Re-Examining AIA's Investment-Linked Funds

Original Post back in Oct 2012. It's nearly 3 years.
http://aboiwealthpot.blogspot.com/2012/10/examining-aias-investment-linked-funds.html

I will reiterates some of my points again. Investment-linked policies offer:

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. These four founds also share some similarities: they have been around for 10 years and small in size for their category (except for fixed income fund).


3 years ago I picked 4 funds and they have performed amazingly. The red arrow was when I first made my pick on them.

AIA Aggressive Fund (Local Equities)
CAGR of 11.55% beating benchmark by 2.60%.

AIA Medium Cap Fund (Local Equities)
CAGR of 11.72% beating benchmark by 2.29%.

AIA Dana Dinamik (Local Equities)
CAGR of 10.36% beating benchmark by 1.82%.

AIA Fixed Income Fund (Local Bond)
CAGR of 5.50% beating benchmark by 0.64%.

Of these four funds (all are domestic to Malaysia), 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. Fixed income securities however are generally stable with lesser returns.

The other funds performance continue to pale in comparison. The table below will describe them.

Summary:
1. Red ones are all funds with foreign exposure (be it direct stock selection or feeder fund). Continue to avoid them at all costs, AIA fund managers have a hard time even getting + returns when investing beyond our shores and they still do after 3 years.
2. Two new funds were launched in 2012, as it is still new I have to ignore them until I have at least 3 years' worth of data. My next update on ILP funds should begin to factor them in.
3. Back in Oct 2012: *AIA Equity Dividend Fund on prospectus looks promising. It invests only in Bursa's blue chip counters that provide strong dividend payouts. 
-> Indeed it has performed well (CAGR of 10.89%), matching the performance level of the 3 funds I have selected. But it's still new, testing times like now should test the fund's resilience, we will see.

4. Back in Oct 2012: 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 =)
-> In the 3 years period they have managed to return me 9.887% (Jul 2012 to Jul 2015)
[1] aggressive 25.33% total return (3 years) = 7.82% cagr * 0.33 = 2.581%
[2] dana dinamik 27.96% total return (3 years) = 8.57% cagr * 0.33 = 2.828%
[3] medium 46.50% total return (3 years) = 13.57% cagr * 0.33 = 4.478%

I do not think (nor hope or expect) to see such returns being replicated in the coming 3 years due to the current economic conditions. However these funds are holding high levels of cash (Medium Cap: 26%, Aggressive: 15%, Dana Dinamik: 16%) usually reserved to cherry pick good stocks during bad times like we are experiencing now so there is room for optimism in the long run. When the SUPER MORON leaves office [1] MYR will strengthen [2] KLCI will jump..just hang on folks.

Data Source: AIA Investment Linked Funds Performance 2014