The silent suffering of unit trust investors

Unit trust prices have also dropped in line with the global trend as many of these funds invest heavily in the equity markets


The Bursa Malaysia main index recently slumped to its 29-month low after the US-China trade war rhetorics heightened, sending global equities especially among the emerging markets (EMs) into a selling frenzy.

Investors sought safe-haven markets especially US dollar-related assets, exited equity markets especially among emerging economies and sent currencies of these economies into a tailspin.

The frenetic selling came after US President Donald Trump dropped another mindless threat, announcing the world’s largest economy will raise tariffs on US$200 billion (RM838 billion) worth of Chinese imports.

Trump’s threat reignited fears that the trade cold war between the world’s two largest economies would slow global growth. China had threatened to retaliate and impose higher levy on US$60 billion of imports from the US.

It is estimated that trillions have been erased from the equity markets around the globe, especially in China, Hong Kong and Japan. Other EMs are also feeling the pain as markets plummeted and billions erased.

Unit trust prices have also dropped in line with the global trend as many of these funds invest heavily in the equity markets. Many unit trust investors are reeling as they watch the value of their investment evaporates.

A unit trust investor said he could only watch and count the “paper losses” compared to his original investments in a few funds.

“There is so much I can do. Some of these investments are from my retirement fund,” said the investor who declined to be named.

A check last Friday on a few unit trust fund managers’ websites showed prices of their funds were still in “a sea of red”. Japan’s Nikkei, China’s Shanghai Composite and Korea’s KOSPI indexes were in the negative territory at noon Malaysian time last Friday.

But according to Affin Hwang Asset Management Bhd chief marketing and distribution officer Chan Ai Mei, despite the grim situation, she had not witnessed widespread selling among unit trust investors.

“We have not seen any sizeable redemptions across our retail or wholesale funds despite the volatility seen in the markets. While the recent escalation of trade war between the US and China could trigger some small outflows as markets turn jittery, we think that investors have generally matured and learnt to take a longer view of their investments.

“This is especially so following a turbulent 2018, where we think that investors are more cognisant now of what constitutes market noise and have learnt to avoid them altogether,” she said in an email reply to The Malaysian Reserve.

Citing data from the Securities Commission Malaysia this year, Chan said the unit trust industry still registered an incremental growth with the number of units in circulation increased 11.9% year on-year last year.

“The number of accounts also increased by 5% in 2018, which showed that there were new investors who were unhindered by the volatility. Notwithstanding, the industry’s total sales growth did moderate in 2018, rising by just 2.4% in 2018.

On the performance of the local bourse, Chan said part of the local market’s underperformance was transitory as the government embarked on a slew of reforms to clean up its finances, recalibrate the country’s economy and focus on anti-corruption efforts.

“A year on from Malaysia Baru, the local market seems to have reached a trough with the FTSE Bursa Malaysia KLCI down 4.8% year-to-date.

“The local market did not benefit from the liquidity driven risk-on rally when rate expectations were lowered, and that it had lagged behind regional peers including Thai land which had an inconclusive elections,” she said.

Chan added that after Pakatan Harapan’s losing streak in a few by-elections, the government is seen shifting its tone and pivoting towards growth with the revival of mega infrastructure projects like the East Coast Rail Link and Bandar Malaysia.

“Prime Minister Tun Dr Mahathir Mohamad’s recent visit to China also saw the signing of several memoranda of understanding, including plans to develop an artificial intelligence park and enhance palm oil trade. To be clear, Malaysia is economically healthy,” she said.

Chan noted that the country’s fundamentals remain intact as seen by its recent export numbers, which held up better compared to other trade-dependent countries like Korea.

“It’s just that animal spirits in the market have been dampened and people are not driven to invest, even though there is tremendous cash on the sidelines.

“With the right growth-oriented policies in place, the underlying strength of the economy should start to re-emerge. Once confidence in the market returns, we should see the velocity of money start flowing back in,” she said.

“For now, the concentration of performance largely resides within the construction and small-cap space, which came from deeply undersold positions last year. Once there is more visibility on growth and when flows return, we could see performance broaden to the rest of the stock market.

“There is also ample domestic liquidity in the market that will be supportive of a recovery as large cash piles have built up within pension funds, insurance firms and government-linked companies,” she said.

Similarly, Chan noted that there is never a “right” time for investors to time their entry or exit from the market.

“One of the most common pitfalls of investing is when investors trying to time the market, but ends up missing out on the next run in markets when it reaches new highs and they sell below the peak.

“This was evident in the first quarter of this year when most investors were under positioned as they cashed out from their portfolios in 2018.

“Hence, they missed out on gains in the market when rate expectations were lowered as the US Federal Reserve took a more patient approach and the US dollar strength started to wane,” she said.

Chan added that this proved to be constructive for EM assets which subsequently led to gains within regional benchmark gauges.

“Instead, investors should strive to achieve diversification in their portfolios across asset classes, sectors and geographical exposure. A disciplined approach to their investments will yield the best chances of success instead of attempting to chase market highs or lows.

“Rather than timing the market, investors should spend time in the market. Focus efforts on building a resilient portfolio capable of weathering across different market cycles,” she said.