Better outcome expected for unit trust funds this year

Fund managers and investors are still seeing value in quality stocks with good fundamentals, says Yee of Rakuten Trade


Unit trust funds are expected to perform better this year on a potential market recovery after a poor showing in 2018, as local equities fell on trade tensions, contagion fears and global and local geopolitical concerns.

Rakuten Trade Sdn Bhd head of research Kenny Yee said the weak performances across unit trust funds in 2018 were in tandem with the downturn in financial markets, which took several beatings throughout the year.

As the majority of funds track local and/or global indices, they followed suit when markets roiled, with only a handful managing to recoup some losses, or even recording small positives for the year.

“Things should be better this year. Some stocks were badly beaten down last year, such as Genting Bhd and Gamuda Bhd, but they have bounced back year-to-date. So, fund managers and investors are still seeing value in quality stocks with good fundamentals,” Yee told The Malaysian Reserve (TMR).

Other positive factors include a possible resolution of the US-China trade war, with both sides appearing to show intent on coming to a truce, in light of the trade tensions already showing negative effects on both economies.

Yee added that the US Federal Reserve’s (Fed) stance is dovish going forward, which would help to cushion markets as a slower pace of US interest-rate hikes would ease foreign-exchange selling pressure in the region.

Many large funds posted negative returns last year. The Kenanga Growth Fund posted a return of -18.08% for the year, while the Eastspring Investments Small-cap Fund recorded -18.97% in the same year. The CIMB-Principal Equity Growth & Income Fund returned -10.49% as at end-2018 and the CIMB-Principal Small Cap Fund was down -26.98%.

The RHB Smart Treasure Fund posted -22.99% in returns for 2018, after recording a 1.92% return in 2017 and 40.04% in 2015. Over at Public Mutual Bhd, the country’s largest private unit trust firm, the Public SmallCap Fund returned -12.19% in 2018, the Public Balanced Fund posted -4.35% and the Public Regular Savings Fund was at -3.67%.

For comparison against local indices, the FTSE Bursa Malaysia (FBM) KLCI fell 5.17% in 2018, while the FBM Small Cap Index plunged 34.02%. The FBM 100 Index lost 8.37% in 2018.

On the global front, the MSCI Emerging Markets Index was down 8.92% in 2018, while the MSCI World Index dropped 8.2%.

Meanwhile, Malaysia research analyst Tan Wei Yine told TMR that equity funds on Fundsupermart posted an average loss of 14.4% for 2018, amid one of the most challenging years in financial markets’ history.

According to Tan, funds that were able to outperform other equity funds during the market downturn were mostly those with exposure to income-generating avenues, such as real estate investment trusts (REITs).

“In times of heightened volatility, allocating REITs into an investment portfolio can help cushion some of the downside risks via the income generated by property rentals and operations,” he said.

Moving into 2019, key issues to keep watch for include Fed rate decisions, trade talks on both the US and China fronts, and any moves from the People’s Bank of China, which injected a record US$83 billion (RM341.18 billion) into the country’s financial system on Wednesday in order to support the weakening Chinese economy.

“The best case would be for the US economy to decelerate, the Fed to put a halt on interest-rate hikes, Chinese officials to inject sufficient stimulus to stabilise the slowing economy and US-China trade talks to finally come to a harmonic end. We believe should all these scenarios materialise, Asian and emerging markets are likely to emerge as the biggest winner this year.

“We entered 2018 with high levels of investor confidence and rising asset prices. Currently, expectations have been revised lower and sentiment has soured given the sell-offs across global equities. The reset in investor sentiment levels is a boon for risk assets in 2019 and adds fuel for a recovery,” Tan said.