Capital: Bumper year for unit trust industry
By Nadia S Hassan

Although the Kuala Lumpur Composite Index (KLCI) managed to end last year at 907.43 points, which is 14.29% over 2003, it has been a challenging year for fund managers and investors. Most of the excitement was in the second half, with big-cap stocks and government-linked companies (GLCs) taking the lead.

But despite the challenging times, there was a record number of new unit trust funds coming into the market. Last year saw a total of 63 funds being launched, marking a hefty 43% increase over the previous year's 44 funds.

Kenneth Koh, the head of Research for Lipper Asia ex-Japan, describes the significant increase in new funds as a "bumper year" for the Malaysian unit trust industry.

And despite the challenging investing environment, several funds managed to outperform the index, according to data from fund analysis company Lipper, although the number was lower than in previous years.

According to the Lipper Mutual Fund Performance report, in 2004 the index funds' average was 15.89%, while equity growth funds grew by 8.4% on average and equity income growth funds registered a growth of 8.08% in average returns. Mixed asset growth or balanced funds performed slightly better, registering an increase of 10.57% in value as did mixed asset income funds with returns of 9.07%, according to the same report.

In terms of absolute returns, the best-performing fund last year was equity growth fund PB Growth from Public Mutual Bhd, which achieved returns of 24.79%. Public Mutual was the big winner (in terms of number of awards) at The Edge-Lipper Malaysia Unit Trust Awards 2004 last week, sweeping a total of nine awards.

Public Mutual won awards in the Bond General category (in both the three- and five-year periods) with Public Bond Fund; the Bond Syariah/Income category (one-year period) with Public Islamic Bond; the Equity Growth category (one-year) with PB Growth Fund; the Equity Small Companies category (one-year period) with Public SmallCap Fund; the Equity Income category (one-year period) with Public Industry Fund; the Equity Islamic/Syariah category (five-year period) with Public Ittikal Fund; and the Mixed Asset Growth category (one-year and three-year periods) with PB Balanced Fund.
Other award winners include Prudential Unit Trusts Bhd and MAAKL Mutual Bhd, which bagged three awards each, while TA Unit Trust Management Bhd won two category awards and also garnered the Best Equity Group award over three years, making it the first company to win an asset-class group award under the recently revised methodology for this year's awards.

When asked about the prospects for fund investors going forward, Public Mutual's chief executive officer Lam Kam Yin says it will continue to be a challenging year. However, the prospects still look good.
"I believe that the Malaysian economy will continue to perform steadily due to its good economic fundamentals. There is enough liquidity in the market to ensure a continuing good performance," Lam says.

Mohd Hasnul Ismar, CEO of TA Unit Trust Management Bhd, echoes the sentiment. "We are positive overall but on the side of caution. Malaysia's economic fundamentals have a rosy outlook barring any external issues," he says.

Mohd Hasnul says he expects the KLCI to hit 980 points in the near future, which is a conservative estimate.

The general consensus among most fund managers was that small caps would be the thing to look out for this year. In the global market, small caps are already outperforming big caps, according to Koh.

"Despite the less-than-spectacular performance in 2004, we believe that there are gains to be made in small caps," says Lam.

"We expect there to be a huge movement in mid-cap and small-cap companies this year, driven by factors such as improvement in corporate earnings. A majority of them are already showing such improvement," says Mohd Hasnul.

Dr Tan Chong Koay, CEO of Pheim Asset Management Sdn Bhd, which won an award for its Dana Makmur Pheim fund in the Mixed Asset Islamic/Syariah category, likens the situation to Europe's in 2004.

"Small caps really took off in Europe last year for the simple reason that all the big caps were already fully valued. This event might very well occur in Malaysia this year," Tan says.

The Edge-Lipper Malaysia Unit Trust Fund Awards, held annually since 2000 to recognise top-performing unit trust funds in the country, were determined this year using the highest Lipper Leader score for consistent return value, for the three-, five- and 10-year periods. Consistent return is a risk-adjusted investment performance return measure developed by Lipper.

One of the most significant changes in The Edge-Lipper Malaysia Unit Trust Fund Awards 2004 was the inclusion of awards for a 10-year time frame. According to Lipper's Koh, this will be the final year that the one-year awards will be given. From next year, the minimum requirement for an award would be a three-year track record. Koh explains that a three-year time period was a better platform for evaluating the dynamics of the market and was a better way of tracking consistent returns.