Aboi's Updates For Malaysian Mixed Assets Mutual Funds for 1H'2016

Two days ago I covered the Bonds category: Aboi's Updates For Malaysian Bond Mutual Funds for 1H'2016. I continue the series of update with Mixed Assets. It is called mixed asset because it has exposure on both the bond market/money market as well as equities (remind you again stocks). The exposure percentages differ based on fund prospectus (make sure you read them after screening the funds) so they can generally be divided into four:

• Aggressive (e.g. 70% equities/30% fixed income)
• Balanced (e.g. 50/50)
• Conservative (e.g. 30% equities/70% fixed income)
• Flexible (up to 100% in equities/fixed income)

Mixed Assets

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] My previous picks for Flexible (Es Inv Dyanmic) and Conservative (Affin Hwang SIF) continue to do well and their rankings are maintained.
[2] It's a different story for Balanced (Affin Hwang SBF). This fund was previously exposed to Malaysia but has changed its mandate to invest in Asia. This has not gone well as evident from its 1 year return. I am putting my recommendation on hold until I get another round of data on 2H'2016.
[3] As of this writing, I continue to own Affin Hwang Select Income Fund (+36.24%, 5.1 years holding period) which has exposure in Asia ex Japan and has been performing within my expectation (6% to 8% returns per annum).

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.

Source: MorningStar - Rating & Risks section for respective fund

Eastspring Inv Bal used to be under my watch list but now I am recommending it. This is because Affin Hwang Select Balanced is now considered beyond Malaysia (now Asia), Eastspring will stand alone in its category and that is within Malaysia. The drawback: high Std Dev value of 10.64% (in a way behaving more like a Flexible fund rather than a Balanced one) so have some caution there. In a flexible fund it can be as high as 100% equities as the manager see fit therefore it boils down to your investing risk level.

Why not RHB-OSK Smart Balanced? It's scary. Even though it is a 50/50 balanced fund, its 50% equities portion is invested in Small-Medium Caps. You can clearly see the Std Dev of 13.91% (the highest among all and behaves a lot more like an Equity fund instead).

Affin Hwang Select Income continues to be my choice (for safer reasons). But note that RHB-OSK Smart Income has been giving far better returns in 2013 & 2015 only and thus making it look better especially for the 3-years and 1 year returns. Like it's bigger brother Smart Balanced, it is also invested in Small-Medium Caps. Sharpe ratio is explained with the higher Std Dev (double of that of SIF).

This info is still relevant till this day
-> What could possibly explain Eastspring's rapid ascension in the rankings? Perhaps it was the establishment of a new independent brand name from Prudential and possibly an internal shakeup for all we know. All I know is that has been operating under 'Management Team' in early 2012 as per MorningStar report. Prudential announces new Asia asset management brand – Eastspring Investments.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

March Prediction of Pump Oil Price (Ron 95)

**It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSING to disclose the compute mechanism.**

This is the 9th time I'm posting my prediction in a blog posting. Please bare that I will repeat some lines for new readers :) Also I always care to post my predictions before any official news or other analysts have given their views (typically too late after the queue starts at the stations).

Why is this sort of important? Say every month you know ahead of official price announcement and let's assume there is a price swing on average of 10 sen per month and you can fill in 35 litres. 0.10 x 35 x 12 = RM 42 savings a year. Obviously you don't feel it's a lot but every year you will always call and beg for credit card waiver of RM50 on govt service charge? Ironic isn't it? :) My total savings for 2015 is: RM 50.75 and YTD: RM3.50.

March 2016

Oil continues to stay within lower $30s. As long as there is no consensus to cut production and scale back supply price will stay suppressed. Other reads:
Why comments by Saudi Arabia’s al-Naimi slammed oil futures (see link)
Learn About The Oil Crisis (see link)

MYR strengthening and weakening back and forth almost following the swing of oil price if you compare carefully. The way I see it the only way for MYR to bounce back is [1] oil price recovers towards $50-$60 range [2] resolution of the 1MDB issues. As of now both are nowhere to be seen. Still I think this is about where MYR will stand (hard to imagine it will weaken to >4.5 so it's time to change foreign currencies back to MYR, hold cash and wait for "jualan harga murah". Other reads:
Will 2016 Bring a Bear Market? (see link)

Some asked why did the price of crude oil drop in 2015?

