Tuesday, January 22, 2008

Unit trust industry to continue good showing

TheEdge

KUALA LUMPUR: The Malaysian unit trust industry will continue its sterling performance this year as a result of ample liquidity in the banking system, according to unit trust companies.

HLG Unit Trust Bhd executive director and acting chief executive officer Teo Chang Seng told The Edge Financial Daily that the wealth management unit of banks had been entrusted with higher fees income from investment services.

“All banks are looking for suitable products to turn the deposit base into fees base asset under management while helping their customers to achieve their financial objectives,” he said.

He said front load charges were lower now and it cost less for customers to invest in unit trust funds in view of more products that invested in the local bourse or overseas markets with different risk profiles and investment objectives.

On whether the time was right to launch more funds because of the current bullish local stock market, Teo said: “We have to recognise that the 2007 super bull is unlikely to repeat this year.

The US is showing signs of slowing and has its own set of challenges.

“We prefer investments in diversified large-cap blue chip global ex-US, particularly investments which are more resilient in current conditions such as value investment.”

Asked about product trends among the investing public, he said Malaysian investors had diversified their investments globally over the past two years after Bank Negara Malaysia relaxed restrictions on investing overseas.

“Investors are becoming more sophisticated. Past one-and-a-half years was a super bull year with investors focusing on return,” he said.

Teo said investment risks must be evaluated on total risk and reward basis as the market may turn volatile, and investments in certain high beta markets had higher downside risk.

ING Funds Bhd chief executive officer Steve Ong said investors could make more accurate investment decisions with the introduction of the single pricing regime in July 2006, which had made front-end charges more transparent.

He said the current low interest rate environment and high liquidity had resulted in unit trust funds becoming alternative investment vehicles for the mass retail market in Malaysia.

“We still think the market offers (local investors) good investment for high dividend yield stocks although valuation has gone up,” he said.

He said ING used the portfolio approach to identify a comprehensive range of asset classes that would provide investors with adequate portfolio diversification and more consistent returns.

Ong said product trends were driven by investment opportunities as the market cycle changed from time to time, and the critical component of a product strategy was re-marketing existing funds.

“Our strategy is to have at least 50% of our funds invested locally in view of exchange rate fluctuations,” he said. He said current local investment themes were plantation, oil and gas, and infrastructure while globally, the company was bullish on selected markets such as China.

“We are looking at picking up selected global growth thematics that are experiencing high growth of between 10% and 12% annually like the energy and biotechnology sectors,” he said.

Meanwhile, Inter-Pacific Asset Management Sdn Bhd chief executive officer Paul Khoo believed that unit trust companies could sustain the growth rate for new investments in 2008, as demand for new innovative funds would remain robust with investors continuing to demand diversification.

He expected the upfront fee or service charges in Malaysia to moderate further from 5% to 6% currently, as most mutual funds in developed markets did not charge upfront fees.

He said lower fees would translate into higher investment value and generate more returns for investors when the fund was performing.

Khoo said external factors such as economic growth and inflation trends would drive launches of investment products this year, and expected more defensive funds such as income and value portfolios with the anticipated slower global growth and cost-push inflation.

“Alternative asset classes such as commodities and foreign currencies should be part of investors’ portfolio for diversification. I would expect more diversification across various asset classes from the current holdings in cash, property, stocks and bonds,” he said.

Asked about the funds’ investment themes for 2008 and beyond, Khoo said industry and sector funds such as Asian consumer, Asian infrastructure and commodities would be very popular with demand for more goods and services from China and India.

However, he said Inter-Pacific did not have any immediate plan to launch a China-focused fund as Chinese companies were currently fairly rich in valuation.

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