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Sunday, October 14, 2012

Examining AIA's Investment-Linked Funds

If my history serves me right, investment linked plans (ILP) only existed in Malaysia back in 2001. Prior to this new insurance scheme, customers only had the traditional life insurance policy in the market. Nowadays, when you are approached by an insurance agent you will most likely be presented with a Investment-linked policy for a few reasons as listed briefly below:

1. Low insurance charges: As this is based on age, for young people entering the workforce you can obtain high coverage at low cost.
2. Many other benefits: Hospitalization, accidental, critical illnesses and many other protection benefits can be added on top of the standard ILP.
3. Visibility/transparency: ILP reveals how the premium allocation is made on your statement. You will also get an annual report on how your fund is performing.
4. Investment strategy in your hands: You can decide your risk level, choose which fund to invest, fund switching and portfolio allocation.

**Please note that ILP by insurance companies are not supposed to generate money for retirement. After all insurance plans are essentially protection providers NOT wealth generators (this is a great misconception by people). The returns are meant to offset the higher insurance charges (but you still pay the same premium) as you grow older thus as more returns are achieved, the longer the plan will last/the better coverage you can add later on in life.

Back to no.4, where should you put your money then? Only two months ago I have gotten myself another ILP and this time with AIA (my first was a Prudential), here's the top 4 AIA investment linked funds where you can invest in if you have an AIA ILP. Remember you have the right to change your investment strategy, so do check with your agent.

AIA Aggressive Fund
CAGR of 11.23%
2001: RM1000 would have been RM2898 in 2011. (RM3224 projected for 2012)

AIA Medium Cap Fund
CAGR of 9.28%
2001: RM1000 would have been RM2428 in 2011. (RM2654 projected for 2012)

AIA Dana Dinamik Fund
CAGR of 9.19%
2001: RM1000 would have been RM2408 in 2011. (RM2630 projected for 2012)

AIA Fixed Income Fund
CAGR of 7.07%
2001: RM1000 would have been RM1980 in 2011. (RM2120 projected for 2012)

Of these four funds, 3 are 100% equities and only 1 falls under the fixed income securities category. Pure equity funds are volatile in nature and tend to correlate with stock market sentiment. All 3 have major exposure on trading/services sector, industrial products and finance. Malaysia's economy is highly dependent on growth in these areas and these sectors in total contribute a large amount of total GDP to the country. As such the easiest barometer to gauge the fund performance is to look at the KLCI. It correlates very well. Fixed income securities however are generally stable with lesser returns. 

These four founds also share some similarities: they have been around for 10 years, small in size for their category and with only domestic holdings/securities.
The other funds pale in comparison. The table below will describe them.

1. Red ones are largely foreign investment funds. Avoid them at all costs, seems like AIA fund managers have a hard time even getting + returns when investing beyond our shores.
2. Oranges are just decent funds. View my spreadsheet for more details.
3. Two new funds were launched in 2012, as it is still new I have to ignore them for at least another 3 years. 
*AIA Equity Dividend Fund on prospectus looks promising. It invests only in Bursa's blue chip counters that provide strong dividend payouts. It will be on my watchlist come the 2012 annual report in Nov/Dec.

I personally picked AIA Aggressive Fund (trading/services), AIA Medium Cap Fund (industrial products & consumer) and the AIA Fixed Income Fund (finance borrowings). At 33% allocation each, I am seeing a 9.2% return p.a. based on historical data. To add some leeway, I have only a 8% expectation =)

Data sources:
The link to download my spreedsheet:
AIA's investment linked funds Annual Report for policyholders 2011:

Other useful reading:
The Ugly Truth of Unit Trusts & Mutual Funds:
Public Bank Fanatics:
HwangDBS Select Income Fund: 

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