- Strong US dollar; all commodities are priced in dollar and that includes oil.

- Organization of Petroleum Exporting Countries (OPEC); refuses to cut production in order to maintain market share.

- Oversupply of crude oil; thanks largely to US shale oil producers which is now the world's biggest swing producers.

- Declining demand; world's no.2 economy China is slowing.

- Iran nuclear deal; removes Western sanctions and thus allowing country to export oil once again.
- Successful Paris climate change breakthrough talks; marks the beginning of the end of the fossil fuel age.

How come our pump fuel price did not drastically drop in 2015? 

- This is primarily due to weakening MYR to the USD.

RM/L between Jan and Feb is not much of a difference 1.25 (Jan) vs 1.23 (Feb). Oil price edged up from $34 to $35 but this is offset by stronger MYR (4.36 -> 4.17). As such I will predict that fuel price will be maintained @ RM1.75 for RON95. Price should NOT go down but just to be on the safe side just pump anytime before 1st of March 2016 (Tuesday) whenever it is convenient for you.
**I still think the price should be RM1.65 for Feb and even so for March (because the mean and actual price delta is the highest I have ever seen), govt maybe trying to get subsidies from us. Perhaps the budget recalibration cuts wasn't enough so they cleverly offset it thru here. Just my 2 cents**

Below is a table of my previous predictions way back to the beginning of 2015. My predictions are based on Tapis crude oil price, performance of Ringgit (added after Mar) & domestic politics (which was added after May). My total savings to date: RM 50.75. As for YTD: RM 3.50.

**It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSING to disclose the compute mechanism.**

Aboi's Updates For Malaysian Bond Mutual Funds for 1H'2016

What were the returns of my choices in 2H'2015? AmDynamicBond (4.69%), PB Islamic Bond (4.42%), AMB Dana Arif (4.61%), Affin Hwang Select Bond (5.38%). These are inline with my expectation of 4%-6% returns per annum. Every bond fund provided a return which is more than a fixed deposit account (with the rate you can get a year ago which should be ~3.50%)

Bonds

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] The top three fund choices are difficult for their performance are almost the same. Furthermore the TER ratios are good and close that it's negligible.
[2] As such I'm ranking them based on their long term track record in which AmDynamic wins hand down. Overall Morningstar ratings for three of them are 5, 4 and 3 in that order.
[3] For outside exposure, Affin Hwang Select Bond remains top choice.

[4] As of this writing, I own AmDynamic Bond Fund (+12.02%, 2.4 years holding period) and plan to add more.
[5] I will also inject some cash into Affin Hwang Select Bond Fund (Asia Bond) as part of diversification outside of Malaysia.

Red: Fund, Orange: Category, Green: Index 

I still cannot stomach to recommend AMB Income Trust yet nor Eastspring Investment Trust. 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 but not at the expense of a lot 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?

*In my 2H'2015's update I did say that AMB and RHB-OSK returns should be more normalized and expected yearly returns of a typical good bond fund. Indeed the 1-year return is about 6.37% and 7.08%.

Examine the 'Extraordinary' returns for a Bond fund. Both these funds have very high Std Deviation values (5.13%, 4.09% and 3.48% respectively). AMB Income Trust is more favourable due to a far better Sharpe ratio of 1.47, Eastspring's 0.66 and RHB-OSK's 1.17.

The more consistent performers under the Bond umbrella. (Std deviation values from left to right: 2.33%, 1.33%, 1.19% and 2.47% only) with Sharpe ratio of nearly 1 except AmDynamic at 0.33. (due to massive redemption and reopening of subscription in 3Q2013)

Source: MorningStar - Rating & Risks section for respective fund

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.

