»Investors’ behaviour has generally matured, with more willing to create a proper diversified portfolio to specifically overcome the heightened volatility« GARY GAN

According to the Federation of Investment Managers Malaysia, despite the global financial and economic crisis the past two years, the local unit trust industry has actually grown.

As a percentage to Bursa Malaysia market cap, its total assets under management grew from 14.35% in 2006 to 20.25% in 2008. As at Oct 31, 2009, it stood at 20.34%.

However, prospective as well as existing investors are advised to avoid common pitfalls.

According to RHB Investment Management Sdn Bhd managing director Sharifatul Hanizah Said Ali, growth funds, which focuses on companies with significant profit growth potential, are likely to do well this year in line with earnings recovery.

“However, unit trust investors are encouraged to have a longer-term investment horizon of a minimum of five years, as the equity market can be very volatile. This will help reduce short-term market volatility and enable investors to enjoy a favorable market cycle,” she says.

Besides a suitable time horizon, HwangDBS Investment Management Bhd head of equities Gan Eng Peng says investment decisions should always be based on one’s objective and risk appetite.

“This will help determine your portfolio allocation. Statistics have proven that 90% of investment returns are attributed to the right asset allocation strategy,” he advises.

Overall, Gan opines that investors should consciously allocate part of their investments in assets that provide decent yield – both in equities and fixed income instruments.

“This can be achieved through investing in funds that strive to achieve income distribution while maintaining low volatility,” he adds. Gan also advocates a disciplined regular investment approach as no one can time the market.

Sharifatul Hanizah Said Ali says growth funds are likely to do well this year in line with earnings recovery.

“Hence, cost-averaging is the better approach. It takes out the emotional aspect and also lowers the overall investment cost,” he says, adding that this approach helps investors avoid common mistakes such as investing when the market is high and redeeming at market lows.

“One must also remember to not let complacency set in once a portfolio is performing, as it is equally important to review and rebalance your investment at least twice a year,” Gan adds.

Meanwhile, MyFP Services Sdn Bhd financial planner and managing director Robert Foo notes that diversification is key.

“Diversification means over asset classes, countries, currencies and fund managers. Those who had a diversified portfolio did not lose much during the financial crisis, when many funds, especially thematic funds, crashed by about 50% in value,” he says.

Jeremy Tan, a licensed financial adviser with Standard Financial Planner Sdn Bhd, concurs on the importance of diversification and advises investors to work with their planners or advisers on creating a diversified portfolio which offers better risk adjusted returns.

“This can be done by designing a core-satellite investment technique where the investment portfolio is divided into two parts. The core portion is invested in unit trust funds based on relatively long-term investment view of say five years and above, whereas the satellite portion is flexible and adapts to current market and economic conditions,” Tan explains.

In terms of percentage basis, the core may be 80% and the satellite 20%. This strategy is expected to offer better risks adjusted returns, Tan adds.

Pacific Mutual Fund Bhd general manager (business development and marketing) Gary Gan finds that investors’ behaviour has generally matured, with more willing to create a proper diversified portfolio or investment plan to specifically overcome the heightened volatility.

“We have seen a sharp increase in long-term savings plan type of investments,” he says.

Gan adds that despite the overall market volatility last year, redemptions on a whole have not been alarming, a testament to the maturing investor profile, which is important for the long-term growth of the industry.