Revisit investment objectives and risk capabilities, unit trust investors told

Investors tend to forget that volatility is part and parcel of investing

By SHAZNI ONG / Graphic By TMR

UNIT trust (UT) investors are advised to reassess their investment objectives and risk capabilities which may have shifted this year, according to Affin Hwang Asset Management Bhd (Affin Hwang AM).

Affin Hwang AM chief marketing and distribution officer Chan Ai Mei said the matter is often taken for granted, and that investors tend to forget that volatility is part and parcel of investing.

Chan says the markets are expected to be front-loaded this year

“However, timeless strategies like diversification, asset allocation and avoiding market timing can help investors navigate the volatility in markets.

“A mismatch of risk and objectives was a common occurrence especially seen in 2018…when markets sold-off many investors — who saw large swings in their portfolio — suddenly realised that their risk tolerance were actually lower than initially expected,” she said in an email reply to The Malaysian Reserve (TMR).

Chan was commenting on claims by certain quarters who argued that they have not received the desired results from their investments in local UT funds, which drove these groups of investors to sell their units.

As such, she said education and proper guidance for investors are vital to have a better understanding on UT funds and the industry in order to achieve the desired results from a long-term investment horizon.

“Constant (UT investment) education and engagement are important to ensure that investors are well aware of their own risk capabilities that they can afford to take with their investments,” she added.

Chan also said the increased volatility would understandably lead to some jitters among investors and would result in redemptions within the industry.

“However, speaking for ourselves, we still managed to achieve positive net sales for our funds despite a challenging 2018. This is largely due to the trust and relationships we have built with our clients to hand-hold them through a more challenging market condition.

“We approach our client’s wealth holistically and from an asset-allocation perspective, to look for opportunities to average-in, especially during a market correction,” she said.

Meanwhile, Pheim Asset Management Sdn Bhd CEO Leong Hoe Kit said of late, there had been investors redeeming their UT investments, but these were mainly cash investors and not those contributors who have invested via the Employees Provident Fund (EPF) Members Investment Scheme.

Even if they were EPF contributors, this may be due to their expectations that the recently announced dividend would be lower or less attractive than last year’s, he told TMR.

When asked if the market, particularly equity, is currently in its correction period, Leong said this is a matter of perspective and also at which time period you are referring to.

“For example, on Bursa Malaysia, the big caps (as reflected by the FTSE Bursa Malaysia [FBM] KLCI) were down in 2018 and has dropped further, albeit slightly, in 2019 up to mid-February.

“On the other hand, the small-caps and mid-caps have performed very well year-to-date in 2019…the FBM Small Cap Index is up 12%, while the FBM70 Index is up 7%.

“Those who think that the market is in a correction phase and chose not to invest (or redeemed their investments) at the beginning of 2019 would have lost out such impressive gains in just over 1½ months!

“But of course, the impressive gains were only in small-caps and mid-caps, not the big caps,” he said.

For Chan, she opined that volatility came roaring back in 2018 as emerging markets (EMs) saw a “tantrum- like” sell-off where investors’ appetite for risk-assets tapered off.

“(This was) on the back of fractious developments within Turkey and Argentina that have sent both their currencies into free fall. Investors also ploughed back their money into the US on signs of quicker growth, rising interest rates and a stronger greenback that has undermined the attraction of riskier EM assets.

“This year, we see an almost 180 degree turn in markets. After the rout in EMs last year, we do see some of these headwinds now receding with the US Federal Reserve turning more dovish, and the US dollar strength starting to top-out.

“Various targeted easing measures announced by China have also propped up the market, which could reverse the tide and lead to fund flows back into EMs,” she said.

According to Chan, the fund management industry has grown exponentially through the years, with 2017 particularly a strong year.

“If you recall, 2017 was a banner year for markets with synchronised growth globally anchored by a ‘Goldilocks’ environment, characterised by strong growth and low inflation, which lead to stronger risk-appetite among investors and higher velocity of flows.

“We expect the 2018 industry data to moderate slightly as a result of a more volatile market condition,” she said, adding that structural trends supportive of the industry remain intact with Malaysians looking forward to invest.

Moving forward, Chan said the markets are expected to be frontloaded this year.

“The base-case is that the US-China trade conflict will reach a positive outcome or see no further escalation that could even open up room for the deadl ine to be extended.

“Thereafter, the market may shift its attention to growth again as there have been some softness in data with global growth tapering off,” she said.

She also said investors have matured and are approaching their wealth from a more holistic perspective, and looking at a longer-term horizon.

“We started 2019 strongly with growth seen across our various distribution channels…this is because investors have largely learnt to live with volatility and focus on building an optimal asset allocation to diversify their wealth,” she said.

For now, Chan said the biggest challenge for the industry is to continuously evolve and keep up with new technological frontiers especially to appeal to a new generation of investors who want a more personalised and bespoke approach to their investments.