Though the Sharpe Ratio value for AMB Income Trust & RHB-OSK Islamic Bond looks solid it is difficult for me to swallow such deviation. if you look at their 10 year history they look a bit more shaky. Until these values go down to a more reasonable level I will shy away no matter how 'extraordinary' the short term returns are. It's all about managing risk.


Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Aboi's Investment Strategy for 2016 - Outlook Added

As of Dec 2015 by EIU

Brief 2016 Economic Outlook
US: Economy that continues to grow moderately. The much anticipated interest rate hike cycle is expected to be conducted at a "gradual pace". I don't think they will raise it up 1% within this year.

China: Multi year rebalancing act has brought growth to a new targeted range of 6.5% a level that is likely to be more sustainable over the long term and down from the double digit growth rates seen prior to the Global Financial Crisis.

Japan and Europe: Bank of Japan to expand its Quantitative and Qualitative Easing in 2016 to try to meet its inflation target of 2%. The cyclical recovery in Europe is expected to take further hold and the central banks of Japan and Europe expected to continue to ease monetary policy to bolster economic growth.

Malaysia: Inflation to edge higher to 3%+. Consumer sentiment is likely to be dampened going forward. Weak ringgit environment is likely to stay for some time, with no immediate catalyst that will strengthen the currency significantly going forward. Various sectors to face headwinds; O&G, plantation, banks, telecommunications and property. Non-oil exports and investments to support growth; e.g. exporters and construction.

Others: Commodity prices and the USD have become increasingly negatively-correlated in recent years, with the recent strength in the USD coinciding with the lowest commodity prices since early-2009. I would caution against mounting expectations of an ever-strengthening USD. Asian and EM currencies are already trading at multi-year lows against the greenback and I think it's already as much as it can go.

How did my Investment Strategy came about then?
http://aboiwealthpot.blogspot.my/2016/02/abois-investment-strategy-for-2016.html

Looking forward, expected returns no longer justify an overweight position in equities given that expected returns are not as attractive as before, reducing the expected reward for the amount of risk taken. With my current exposure to equities a neutral allocation to equities vis-à-vis bonds is advocated. 
-> (Add) AmDynamic Bond - Class: Malaysia Bond
-> (Add) Affin Hwang Select Bond - Class: Asia Bond

Reits were battered during the second half of 2015 alongside conventional equities, the decline in their share prices had the effect of pushing up yields. It is worth noting that the majority of the Reits are currently trading near book value, suggesting that downside risks are currently minimal.
-> (Add) Malaysian REIT for high dividend yield play - Class: Malaysia Property

At just 12.4X 2015 earnings, Asian equities remain undervalued at this juncture, and I believe that a recovery in the earnings revisions cycle for Asia ex-Japan equities will be a key catalyst for Asian equity valuations to mean-revert higher. A normalisation to 14.5X PE would see the market deliver a 21% annualised return by end-2017 (or nearly 50% upside on a cumulative basis, including dividends), with the North Asian markets accounting for most of the potential returns.
-> (Add) CIMB Principal PRS Asia Pacific ex Japan Equity Fund - Class: Asia ex Japan Equity

As of 17 December 2015, the FBM Small Cap Index traded at 12.5X, relatively lower as compared to the KLCI Index’s 16.4X. As small cap stocks are known to be more volatile than their large cap counterparts, I would advice caution and to allocate no more than 10% weightage of their entire portfolio.
-> (Add) Eastspring Investments Small-Cap Fund - Class: Malaysia Small to Medium Companies Equity

What about Gold? Honestly I do not know yet. It's hard to guess the fair value to be frank this is why it is so damn difficult to decide.

In conclusion, 2016 is likely to be a more challenging year as compared to 2015. Nevertheless, there will undoubtedly be opportunities for those who are well prepared. Good luck!

