Savings vs Investments (Unit Trusts)

The primary aim of savings is to protect the real value of money you put away, while investments are meant to grow its value. In short I believe that you need both. Savings for short term use and as an emergency buffer or reserves. Investments for your long term goals and needs (>3 years).

Savings: Savings Accounts / Fixed Deposits
Pros of Savings:
Keeps value of money intact and provide small returns as determined by interest rates. Usually always available when you need it. Minimal risks and usually guaranteed by banks or by the government. Finally it requires very little financial knowledge.

Cons of Savings:
Little increase in value over time. Currency fluctuations and inflation may significantly diminish its value. **
** Banks use your money (from savings account or FD) to provide loans and in return distribute a portion of their profits in the form of interest on your savings. Central banks control the interest rate based on inflation numbers and therefore savings can only return a slightly higher than forecasted rise in cost of living otherwise known as inflation to ensure that the value of your savings does not. This is WHY it is only good as a short term use.


Investments: Equities (shares in company) / Bonds / Property / Unit Trusts
Pros of Investments:
Grows the value of your money and may return several times the amount of your initial investment.
Helps you build a nest egg for your retirement, children's education fund, vacation and etc. Most of the time the value of investment tends to correlate to inflation.

Cons of Investments:
Risk level varies but generally higher than savings. Money usually locked in for a period of time or at least not straight forward to cash out. Requires a good amount of understanding the product and market.


As you know 20% of my portfolio is based on Unit Trusts, a figure which I would like to see increased in the coming years. Here are the benefits I see (from highest order to lowest):

Portfolio Diversification - investor has access to broader range of securities (Malaysia / Asia / Global) than you could if investing on your own. this also minimizes exposure to any one type of risk.

Access to Broader Array of Financial Assets - in Malaysia a normal investors cannot directly invest in government or corporate bonds. Fund Managers have access to those.

Asset Liquidity - you can buy and sell units anytime as compared to trading shares of companies where prices and opportunities to transact depends on availability of both buyers and sellers.

Affordability - require minimal amount of investment as most funds accept both small (for as little as RM 100) and large investments.

Continuous Professional Management - funds run by full time and professional managers who have necessary skills, relevant experience and dedicated resources to maximize investments. **
** NOT all funds are managed well. One must know how to filter good ones out as posted previously http://aboiwealthpot.blogspot.com/2014/10/abois-updates-for-malaysian-equities.html. It will pay extremely WELL if you do your homework.

Global Fund on Equities (shares on company)

Asia Bonds (a type of corporate loan)

Asia Pacific ex Japan Equities (shares on company)

Malaysia only Equities (shares on company)

Aboi's Portfolio Review For June 2015

I am moving market update to a different posting within the coming weeks. This new portfolio review post will be done monthly and offer only [key updates]. Second I would begin to leverage research on [credible] sources based on my experience but my conclusions would still be based on [fundamental] financial figures. Lastly I will explain [briefly] any changes in my rating as well as fair value revisions.

Portfolio target composition. Equities 65%, Bonds 25% and Supplementary 10%.

Targets for returns p.a. Equities 12%, Bonds 5% and Supplementary 3.5%.

Notes

- Affin Hwang Select Income Fund: Income Distribution RM 0.005 per unit (reinvested)

- Kenanga Growth Fund: Income Distribution RM 0.10 per unit (reinvested)

Comments
- Portfolio target for the 5th year @ RM156k for April 2015: Slightly OFF. 
- Portfolio target for the 6th year @ RM171k for April 2016.
- The TWRR (time weighted annual return rate = 7.70% 
- TWRR down by 1.30% from Feb'15 vs portfolio target = 9.40%).

Supermax (Equity Malaysia)

- Changed BUY -> HOLD. Uncertainty in local stock market.

- Lowered fair value (RM 2.45 -> RM 2.30) due to narrower margin from competition.

- Stock crippled due to fire at its Alor Gajah plant but has since recovered.

- Growth in capacity from two new plants in Meru, Klang which will double nitrile gloves production from 6.9b to 12.3b pieces p.a.

- Still has attractive valuations vs peers e.g. PER & Div Yield.

Genting (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.

- Higher fair value (RM 10.50 -> RM 10.69) backed by earnings to grow steadily and stable.

- However most of its current investments will only come to fruition in 2H15/2016 so there is no short term catalyst to prop up share price.

Freight (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.

- Higher fair value (RM 1.09 -> RM 1.65) as it managed to weather temporary setbacks with healthy numbers so far.

- Stock took a beating due to cessation of a 3PL contract and temporary closure of a warehouse for renovation but expected to slowly recover.

- Growth will be supported by its core Sea Freight division and trade within Asia-Australia region.

