Bullish views on unit trust in H1

By LAALITHA HUNT

INVESTORS may want to put their money in unit trusts this year especially in equity-linked funds, given its strong performance in 2009 and expectations that it will continue to perform well.

MAAKL Mutual Bhd chief executive officer Wong Boon Choy believes that following last year’s performance, fully invested equity funds will outperform in the first half of 2010, due to the continued improving macro economic indicators, positive corporate earnings momentum and ample liquidity supporting robust capital inflows.

As for the second half of 2010, more defensive equity funds such as those with stable dividend payouts or with flexible asset allocation are likely to fare better, Wong opines.

“This is because, we believe that the second half of 2010 will be a more challenging period with possible withdrawal of fiscal and monetary support worldwide, hence putting downside risks to corporate earnings especially those in cyclical sectors,” Wong says.

Wong Boon Choy ... ‘We believe the second half of 2010 will be a more challenging period.’

Meanwhile, Asia-Pacific funds are expected to outperform pure Malaysian-centric funds this year given the more visible earnings growth drivers favouring the former, Wong adds.

In terms of themes, Pacific Mutual Fund Bhd general manager (business development and marketing) Gary Gan says that funds investing in commodities, agriculture, technology, metals with linkage to emerging markets led by the BRIC nations with China at the forefront are expected to do well.

“We are also seeing signs of US stocks gaining interest again as many expect the United States to lead the developed world out of its slump,” Gan adds.

Morningstar Asia Ltd senior research analyst Y.T. Kum concurs, saying that investors prefer the strong recovery theme in Asia, namely Singapore and China and this trend is not expected to reverse.

Kum adds that the Malaysian economy has not been as resilient as other Asian countries over the past year.

“The speed of loan growth and capital market pickup in Malaysia is not as fast as other Asian countries such as China and Singapore. The pick-up of property market in Malaysia is also quite slow – the mediocre occupancy rate of offices does not point to a strong recovery. As a result, although the equity market gained on the back of improving corporate earnings, it failed to outperform other Asian markets over the year,” Kum adds.

However, MyFP Services Sdn Bhd financial planner and managing director Robert Foo advises against thematic unit trust funds because they may be trying to capitalise on a trend which may not be sustainable throughout the course of one’s investment time horizon which should be at least five years or more.

“Thematic funds appeal to investors who are affected by the herd instinct, which is not the wisest way to invest,” Foo opines.

Equity funds in Malaysia provided 36.36% in average returns last year (versus -33.16% in 2008) while mixed asset balanced funds registered 23.61% (-22.33% in 2008).

Meanwhile, bond and money market funds in Malaysia recorded 6.84% (-0.15% in 2008) and 2.09% (2.96% in 2008) respectively for 2009.

However, HwangDBS Investment Management Bhd head of equities Gan Eng Peng cautions that it would be a tougher year in 2010 to reap windfall returns.

Gan says that while growth prospects is expected to improve this year, implying higher corporate earnings and better stock market performance, the withdrawal of stimulus tools by governments as the economic conditions improve, will have a negative counter-balancing effect.

“This basically means, the natural upward bias of the markets will continue, but the upside will be limited on the back of less money chasing it,” Gan adds.

Gan shares that there will be a rise in demand for unit trusts this year from the public given the strong overall performance last year.

“This could prompt more equity funds being launched, especially in the first half of this year as the consensus outlook is weaker for the second half of 2010,” Gan says.

Meanwhile, last year’s best sellers like fixed income structures and protected funds are expected to continue to do well into at least the first half of 2010 for risk averse investors and institutions looking for better than fixed deposit returns.

Jeremy Tan, a licensed financial adviser with Standard Financial Planner Sdn Bhd says that although outlook for unit trusts were bright this year, it is not possible to match last year’s exceptional returns.

“At best, the returns on equity-linked funds would be a lower tiered double-digit percentage of over 10%. However, we should always look at unit trust investment on a longer horizon of at least three years and above, instead of on a year-to-year basis,” Tan adds