Tuesday, August 04, 2009

Amanah Saham 1Malaysia - The Facts & Implications


Possibly the most searched phrase in Google by Malaysian users over the past few days had to be "Amanah Saham 1Malaysia". The authorities have gave out quite a bit of information but the general public still have some unanswered issues that they wish to be clarified. I have a few as well. I have to say here that I think the fund is "good in essence", however, we all should be aware of how it works:

Facts

a) Amanah Saham 1Malaysia (AS 1Malaysia), an all-Malaysian fund managed by Permodalan Nasional Bhd (PNB).
As of end-2008, PNB’s AUM of RM120 billion amounted to 18.1% of the total market capitalisation of Bursa Malaysia.

b) Amanah Saham 1Malaysia is a fixed price products sell at 1ringgit per unit, like ASB/ASW/ASM, it is an equity fund with around 70% or more (of fund size) exposure to equity.

c) The fund will be invested in Malaysian companies with its yield benchmark according to 5-year Malaysian government yields which currently hovers around 3.7 to 4.0 percent.

d) AS1M will not be the biggest fund under PNB. ASB is the biggest fund so far with RM62bil fund in circulation (as per its annual report ended 31/12/08), even ASW has the approved fund size of RM14 billion.
e) ASM and ASW2020 give out dividends based on the returns of their investment portfolios, which are 95% equity and 5% others. Their returns have been consistently above 6% over the years. However, this does not mean that it cannot go lower than 6%.

f) To my knowledge it is not capital guaranteed. The Securities Commission guidelines has it clearly defined that if its a
GUARANTEED FUND - (1) A guaranteed fund is one which guarantees investors will get back the capital invested, with some returns (if any), or guarantees investors a certain investment return payable at a pre-determined date in the future. (2) The word “guarantee” must appear in the fund’s name. Where a fund does not comply with the requirements in this appendix, it must not use the word “guarantee”, or any other name which may imply some form of guarantee, in its name or in its promotional materials. Such a fund is prohibited from holding itself out as a guaranteed fund.

Then there is the nuanced terminology, the Capital Protected Fund (taken from the ASN site): A capital protected fund is one whose primary objective is to protect and return investors’ capital at a pre-determined date in the future, with some returns (if any). This fund will try and protect the capital but there is no guarantee, which makes it different from a guaranteed fund. I don't know about you but I found the phrase "this fund will try and protect the capital but there is no guarantee" very very uncomfortable. Might as well don't say it is capital protected.

From the prospectus it is clear that it is not a guaranteed fund, but I am not sure if its a Capital Protected Fund. Clarification please. The Capital Guarantee cannot be implied. You can only say it is Capital Guaranteed if capital can be returned at a pre-determined date, ... and ASM, ASW and AS1M all do not have maturity dates!!??

However, in the lexicon of PNB, the last few funds (including AS1M), they are referred to as "fixed priced funds".

Hence if the fixed priced funds will always have a NAV of RM1, then its actually better than Capital Protected, because even in a Capital Protected fund, you can lose out if you redeem too early) . In the case of fixed-price funds, there appears to be no downside risk whatsoever as the NAV is constantly fixed at RM1, along with the relatively high historical and stable returns. These funds have the backing of the government to create long-term and steady returns for their investors. These fixed-price funds are not to be confused with capital guaranteed funds.So there it is, its not a Guaranteed Fund, but its better than a Capital Protected Fund.

Closing Comments:

My biggest concern is when you invest 70%-90% of your NAV in local equities, shouldn't the performance be benchmarked against the FBM Composite Index rather than KLIBOR and MGS? The fact that the fund is benchmarked against KLIBOR and MGS indicate that it is primarily a "dividend based fund". The prime objective is to payout at least the benchmark or a little above that. Even so, how can you manage a fund that is 70%-90% in equities with that kind of "promised return". Equities can give you 10%-20% a year or could wipe out 10%-20% of your capital a year. Unless you manage the fund like EPF whereby you invest at least 60%-80% of your funds in MGS, then you can say you benchmark it to KLIBOR and MGS.

This would also hint at the strategy to be adopted by AS1M: the fund will be looking primarily at: proven companies with a "vocal dividend policy" (e.g. telling all that they will pay out 40% of profits as dividends every year); and they will be looking at consistent dividend policies over at least a 5 year period.

Just on what I have just mentioned, a shrewd local fund manager should consider picking up the following shares in the following order (without chasing them so high as the entry price will diminish your dividend yield):

1) Mah Sing

2) Public Bank

3) B Toto

4) Amway

5) Carlsberg

6) BAT

7) DIGI

8) The Star Publications


p/s photo: Chrissie Chau




9 comments:

Razali Razman said...

Thank you for the clear info - saved me the trouble of further searching.

hishamh said...

Very good deductions from not a lot of info.

de Engineur said...

if the return is merely 3%-4%, and it is fixed at RM1.00, why would one think it's worth investing. Not even sufficient to cover inflation rate. I'd rather have its price floated like those ASN, ASN1, etc and take the opportunity now to buy units while PNB still offers it at no fee. In the future they may impose 5% fees like other funds under its care.

Tony said...

I have alway suspected such funds to be ponzi schemes. There are hardly any redemptions; the minute someone redeems, it is snapped up by another investor. How do you pay 6 to 8 percent returns year in year out in good times and in bad times investing in just the Malaysian market.
I don't mind though as the nil net redemption means the funds can survive a long longgg time.

MaxWealth88 said...

hi dali, i'm confused about fixed price fund and capital guaranteed fund. if you refer to the prospectus pg 15, 7.1 it says that although this fund is fixed at RM1 it is not necessary to be that value on each business day. How do you interpret this? Does it mean that it's just like buying shares whereby the price fluactuate daily?

Sirius B said...

What about adding AEON Berhad be on the list too? B Toto is very good but I dont fancy Mah Sing.

Lim Choon Line said...

With 70-90% of the fund invested in equity, the NAV of the fund may be lower than RM1 per unit when the market is bearish.

If majority of the investors lose confidence and cash out, each investor may get less than RM1 per unit.

For capital guaranteed fund, you will still be refunded with your principle.

jacky said...

Why many people say that it is only fixed at RM1 now or sales promotion period and after the sales period end, the price per unit will change according to the market value?

VincTang said...

1Malaysia fund actually provide a very good opportunity for those who stay in Malaysia. http://bursastory.blogspot.com/2009/08/how-to-protect-your-fund-when-market.html