Unit trust industry set for double-digit growth

KUALA LUMPUR (June 3, 2013): Malaysia’s unit trust industry is expected to grow by double digits this year, in line with the stock market’s bullish performance and, to a certain extent, the uptake of Private Retirement Schemes (PRS).

“Yes, we expect growth in the unit trust industry this year because the equity market is doing well. The growth in the unit trust industry is in tandem with the performance of the equity market,” Federation of Investment Managers Malaysia (FIMM) CEO Ahmad Zakie Ahmad Shariff told SunBiz recently.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) has been on a post-election rally and has gained 6.8% to date. Analysts are bullish on the performance of the stock market, with many predicting the FBM KLCI to surpass 1,700 points by the end of this year.

Zakie does not expect PRS, which saw the first product launch in October 2012, to be a major contributor to growth this year due to the scheme’s voluntary element.

“The PRS is voluntary in nature and its contribution is dependant on disposable income. The more disposable income you have, chances are you would contribute more but if the disposable income is not that much then you have a problem,” he said.

He also mentioned that the PRS would have to “compete” with other investment products such as real estate and precious metals, namely, gold. “These are the challenges that the industry has to face,” he said.

In 2012, Zakie said, the local equity market performed well with the FBM KLCI increasing by 10.3% and closing at an all-time high at the end of the year.

According to FIMM’s 2012 annual report obtained by SunBiz, “The net asset value (NAV) for unit trust funds increased 18.2% to RM294.8 billion as at end of December 2012, representing 20.1% of market capitalisation of Bursa Malaysia.

Private unit trust funds (excluding federal and state funds) saw NAV add a substantial 34.9% over the year and stood at RM142.6 billion as at end of December 2012.

“The year marked the sixth consecutive year of firm growth of Islamic funds with total NAV standing at RM44.2 billion as at end of 2012, an increase of 39.3% over the year despite heightened global market volatility and a challenging economic environment,” the report, which is yet to be published, said.

Money market funds and bond funds maintained their upward momentum in 2012 with accumulated assets touching an all-year high of RM28.9 billion and RM19.0 billion respectively.

“Increased uncertainty in risky assets may have driven investors to seek solace in safe investments, including these fund sectors,” it reported.

As at the end of 2012, money market funds and bond funds each made up 20.9% and 13.3% of the private unit trust funds’ total assets. Meanwhile, conventional equity funds and mixed asset funds also accumulated significantly higher total NAV at RM27.6 billion and RM8.3 billion respectively.

As at the end of last year, the total number of wholesale funds (WSF) managed by FIMM members stood at 79 or 46.2% of total WSF launched in the market.

Funds managed by FIMM members saw NAV increase 1.3 times over the year, standing at RM36.8 billion, which collectively made up over 70% of the total assets of WSF at end-2012 (RM52.5 billion).

A record total of 53 funds were launched in 2012, whereby 75.5% were conventional and the rest Islamic.

The largest among the new funds launched were target maturity funds (19 or 35.8%), while money market funds added 12 new funds, in addition to nine bond funds and six equity funds.

Among new fund offerings, 33 or 62.3% are funds with more than 50% of assets mandated to be invested locally; whereas 20 funds or 37.7% were funds investing predominantly in overseas.

Other funds, including target maturity funds formed 10, or 50% of the foreign-focused funds.

Meanwhile, 15 or 75.0% of the foreign-focused funds were packaged as non-specialised unit rust funds and five or 25.0% were offered through feeder fund structure.

FIMM is a self-regulatory organisation that plays a key role in the development of the unit trust industry.

SOURCE : http://www.thesundaily.my/news/728081

Dividend may be lower this year: EPF

Posted on 18 June 2013 – 05:37am

Presenna Nambiar
sunbiz@thesundaily.com

KUALA LUMPUR (June 18, 2013): The Employees Provident Fund (EPF) has warned of the possibility of a lower dividend – the inflation rate plus 2% – this year, as it grapples with lower returns from government bonds which made up 55.2% of total investments in 2012.

Its CEO, Datuk Shahril Ridza Ridzuan, is, however, confident that it will be able to meet its inflation plus 2% dividend rate target “as long as inflation is under control”.

The EPF announced a record dividend of 6.15%, or inflation plus 3.5%, for 2012, earlier this year. Returns from fixed income instruments exceeded 5.5% last year.

“We constantly need to reinvest money (in government bonds) that mature, and money that was previously invested (for the last 10 years) at higher rates of return (is being) reinvested for the next five to 10 years at much lower rates,” Shahril told reporters after hosting newly-appointed Deputy Finance Minister Datuk Ahmad Maslan at its headquarters here yesterday.

“As an example, the Malaysian Government Securities (MGS) today for a 10-year paper, we are receiving (returns of) less than 4%, so you can imagine (what will happen) if we have too much of a concentration in fixed income ( investments),” he added.

The rest of EPF’s funds are invested in equities (38.8%), money market instruments (3.6%) and real estate and infrastructure (2.4%).

He said the pension fund is already seeing some of the impact of the lower returns in its numbers.

“As we continue to reinvest at lower rates of return for the same amount of risk that we are taking, we will see a lower rate of returns. So that’s the biggest issue that we are grappling (with today),” Shahril said.

He said the EPF should still be able to reach its target of inflation plus 2% of dividend rate to contributors, as it expects inflation to remain well under control at 3% or below.

Shahril said the fund has to maintain a very high percentage of its assets in fixed income, given its duty to protect contributors’ capital.

“That (capital protection) necessitates a higher percentage of our assets to be in fixed income which are less volatile in terms of price and it provides us with a stable and predictable return over the long term.”

Meanwhile, Shahril said the EPF is close to another acquisition in the real estate asset class.

“We are looking at Europe right now. We may be looking at executing one transaction there in the near future, but it depends on the due diligence,” he said.

Shahril also said the EPF expects to slowly increase its investments in non-ringgit denominated assets as it looks abroad in more liquid markets, taking care not to “overcrowd” the local market.

Currently about 18% of its assets are non-ringgit denominated.

Meanwhile, Shahril pointed that of the under 200 companies it invests in in the local stock exchange, 40 are mid-cap companies. These are companies that meet key criteria such as liquidity, profitability, cashflow and dividend-payouts.

“The number (of mid-caps EPF invests in) grows every year, but we don’t invest in all mid-caps because not all mid-caps will meet our criteria,” he said.