why some end in a messy divorce. I will also talk about quickie engagements, marriage of convenience and spouse for hire.

Courting-investorNo, I am not Aunty Thelma providing counsel on your turbulent personal life. Neither am I qualified to talk about politicians and rent seekers. This discussion is confined to entrepreneurs who need partners to help them kick start their business. Occasionally, desperately sourcing capital for survival and sometimes needing a healthy dose of cash injection to grow.

For new startups, courting the investors will be the most stressful stage. Before they part with their money, they will question the viability of your business, sustainability of your business model and most importantly, the potential to scale. You are advised to be well prepared with facts and figures supporting your proposal. If a knowledgeable investor tears up your assumptions and forecast, swallow your pride and rebuild your model if necessary. You will be better prepared to face the next potential investor.

Knowing the type of investors that you would like to “sleep with” will save you unnecessary stress and avoiding misaligned discussions. Short-term investors think very differently from long-term investors. Temporary relationships means moving in together and having fun without any responsibility. Breaking up is not hard to do.

Long-term relationships requires patience, understanding and tolerance between both parties. Like all marriages, there will be fights and misunderstandings but both sides will make up and continue for the sake of the children, albeit on an uneasy truce.

If you have a quick turnaround project with an early exit plan, then you will click immediately with short-term investors who will be willing to take on higher risks but expecting immediate returns on invested capital. Normally they do not mind having a smaller equity share as long as they see good upside but you will have to pay interest or dividends on their different class of preferred shares. It is best you find out more on terms like convertible cumulative preferred stocks and RCCPS (redeemable convertible cumulative preference shares) etc … If you want to be on the same page as these savvy investors.

If your project has a long gestation period, get a rich investor who looks for steady recurring income with an eye for capital asset growth. Be conservative with your forecast and highlight your cashflow management skills. Nothing pleases the long-term investor more than having a mature thinking partner who will conservatively build a meaningful asset business in a steady environment.

Once you have the investor interested, the real negotiation starts. Assuming all investors are fools, you will be able to load the investors with a high valuation, retain majority equity and management control and yet raise a lot of capital by giving little away. Alternatively, assuming you are the desperate fool, you would end up working for the new investors, saddled with a low valuation and stuck with minority equity stakes. Nobody likes playing the fool so either one of these relationships will definitely end up in divorce.

Basically, the whole negotiation rests on the basis of valuation. For a new startup with no prior track record, the valuation is based on forecast budgets normally over a five-year period. To investors, getting the forecast right determines the level of risks to be taken. But his guess is as good as your guess. Then you end up with two sides articulating their understanding on market trends, benchmarking best practices etc, just to justify their number guessing skills.

So the final numbers to be agreed upon will depend heavily on your negotiation skills or how much the Investors believe in you. If you are desperate, the Investor will see through that and you will not be negotiating from strength. A right minded investor would prefer to have a highly motivated entrepreneur at the controls of a start up so you will not be forcefully bullied. Just remember to tell him that you need to feel motivated when you wake up every morning and he will back off and see that you are fairly treated.

If the Investor pushes you into a corner, just walk away. You have not lost anything. That said, I assumed you have been realistic with your forecast numbers and have comfortably addressed the investors concerns. If not, do not be surprised if the investor walks away instead.

Understanding how investors think will help you prepare your proposal. Greedy investors look for maximum short-term returns and these are normally fund managers who wants to believe in well structured glossy presentations so that they can justify to their investors why they should invest their money into your project. It will be unfair for me to say that these professional fund managers are willing to invest in high risk projects since it is not their personal money but the pressure to perform forces them to take higher risks that carries higher returns.

Individual investors are way too careful and they prefer proposals with reduced risks and long-term asset building models. This has been my preferred business model as an entrepreneur then and even now as an investor. But the lure of fast short-term gains enjoyed by so many has whetted my appetite and I am now reconsidering my investment strategies. Greed is indeed sinful and irresistible.

Since I made a promise not to write about politicians and GLCs (government-linked corporations), I will not be elaborating on the topics of quickie engagements and marriage of convenience. I apologise if you have found this column dry and boring but I hope my advice on having safe sex in a monogamous marriage will help you live longer with a healthy bank balance by your side. Stay happy always.