Aboi's Investment Strategy for 2016

What have I learned?
I'm becoming more fond of funds. They do perform; Kenanga made me +64%, Affin Hwang +40% and there rest are also in +ve territory. They are easier to monitor; one only looks at certain ratios (I do this twice a year only) and since the stock selection is done by the manager most of my focus is on macroeconomics level which IMO is a lot more interesting. Second with FSM platform (see link) it is far cheaper to invest in funds @ sales charge of 0%-2% (normally they are 6%!). FSM also offers relevant educational and research articles.

More importantly is my time constraints due to other commitments & plans. As such I'm not in a good position to do deep down research in a consistent manner (e.g. using DCF model). Nevertheless it was good experience as all my investments made positive returns (the only exception is Genting which I am still holding). Using my experience since 2009 I believe that I am able to leverage other people's research and come with my own conclusion - this will save a lot of time. Therefore I am moving towards equity investments that offers high dividend yield play.

Obviously there are also things that many did not foresee or expected including me; crash of the oil price towards $30 and China's spectacular 2nd stock market crash (a temporary blow for my PRS). This is why macroeconomics is interesting especially on the global level.

What are my plans?
Here I outline my financial plans for 2016 and these are just highlights; I will go thru them in detail as I go along posting more in the coming weeks. Here are some things you should know first.

• Risk correlates with expected returns (per annum); the more risk it has I will certainly expect more returns and vice versa; e.g. you can also lose that much. 
• (New) is something I will add into my portfolio this year. (Add) would mean to increase allocation in an existing holding. (Maintain) is simply holding it for the time being.

Risk: Low; Expected Returns: ~4% or less
(New) RHB Cash Management Fund 2 (see link) - Class: Malaysia Money Market
(Add) AmDynamic Bond - Class: Malaysia Bond (see link)
(Add) Affin Hwang Select Bond - Class: Asia Bond (see link)

Risk: Medium; Expected Returns: 6%-8%
(Maintain) Affin Hwang Select Income Fund (see link) - Class: Asia Ex Japan Conservative 70% Fixed Income 30% Equity
(Add) Malaysian REIT for high dividend yield play - Class: Malaysia Property
(Add) Selected stocks for high dividend yield play - Class: Malaysia Equity

Risk: High; Expected Returns: 10%-12%
(Maintain) Kenanga Growth Fund - Class: Malaysia Equity
(Maintain) Aberdeen Islamic World Equity Fund - Class: Global Equity
(Add) CIMB Principal PRS Asia Pacific ex Japan Equity Fund - Class: Asia ex Japan Equity

Risk: Very High; Expected Returns: ~13 or more
(Add) Eastspring Investments Small-Cap Fund - Class: Malaysia Small to Medium Companies Equity

Others:
(Maintain) 11% for EPF contributions - Tax savings & more retirement surplus.
(Maintain) Continue existing insurance policies and endowment plan. No addition.

The above constitutes my active wealth management strategy; a life long learning process and funds can be adjusted on need basis. The only true purpose for this portfolio is to simply make more money from money. EPF remains the core passive retirement fund which is not really adequate therefore I need my active strategy. Insurance forms the basis of wealth protection as well as last resort emergency funds (from policy surrender value).

Summary
I did mentioned before that one should "look for safer alternatives even though it offers lower returns". This is where RHB Cash Fund, AmDynamic Bond & Malaysian REIT/selected equities come into the core strategy. Here is where the bulk of the allocation will go.

PRS continues to be an auto include for three reasons; [1] Cheap valuation; more so after the recent selldown (see link) [2] Tax deductible up to RM3k [3] In for the long haul e.g. until retirement age; this reason compliments [1].

Es Small Cap fund is an opportunistic investment ONLY as the small cap index (see below) is experiencing correction. If it falls further say towards 13000-14000 I would say that it is a good chance to load it up. The potential of +ve return comes from starting at a low base that has good upsides going forward.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Happy Chinese New Year 2016 - Gong Xi Fa Cai

May this New Year bring you a fiery surprise, prosperity and joy.

Raya Cina sudah mari,

Balik kampung banyak happy,

Panggil member cari kaki,

Mari rumah saya main judi!

Kambing🐑 pergi, Monyet 🐒mari, 

Soi pergi, Ong mari,

Tahun lepas sudah pergi,

Tahun ini mesti happy.

Kena magnum kena loteri,

Dalam bank banyak money💰,

Badan sihat tiap-tiap hari,

Hari hari senyum tak ada rugi.

Happy Fire Monkey year and I wish you Gong Xi Fa Cai✨🎉

Is the Bear Out Already?

Hi! Long time no see..

Article courtesy of Invest Made Easy Blog (link). I made some modifications and my own comments.

If you're an investor investing into stocks or unit trust, it is vital that you should keep abreast with the latest development of the global equity markets as well as understand the key factors that are affecting the market sentiment. The recent massive drop in the global equity markets is one event that you as an investor should look into thoroughly and fully understand the causes before deciding on your next investment decision.

Here's what happened most recently and what's causing it.....

One of the worst start of the year for global markets (below as of 2nd February 2016)

- Major markets broke their long term trend lines and rebounds in these two days of Feb don't look strong enough to climb back to uptrend direction.

- #1 Part of the reason is oil. Price of crude oil has slide 55% over the past one year and that has an impact on a number of countries around the world. This is due to [1] oversupply - oil nations refuse to reduce production for fear of losing market share [2] lower demand - slower China growth.
- Oil and stocks/equities are positively correlated. Market is starting to feel the brunt from falling oil prices.
- Lower oil prices cancel capital spending plans of companies that invest primarily into energy. Certain sectors such as materials and industrial are also feeling the impact of oil's fall.
- Oil producing countries are making lesser profit (like Malaysia). This will certainly have a significant impact on the country's GDP and finances.

What to be aware of?
As long as all oil producing nations refuses to reduce their production, low oil prices are here to stay. Unless there is a major conflict in Middle East (e.g. Saudi vs Iran), war, OPEC cuts production.

- #2 Slowdown in China. IMF cut its world economic growth forecast by 0.2% to 3.4% on concerns of a slowdown in China.
- China; world's second largest economy grew by 6.9% for 2015 the slowest rate of growth since 1990.
- China stocks has tanked big time since the start of 2016. Within the first week of 2016, the China stock market (Shanghai Stock Exchange) was shut down twice as circuit breakers were triggered when the index fell below 7% of its opening value.

First trading halt (4th January 2016)

Second trading halt (7th January 2016)

It has since removed the circuit breakers for it is said to have worsen the sell-off and create uneasiness.

What to be aware of?
This March 2016, the ruling party is expected to unveil a new 5 year plan that touches on nation building, from the economy to foreign policy, the military and the environment. If the plan is able to convincingly calm the nerves of investors, we might witness a rebound for the China stock market.

- #3 US Fed Rate Hike. When an interest rate is raised, it means that the country's economy is recovering from a recession. Therefore when the Federal Reserve of the world's largest economy announced an interest rate hike on the 16th of December, the general believe (for the decision makers) was that the US has finally come out from recession. There's also talks that the FEDs intend to raise the interest four more times over the period of 2016.

Such optimism is not share by many investors whom strongly believe that the economic data referred to by the FEDs are fundamentally flawed. As a matter of fact, the consensus is that the US economy is not as healthy as the FEDs think it is. Poor retail sales, low inflation and a myriad of other economic data are pointing at the opposite direction.

What to be aware of?
US Fed's original plan is to up the rate by 1% within 2016. This is unlikely to happen judging by the shaky start of 2016. It is more likely it will be a cautious 0.25% hike in 2016. You should be aware of the dates of the FOMC meeting, this is when and where they will decide for a rate hike or not.

In a Nutshell
It's a challenging year for equity investors with multiple headwinds in multiple fronts. I made my decision way back in 2015 already and it remains the same. Cash is king. Wait for "Jualan Harga Murah". Look for safer alternatives even though it offers lower returns. I will be posting my likely picks and my strategies for 2016 so stay tuned. All the best and happy investing, it's never too late!