ICapital (Closed-End Fund Equity Malaysia)
- Maintain BUY.
- Huge discount from current price to NAV (20.62%)

Affin Hwang Select Income Fund (Equity & Bond - Asia)

- Maintain BUY.
- Strong USD will make headwinds for Asia markets as such fund pare down exposure in equities (30% -> 20%). 
- Also doubled cash levels to 7% and continue exposure on Asian credit market pending US Fed's direction in the 2H15.   

Kenanga Growth Fund (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.
- Lack of catalyst in the short term, fund holding high level of cash ~20-25%.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 0.8 0.2 3.9 12.4 14.28 14.4 36.2 73.0 170.4 412.7 Performance figures are absolute returns based on the price of the fund as at June 2, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

AmDynamic Bond Fund (Bond Malaysia)

- Maintain BUY.
- Mainly invested in local corporate bonds ~80%. Interest rate expected to remain still.
- BNM will likely continue its policy pause and maintain cautious stance with a "wait-and-see" approach on US Fed direction.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 0.4 0.9 1.8 2.8 2.66 7.0 6.3 13.2 36.0 118.8 Performance figures are absolute returns based on the price of the fund as at June 2, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

Aberdeen Islamic World Equity Fund (Equity Global)

- Maintain BUY.
- Fund has no exposure to China's overheated stock market and slowing economy. Fund also has 18% exposure to the already lofty valuations in US equities so impact is minimized if a correction occurs.
- Fund continues to be very diversified globally; Healthcare (21%), Materials (16%), Energy (15%), Industrial (13%), Consumer Staples (13%).

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -0.2 1.1 -0.3 6.4 6.63 9.2 31.5 - - - Performance figures are absolute returns based on the price of the fund as at June 1, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

CIMB Principal PRS Asia Pacific Ex Japan Equity Fund (Equity Asia)

- Maintain BUY.
- Fund holding exposure to China's overheated stock market is minimal ~10%.
- Positive on Asian Equities but growth will be more scarce moving forward as regional portfolios are fully invested hence earnings will depend highly on stock selection.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -1.5 -1.3 2.0 10.8 10.31 22.2 36.2 - - - Performance figures are absolute returns based on the price of the fund as at June 2, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date

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.

Oil Price Is Going Nowhere For A While

The original post is from the Economist :

http://www.economist.com/news/leaders/21647972-thuggish-government-playing-racial-politics-najib-razak-should-be-dressed-down-disconnect

From The Economist

Otherwise digest these points :

• Fall in oil price has not curbed fracking as expected in America.
• Fracking is getting "unconventional" oil out of shale, tar-coated sand.
• New techniques to drill oil (horizontal drilling and hydraulic fracturing).
• High production costs & heavy debts, more vulnerable to price shocks.
• But more flexible, can quickly respond to any price rise.
• Saudi refused to cut output to put American firms out of business.
• 6 months later, little sign of bust in America's shale basins.
• Saudi's plan failed, oil price to remain low.
• Fracking have lead to a boom in oil and gas production recently.
• American oil production is still growing, in March it rose by 120,000 barrels a day.
• Frackers able to cut costs (labor, steel and other inputs has fallen).
• Frackers also improved productivity and drilling efficiency - helped by technology.
• America is replacing Saudi as world's swing producer.
• America drilled lots of well and then plugging them, waiting for price to rise again.
• Potential of 300,000 to 800,000 barrel per day may be started up when needed.
• Unconventional oil gaining increasing share of capital investment.
• Oil price picture - unlikely to rise sharply.
• America will stop importing energy between 2020 and 2030.
• Message from America - finance and technology more than a match for Saudi.
• OPEC says America's oil boom will be over by year-end. Wishful thinking.
• Shale revolution is marching on.

My thoughts : US is no longer dependent on Arab oil anymore. This is clear as we are witnessing a partial withdrawal of the US from the Middle East, hence the chaos. 

Meanwhile in Saudi, they have shown reluctant to cut output in order to maintain market share. In the long run this strategy will probably backfire. Why?

Currently the supply glut is supported by restocking activities (oil being stored in hopes that demand and prices will pick up later). [1] Demand will sap because China is growing at its slowest in 20 years. [2] Prices will likely tumble because storage facilities in Europe and Asia are already 80-85% full. Much more and they will overflow.  

Oil and gas income is still the backbone for the Malaysian economy. It accounts for 30% of government's total revenue. Again we are the spectators, too small to make a difference. Don't expect our budget to be people centrist for the next few years. We need to be prepared for a prolong spell of cheap oil.

Our weakening MYR (due to capital outflows) will more than offset any gains we get from cheaper oil. So yea, I'm not that happy either, I've said that before:

http://aboiwealthpot.blogspot.com/2015/01/ron95-ron97-cheaper-by-35c-why-you.html