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.