To Optimize Return, Look For Hidden Opportunities!

Happy New Year readers.

I wish to start this wonderful year by sharing a valuable point in maximizing returns from your current Unit trust investment scheme. Many unit holders do not see or aware of this opportunity that will come and go quietly. Some even will lament of the opportunity lost generated from their lack of enthusiasm shown in this scheme. Preoccupation of negative attitude and understanding also contributes to losing the precious opportunity to optimize return. Who is to shoulder this grievances? Will time wait for those ignorant investors to move on their own pace to materialize this chances? Really?

There are 3 steps that i lay out in order to be fully understand to become a learned investor pertaining to this topic. This integrated steps, once learned and practiced can bring accelerated positive return to your unit trust portfolio.

The 3 steps are:

Step 1: What are the opportunities?

Step 2: When will the opportunities appear?

Step 3: Channels of the opportunity source

STEP 1:

I have written below some of the opportunities that will come in the investors pathway, and if it comes they better grab them!

Opportunity #1: Look for funds that have declared above average dividend returns in the past. Identify the funds and PURCHASE this funds few weeks before its financial year end.

Opportunity #2: Look for funds that have recently declared dividend for the previous financial year end. If this funds falls under your risk profile, PURCHASE them as the Net Asset Value (NAV) of the fund is confirm lower than your cost per unit!

Opportunity #3: Since equity type funds are volatile in nature, investors are bound to see high and low net asset value from time to time. In the declining market condition, prices of funds may drop and if it drops below the holding cost per unit, this is an opportunity to PURCHASE! So, look for low fund prices, buy low and sell high!

Opportunity #4: As it is in no.3 above, investors also need to look for new fund launch. Usually new fund launch carries a very low net asset value. Some funds also will be launched with a lower than normal sales charges within the sales promotion period. Study the funds and if it is within your risk profile parameter, grab it!

STEP 2 :

In Opportunity #1, in step 1 above, this opportunity will come prior to the respective funds' financial year end. Get the list of funds' financial year list and observe them.

In Opportunity #2, in step 1 above, this opportunity will come just after the funds' financial year end. Usually trading managers will average out the last 3 to 5 days net asset value (NAV) of the fund and then will subtract off the dividend in sen from this averaged price. As a result the price or NAV after dividend declaration will be obviously low!

In Opportunity #3, this opportunity will come during the market declination stage. Market decline is not the same as market collapse stage. Investors are not to seek opportunity during the collapse stage.

In market declination stage, due to various systematic and unsystematic inherent risks, prices may go down in pursuit of higher growth in future. Grab the opportunity when the price is lower than your holding cost per unit.

In Opportunity #4, in all fund launches, selling price is usually very low. Briefly, fund will be launched in preparation of any impending changes in sectors of economy. Such perspective is taken into consideration that the sectors in relation will contribute and drive the growth of Gross Domestic Products (GDP).

STEP 3:

Learned investors have the knowledge and skills needed to capture opportunities mentioned above. However, time is a major factor that hinders them to act. This is very true to the budding investors who finds very less time to allocate into this aspect. Alternatively, investors can engage efficient unit trust consultants to manage their funds. Unit Trust Consultants are educated and equipped with the necessary tools to do manage client's asset. Seek their assistance should you have limited time managing funds.

Happy Investing!

RULE OF 72

This simple rule is used to answer the below 2 questions.

1. If i invest now, in how many years do i get to see the value doubled, if the return is 7% per annum?
2. If i want to invest and my holding period is 8 years, what return on investment would i be looking for?

Question No. 1 can be answered by applying the simple Rule of 72.

72 / 7 , and that will give us 10.28 (nearest to 2 decimal points) years.

It means that if you invest in a fund that generates 7% return per annum, your capital ( any amount) injected would grow double in 10.28 years (note: the number could move either way too,i.e. either grow of decline)

Question No.2 also can be solved using Rule of 72.

72/ 8 years ,and that will give us 9% per annum rate of return.

It means that if you want to see your capital  to double (or reduce to halve) in 8 years, you should put all your money in a product that generates 9.00% return per annum.

Avoid This Mistake in Investment

Let me share with you the greatest mistake average investors make. 

In general, average investors will jump onto the bandwagon hoping to sweep off highest return possible from their investment portfolio. In most cases a big quantum of them fail and from that point of failure comes the feeling of displeasure. Subsequently, their investment skill changes to defensive mode and if possible, they will withdraw all their funds at a below average return. Thereafter, if they were asked to invest again, they will stay away from investing. 

This bias in investment will then create a negative scenario that will cause a dent in the growth of capital investment environment. Investors of this kind, will picture a thorny issue and their words of mouth will thread through every segment of investment society and eventually will puncture a mutating hole in the health of Malaysian capital market.

Okay, enough of the consequences and now let me tell you how to avoid being in a situation mentioned above. 

Identify your risk profile.

Not all funds are for everyone. If you are a conservative type of investor, do not dream for higher returns. Likewise, if you are an aggressive type, you got to accept the high volatility generated in the net asset value of the fund, in pursuit to higher future return.

Mark your investment period.

Irrespective of your risk profile, it is a MUST to identify how long you wish to hold on your investment. Redeem your position when portfolio achieve its objective. Alternatively, you may exercise switching into a low loaded funds to lock in your profit. Real life cases have taught me that prices may go down as well as move up.

Managed Fund

Unit trust funds are basically a managed funds. There will be times where NAV of funds will go south and times where it may head north. It is advisable to make regular top ups during declining market scenario in order to collect greater units. The concept applies here is "BUY LOW and SELL HIGH".Greatest mistake investors make is "BUY LOW and SELL LOW".

Premature redemption of positions are actually resulted from the misaligned risk-reward profile of investors.

So, avoid making premature redemption of funds, avoid ignoring your risk profile and do mark your investment holding period.

Happy investing!

Vijaya Devan

When You Invest, Think Like An Investor and Be An Investor.

Here, i would like to share a real time experience i had with my Unit Trust clients.

6 years ago, i helped my client to invest RM 100000 to purchase an Unit Trust fund. This fund is categorized as Equity and focused primarily on capital growth. Dividend payout is incidental! The fund's NAV (Net asset value) has an asset exposure in South East Asia markets. Client required an above average return on his investment.

The client has conveyed that his investment holding period is at long term period and he was told that there would be volatility in the NAV along the investment period before achieving above average return. He also been told about the strategy of optimizing return via "Buy Low, Sell High" concept.

Okay, here comes the miserable part!

6 years down the road, his return had reached about 6% to 7% annual return. However, due to the pullout of investors funds from domestic capital market, this fund's NAV dropped and the return was now about 4%. 

Client has indicated to me that he needed to withdraw all units due to this sluggish return, but i told him that the drop is only temporarily and he should leave the units untouched. I suggested to him that he should wait for the NAV price to surge back before withdrawing. The volatility is normal but my advice was unheeded.

The client had withdrawn all at a small annual return of 4 %. (The client could have exercised to redeem all while the return was at 6% to 7% earlier, but he decided to wait).

This case is a classical example of avoiding to adhere to the basic optimizing strategy as mentioned above, i.e. Buy Low , Sell High!

I LEARNED ONE IMPORTANT LESSON AND IT IS , WHEN A CLIENT CONFESSED THAT HE UNDERSTOOD ON THE APPLICATION OF VARIOUS UNIT TRUST INVESTMENT STRATEGIES, HE ACTUALLY NOT!!

When you invest, think like one and act like one!

Vijaya Devan

Licensed to consult and retail.

Hi there people!

I just want to announce that i am now a registered Private Retirement Scheme Consultant. With this acolade, i can now position myself as a professional consultant to provide advisory services to the mass population in relation to retirement plan. Along with this, i am also allowed to market retirement funds across all level of ages.

What's in it for you, you may ask. Well, looking from the perspective of financial freedom, each and every one of you working adults out there ought to start providing personal financial security now in order to leave without debt or without money during your retirement life in future! Hoping for your current EPF funding or pension scheme would take care this needs is mythological, as research has found retirees used up all their savings within 3 years of their retirement life. What alternatives do you have?

Consider starting up an additional retirement scheme to facilitate your retirement plan. Consider this by learning the know-how.

Call me at 019-3146621 or email me at vjdevan@streamyx.com to find out more.

Best regards.

Vijaya Devan
PRS consultant
CFP, IFP

Mistakes new Unit Trust investors should avoid.

Allow me to give some tips to those potential new investors who have decided
to come in to invest in Unit Trust Investment scheme.

Mistakes to avoid are:

1.     No specific time horizon!

Congratulation for making the first step to invest! Despite having the resource i.e. the

money, you should also know how long you wish to put your money in this investment.

Example: 5 years?, 8 years? or 10 years?, et cetra. If you plan to invest for just 2 years and

below, i advise you better not! You can better park that money as an emegency fund

elsewhere or use the amount to pay all your credit card balances.

2.     No real targeted amount!

When you have decided your investment horizon, the next step is to determine how much

money you would like to collect at the end of your investment period. Eg. RM 50000 or

RM 100000, et cetra, et cetra. Examples of target amount can be such as 'I need 

RM 80000 for my child's living and tuition fees expenses' or 'I need to create a retirement

nest of RM 500000 when i retire'. About 99.99% of unit trust investors do not have such

real targeted amount to save. Believe it or not, but it's true!

3.     Not knowing your investment risk-profile.

Unit trust investors comes from diverse education, segment of community and social culture. 

Each and single human reacts and compute decision differently based on their life experience.

Various funds also do have complexity inherent in it and it is ought to be captured and analysed

carefully. What i am trying to convey here is that some funds behave actively and some so 

passively. Prior to putting money in any funds, investors should know what type of funds are 

suitable with their own inner-self that life experience had taught them to be what they are now.

In simplicity, investors should know their own investment risk profile. If an investor is an

aggressive type who can accept current short term volatility for the benefit of hoping to reap high 

return in the long term, we consultants always avoid choosing income/bond type funds.

The first two (2) items above are enshrined as the OBJECTIVE OF INVESTMENT. You

simply cannot tell your consultants that the reason of your investment is 'I am investing 

because i want more money'.  The combination of (1) and (2) above will reflect something

like this. 'I want to invest in unit trust because i plan to send my daughter to further studies 

and to my knowledge, it will cost RM 80000 in today's money. I plan to have that money in 

10 years time.

Can you see the difference? Objectives should clearly indicate how much you want and by when

you need it. Discovering your investment risk profile comes later. If you know all 3 above,

you can now see your consultant/agent to begin the process of investment.

But wait!! Do you know how to determine (1) and (2) and (3) above??

I am sure most of you all know already but to other few who are in the dark, you may ask 

around or else send in your request to vjdevan@streamyx.com and i will guide you. No obligation and 

no fees are charged for this, at all!

HOW I MANAGE YOUR INVESTMENT? < Part 4 >

This is the final part of 4 series.
Still based on the example in Part 2 ( Moderate profile, exp return of 6.20% and 50K
investment), the current return column in the top table now has value already (as a result
of market trading). Please see the table below and take note of the return too. The return
performance is also displayed on a graph for better viewing.

HOW I MANAGE YOUR INVESTMENT.< Part 3 >

What you see above is the blank actual table currently i am using to summarize what fund and

how much allocation is chosen for my clients. It contains 2 tables, one on top of the other.

The top table consists of  3 broad columns tagged as Primary strategy plan, Current Strategy

and Current Return. In the Primary strategy column, i will input your proposed asset allocation

consistent with your Expected Return table (See sample in Part 2 article). The Current strategy

column will show actual dispersion of the portfolio from time to time. I can better manage your

proposed allocation by looking at this dispersion and should it rail-off from the initial allocation,

some corrective measures can be taken. The last column 'Current Return' enables me to see

the actual dispersion from the value perspective. