I will post about Mixed Assets and Equities in the coming days before Budget day. It is going to be similar to how I did last time: Aboi's Updates For Malaysian Mutual Funds for 1H'2014
Bonds
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| TER is the total expense ratio, a measure of total cost (purchase, redemption, auditing, management fees) of a fund to the investor. The lower the better. |
Commentary
[1] Added Areca enhancedINCOME fund and as a third fund choice.
[2] Although my top four pickings perform neck-to-neck, AMB Dana and Areca will remain as bottom choices primarily because of higher expense ratio.
[3] AmDynamic despite major redemption by investors is now back in black. ~3% returns (year-to-date) as of early October. Subscription has reopened and with new investors no more losses is expected.
[4] For outside exposure, both Affin Hwang Select Bond and HL Global Bond remains top choice. No competitors come even close to them.
[5] As of this writing, I own AmDynamic Bond Fund and the loss reversal is to my expectation.
You may be wondering why not AMB Income Trust and Areca enhancedINCOME. The reason is simple; a fund that leap frogs in ranking quickly may suggest that it is involved in high risk high return choices. It is of my opinion that a bond fund should be the least risky asset class (vs Mixed Assets & Equities type) and as such should strive for a balanced, consistent and sustainable returns. A good bond fund should give a higher return than that of a fixed deposit account at the expense of more risk.
[4] For outside exposure, both Affin Hwang Select Bond and HL Global Bond remains top choice. No competitors come even close to them.
[5] As of this writing, I own AmDynamic Bond Fund and the loss reversal is to my expectation.
You may be wondering why not AMB Income Trust and Areca enhancedINCOME. The reason is simple; a fund that leap frogs in ranking quickly may suggest that it is involved in high risk high return choices. It is of my opinion that a bond fund should be the least risky asset class (vs Mixed Assets & Equities type) and as such should strive for a balanced, consistent and sustainable returns. A good bond fund should give a higher return than that of a fixed deposit account at the expense of more risk.
Take a look at what I meant by 'extraordinary results' which by my experience is associated to more risk taking in search of higher returns. The question is, what if those high risk takes don't turn out well?
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| 'Extraordinary' returns for a Bond fund in early 2013. Both these funds have very high Std Deviation values (7.68% and 7.44% respectively). AMB Income Trust is more favourable due to a far better Sharpe ratio of 1.35 than RHB-OSK's 0.60 preferred if you can digest its risk. |
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| The more consistent performers under the Bond umbrella. (Std deviation values from left to right: 2.24%, 1.43%, 1.28% and 1.02% only) with Sharpe ratio of nearly 1 except AmDynamic at 0.47. (probably due to massive redemption and reopen of subscription recently) |
Updated 09/10/2014:
My analysis and use of ratios has been wrong and I apologize. I will use a better risk-adjusted returns measure using the five principles of risk measures; alpha, beta, r-squared, std deviation and Sharpe ratio. I will just explain what they represent rather than showing hefty equations.
Alpha: A +ve of 1.0 means the fund has outperform its benchmark index by 1.0%. The opposite goes for -ve.
Beta: A +ve of 1.2 means the fund is 20% more volatile than the index. The higher the beta suggest it offers the possibility of higher returns but also posing more risk. The opposite goes for -ve.
R-squared: A higher R-squared will indicate a more useful beta value (85 to 100) aka good correlation. A low R-squared value means you should ignore the beta. It's a measure on well the fund is measured against an appropriate benchmark.
Standard deviation: A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.
Sharpe Ratio: The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. It describes how much excess return you get for extra volatility you endure in holding riskier asset.
Previously I take into account both Alpha and Sharpe values only. That was a mistake. With a poor correlation I have to ignore both Alpha and Beta values and put my focus purely on Std Dev. The highlighted values in my opinion are very high for a bond fund. They might have the volatility much like Mixed Assets. Though the Sharpe Ratio value for Income Trust looks solid it is difficult for me to swallow such deviation. Until these values go down to a more reasonable level I will shy away no matter how 'extraordinary' the returns are during good times.
My analysis and use of ratios has been wrong and I apologize. I will use a better risk-adjusted returns measure using the five principles of risk measures; alpha, beta, r-squared, std deviation and Sharpe ratio. I will just explain what they represent rather than showing hefty equations.
Alpha: A +ve of 1.0 means the fund has outperform its benchmark index by 1.0%. The opposite goes for -ve.
Beta: A +ve of 1.2 means the fund is 20% more volatile than the index. The higher the beta suggest it offers the possibility of higher returns but also posing more risk. The opposite goes for -ve.
R-squared: A higher R-squared will indicate a more useful beta value (85 to 100) aka good correlation. A low R-squared value means you should ignore the beta. It's a measure on well the fund is measured against an appropriate benchmark.
Standard deviation: A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.
Sharpe Ratio: The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. It describes how much excess return you get for extra volatility you endure in holding riskier asset.
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| Source: MorningStar - Rating & Risks section for respective fund |
Previously I take into account both Alpha and Sharpe values only. That was a mistake. With a poor correlation I have to ignore both Alpha and Beta values and put my focus purely on Std Dev. The highlighted values in my opinion are very high for a bond fund. They might have the volatility much like Mixed Assets. Though the Sharpe Ratio value for Income Trust looks solid it is difficult for me to swallow such deviation. Until these values go down to a more reasonable level I will shy away no matter how 'extraordinary' the returns are during good times.
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