I read in the news last week. The worst may not be over for Vietnam’s stock market. Morgan Stanley said Vietnam was heading for a “currency crisis” and Fitch Ratings cut its outlook on the country’s debt rating. The country is experiencing strong inflation and maybe overheating. The once best performing stock index has fallen 55% this year.
I remember that when the market was best performing among the region, the market keep going up and the foreign investor money keep pouring in. It was similar with India, when the valuation is no longer cheap, the money inflow keep the market up.
If we back track a few years more, we can remember the year 2000 bubble. The higher the market went, the more money people pour in until the tipping point. I think at that time, banks were aggressively pushing technology related unit trust and result in many investors losing money. That might explain the poor reputation of unit trust as an investment approach in the local market.
Investor who bought the Vietnam fund might be sitting on loses now. As the over valuation unwind continues, it has more downside to go. That brings an interesting questions: Why did fund house launch fund at the peak of the cycle? Many times, we can see the peak of the market when there are many new fund launch. I remember we had properties fund, infrastructure fund, climate change fund etc etc.
We can look at it using common sense. The business of fund management is to get as many people as possible to invest in the fund. As the asset under management grow, the annual management fee also grow. So, it is in the fund manager interest to attract new investment and to grow the portfolio.
So, when is the good time to attract new investment money? That's when the investor interest is the highest. For example, when properties market was hot, many people wants to get into properties investment. So, that's the good time to launch properties related fund and the brochure would tell you that it present a strong long term investment case. Most of the time, people get attracted by new fund launch and stuck with the under performing fund for many years.
Timing does matter in unit trust. Before buying, it is good to get some basic information about the region you are investing, whether it is cheap or expensive. As we don't usually buy/sell unit trust frequently, buying at low is safer than when the market has run up a lot. Some site actually offers information on market PE which could be an useful indicator.
Otherwise, better to invest in global diversified fund than special sector fund. From my experience, the sector or single country fund does not necessary offer superior return, but you have to bear extra risk. So, avoid chasing hot fund, that could be your worst investment.
Sunday, 1 June 2008
Subscribe to:
Post Comments (Atom)
2 comments:
Your post raises the question of when is the best time to invest in funds but doesn't quite address this issue.
I don't like unit trusts because majority of them underperform their benchmarks and the fund managers still gets paid. It is one of the few industries where people get away with mediocre performance.
The management fees eat into fund returns and as you pointed out, funds exist to pull in monies so that management fees as a % of the fund grows, i.e. funding bonuses/salaries of the fund managers.
Virtually most personal finance and investment writers e.g. Burton Malkiel / Peter Lynch all recommend low cost index funds but such investments are hardly easily available in Singapore which is kinda sad.
For those who want to invest in unit trusts, go for low low costs and in markets that are stable. Chasing the fund of the day is almost as bad as punting on IPOs with the risk-return trade-offs stacked AGAINST you.
Be well and prosper.
I think it is debatable on the best time to invest in fund. Basically, everyone has his own opinion. What I thought is if the market has gone up a lot, don't try to chase the return. Usually for fund, the common metric to measure the market attractiveness is by PE. Beyond that, it is hard to judge.
Many don't like unit trust because of the cost it has. That's fine, if you have better means of investing your saving and grow them. The problem is some are not good in controlling emotion in stock investing, I would rather think that they should go for unit trust. Some of my friends who have idle fund in CPF don't use them, because they don't want to pay the fund manager. But they are losing the opportunity to earn better return. Since CPF only allow stock investment up to 35%, while unit trust is 100%
Historically, people has proved that low cost index fund outperform the actively managed fund which has higher expenses. In Singapore, we have less choice. But another school of thought is, the developed market is quite efficient that fund manager doesn't add much value. In the emerging or Asia market, many securities are mispriced, fund manager should be able to outperform. However, it is hard to prove the points, so the debate goes on.
Maybe the STI ETF would be a good choice for those who does not want to be active investor, don't like the unit trust, but want to invest to grow wealth.
Post a Comment