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Wednesday, November 12, 2014

Private Retirement Schemes in Malaysia Part 2

March 2013: Private Retirement Schemes in Malaysia Part 1
After month of deliberations I have decided into putting some cash into Private Retirement Schemes, much better known as PRS. I will admit the biggest reason is the alluring PRS Youth Incentive. The other reason is that I am looking for investments outside Malaysia. Many already know I have exposure to Europe and US markets and now I want to increase my exposure to Asia exc Japan.

"In the 2014 Budget tabled on 25 October 2013, the Prime Minister had announced youth incentive of RM500 to contributors who participate in the PRS scheme to inculcate the importance of saving from an early age to ensure sufficient savings after retirement. The RM500 is a one-off contribution by the Government to young PRS members to encourage youth to undertake long-term savings for retirement through the PRS.
The Government will contribute RM500 per qualified person to be used to purchase units of PRS funds in the PRS account of youths, whom have accumulated a minimum gross contribution amount of RM1,000 within a year. This incentive will be made available for a period of 5 years from 2014 to 2018."

With the PRS Youth Incentive, a minimum of RM 1000 will essentially provide you a head start of 50% gain. Unfortunately it is only available to those aged 20 and above but have yet to reach the age of 31. The biggest winner would be the first time investors for they lack the experience and might be scared of losing capital from poor investment decisions. That 50% buffer is a huge advantage to begin with. Please DO NOT let it pass. 

What do you need?
[1] Provider’s joint account opening form cum transaction form. Initial subscription only for each provider. PRS Forms (not the full list of all fund houses)
[2] A copy of Malaysian NRIC or passport for foreigners. The front and back of the Malaysian NRIC must be on a single page.
[3] Additional RM10 for the opening of a PPA account for first-time PRS contributors.
**The above is via Fundsupermart platform (might be different if purchase directly). Fundsupermart offers 0% sales charge which is great.

Why did it take me more than a year to decide? 
First, to gauge the response of the scheme. - It has been lackluster. Part of the reason is its harsh penalties (RM25 fee and 8% tax) on withdrawal before retirement age (55 years old), another reason would be that the incentive caters to youths which very much lack any investment foresight and knowledge. Also the lack of track record makes it difficult for the experienced investors to decide.

Second, to see how the funds perform for at least the first year. Third, to examine what feeder funds they are feeding and their respective top holdings from their semi-annual/annual reports. Will talk about this below. **PRS has other exposure too (e.g. Malaysia/Fixed Income), unfortunately I will only cover funds with exposure to Asia exc Japan because that is what I am looking for.

Below are my observations back in March 2013. With more fund house entering the PRS since then, no.3 is no longer valid. The good news is no.1 and no.2 continues to meet expectations.

The below table will detail more:

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 deviationA 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.

[1] I would disregard Public Mutual PRS funds due to their enormity (data not listed above). As of Nov 2014, its PRS Growth fund size is RM 91 million dwarfing even the closest rival Affin Hwang PRS Growth of RM 30 million. Its PRS Islamic Growth is RM 36 million beating its main competitor CIMB Islamic PRS Plus of RM 8 million.

[2] Manulife PRS have shown good performance for the 1st year but having the higher than average charges turns me off. They would have to prove themselves in the longer run since the funds feed on newly launched funds as well unlike the rest of the investment houses.

[3] AmPRS is doing so-so and its track record is overshadowed by Affin Hwang PRS Growth. Its Alpha values are weak and the Sharpe ratio is not good enough for the likes of a fund investing a majority of its capital into equities.

[4] AIA PRS is a recent new comer. I already have exposure in AIA funds via my ILP (insurance linked policy) so it would not be necessary for me to increase my holdings on the company.
Examining AIA's Investment-Linked Funds

[5] Both CIMB Principal PRS Plus AsPac Ex Jpn and Affin Hwang PRS Growth have good Sharpe ratio (with the former being better) with respect to their individual funds that they are feeding at. Affin's PRS Growth has slightly higher yearly charges so that would eat into some of your profits. Having said so Affin's PRS Growth is way more diversified as its mandated exposure is 70% equity and 30% fixed income so it's a less volatile fund (lower risk).

I could go on, talking about fund deployed strategies, scrutinizing top holdings, the fund house/manager and etc but that's overwhelming for most readers - you can still however email me. All the above is the simplest way to convey the reasoning of my decision to go with CIMB Principal PRS Plus AsPac Ex Jpn. You will see this in next month's Aboi's Portfolio update and shall be part of my bi-annual Mutual Fund updates (Jan & July).

If you can stomach high 'calculated & understood' risk for high returns go with CIMB Principal PRS Plus AsPac Ex Jpn (Risk Factor 9/10). If you are just taking your baby steps into the investing realm Affin Hwang PRS Growth (Risk Factor 7/10) is perhaps a safer choice.

This is very useful for you-> Aboi's Mutual Fund Table Lists Nov 2014. For best experience, download and open file using Microsoft Excel. Data compiled by me and updated every Jan and July.

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