ON YOUR OWN
By TAN THIAM HOCK

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More millionaires nowadays; secret to success and riches


PETALING JAYA: There may be more millionaires in Malaysia now than before but they may not necessarily be feeling rich.

Besides the rising number of successful business owners, many high-salaried people are already millionaires based on the value of their assets and properties.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the term could also apply to those in the middle-class who could have earned the amount but had spent it on necessities such as on costly children’s education and high property prices.

He said although a millionaire was measured by his or her disposable income, those who have made their million would not have the same purchasing power compared to a decade ago, citing inflation as the main reason.

Dr Yeah said many in business had made their millions as a result of savvy investments and the growth of the industries that they were involved in, adding that overall, the rising affluence was due to sustained economic growth.

“We have seen a strong growth in certain sectors, including plantation, oil and gas and property, which have elevated entrepreneurs into the millionaire class,” he said.

Billionaires, however, remain rare. Malaysia now has 30 billionaires, just three more from the 27 on the list last year.

The Wall Street Journal (WSJ) reported last year that Malaysia’s millionaires almost doubled over the previous 18 months.

Citing a report by international financial firm Credit Suisse Group, it said Malaysia added 19,000 new millionaires since early 2010, bringing the total to 39,000 as of October.

The WSJ report attributed the rise to the weakening US dollar and careful spending.

Dr Yeah said those who invested their money wisely had benefited the most.

“In a free market and capitalist economy like Malaysia, people who have capital can generate millions,” he said, noting that many in the upper-income bracket had accumulated wealth past the million-ringgit mark.

Personal financial consultant Carol Yip said the rising cost of living had lessened the feeling of being rich.

“Today, even a small apartment can cost half a million,” she said.

She said careful spending was not a factor for the increase in the numbers of millionaires.

“If we are spending less, we won’t be seeing so many luxury cars on the road,” she said.

She said the rise in millionaires was also due to property prices which have shot up exponentially, adding that the definition should not include the value of the house that one was living in.

“If you still have a million in hand after you convert the value of your other properties, investments and have paid of all your debts, then you are a millionaire,” she added.

Financial adviser Fred Wong said making a million was not a problem these days as long as people were willing to work hard but being self-employed and investing wisely was the better route to riches.

By ISABELLE LAI and P. ARUNA newsdesk@thestar.com.my

Millionaires’ secret to success

PETALING JAYA: Ganesh Kumar Bangah made his first million at the age of 23.

The secret, he said, was as simple as knowing what people needed and delivering it to them.

“I knew what I was good at, which was IT. I used that to come up with something of value to the world.

“I also worked hard and persevered until I reached the goals I had set for myself,” said Ganesh, now 33 and the CEO of MOL Global Bhd, a company worth over RM1bil.

<b>Young and rich:</b> Ganesh (left) and Yap made their first million at the age of 23 and 26 respectively. Young and rich: Ganesh (left) and Yap made their first million at the age of 23 and 26 respectively.

He said that even when he was only 15, he had been using his skills to make money, like repairing his teachers’ computers for a fee.

At the age of 20, he started his own company, which made him a millionaire in three years.

“Be focused and set new goals for yourself to keep climbing higher. Real wealth is the satisfaction you get when you overcome a new challenge that brings rewards. Financial wealth should just be a by-product.”

Feng shui master and multi-millionaire Joey Yap said learning to make good use of time was a key ingredient to achieving financial success.

“In business, time is money, so make sure you use your time to acquire things of good value. Find out what your strengths are, work on your weaknesses and hone your talents,” said Yap, 35, who made his first million at age 26 by selling his first feng shui home study course.

However, having RM1mil does not necessarily make people feel rich, especially for those raising children in the city.

Carol Leong, 57, a mother of three, said it costs more than the amount for an average family to live in the city and raise a child to adulthood.

“There are medical bills, tuition fees, various expenses and their education to pay for. For our family, it has definitely come up to more than RM1mil per child,” she said.

Leong, a lawyer, said she and her businessman husband had placed their money in various investments, which in the long run had helped pay for tertiary education overseas for their three children.

“I would advise young parents living in the city and who are just starting a family to invest to secure some income for the future,” she added.

By YVONNE LIM yvonnelim@thestar.com.my

Financial literacy vital when investing in funds


Maybank Tower in downtown Kuala Lumpur, Malaysia

By LEONG HUNG YEE hungyee@thestar.com.my

 It pays to be updated on investment knowledge

LOOK before you leap. That’s the advice experts in the unit trust industry have given to investors, either old or new, when deciding to put their money into any fund.

Their reasoning behind it is that the products being offered to investors are no longer simple and basic. With the ever growing diversity and sophistication of unit trust products, consumers have to continuously enhance their knowledge and capabilities to maximise as well as protect their investments.

Fund managers say unit trust funds offer an option to retail investors especially those looking at the possibility of earning higher returns compared with conventional savings like fixed deposits.

However, a lot of investors do not really have a good understanding on what they are investing in and they think they can simply park the investment in some funds and let it grow.

Lim Hong Tat says it is a challenge for investors to stay informed on market movements in today’s environment.

“Over the long term, education on the basics of financial planning was important for the growth of the unit trust industry,” a fund manager says.

MAAKL Mutual Bhd CEO Wong Boon Choy opines that more can certainly be done in investor education. “I am sure the Federation of Investment Manager Malaysia would have probably started working with all relevant parties who are involved in promoting financial literacy.”

Malayan Banking Bhd (Maybank) deputy president and head of community financial services Lim Hong Tat points out that one of the issues it is facing is educating its customers on unit trust investment.

He says it is a challenge for investors to stay informed on market movements in today’s environment.

“Educating our customers on unit trust investment is one of the key areas the bank is embarking on. Unit trust investments are meant for a medium to long-term investment horizon, and generally provide better returns according to the risk that accompanies the investment,” Lim says.

The dollar cost averaging concept, he says, is another focus where the bank is highlighting to customers, such as to invest the same amount of money over a period of time, especially now when market volatility is high.

“By doing so, investors avoid entering the unit trust funds at the peak or bottom of the market cycle, and hence spread out the risk,” Lim says.

HwangDBS Investment Management Bhd (HwangDBS IM) chief product officer Steve Lim says that despite the growth of the unit trust industry over the past 10 years, there is still a need to increase investors awareness and understanding about unit trusts and its benefits.

Good returns

“Many of them expect good returns, for example double-digit returns, within a year, hence defeating the purpose of investing in such instruments for retirement and financial planning. Since they have a short-term investment outlook, they tend to time the market. Many of them have a herd mentality and will continue to sell and redeem when bad news flows in.

“Also, mis-selling and lack of product understanding have been the bugbear of our industry,” Lim says.

He adds that this had resulted in losses by many investors and a prevailing misconception that unit trust investing as a whole is a highly risky and complicated venture.

“Nevertheless, we believe that with the right financial education, we will be able to address the unit trust industry issues and misconceptions as well as contributing to the growing confidence and popularity of the industry segment.”

Steve says the level of personal financial literacy today is low and with growing consumerism as well as changing customer expectations, there is a need to reinforce greater financial literacy to help people better manage their personal finances. Proper consumer education is needed if new growth engines, such as private pensions, wealth management and asset management, with their more complex and sophisticated products, are to take off.

While industry players are advocating a greater need to increase investor education, some investors do not really have a basic grasp of what a unit trust is or even why they should invest in unit trust.

Lee Khee Chuan, a Securities Commission-licensed financial adviser representative, says unit trust as an investment vehicle has distinct advantages over other asset classes of investment.

He says, for example, unit trust has better liquidity compared with land banking products.

Wide selection

“It (unit trust) can start with a minimum capital of RM1,000 but it is impossible with property or blue chip shares. Unit trust also offers a wide selection ranging from bond funds to aggressive equity funds; furthermore it gives investors exposure to multi regions. It also allows investors to invest regularly using the dollar cost averaging method with a minimum capital as low as RM100 per month through bank account deductions,” Lee says.

Lee cautions that investing in unit trust does carry investment risk; the price of units may go down as well as up.

“It is still prudent to diversify among unit trust funds with differing fund objectives even though unit trust fund sales agents may tell you that unit trust is diversified among different stocks or stock markets.

“One can also check out value-added services provided by some licensed financial advisory companies in Malaysia which offer a model fund portfolio which is effectively diversified to clients because they have an in-house fund manager to construct and monitor the portfolio of unit trust funds,” he adds.

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Investing in Malaysian unit trust industry

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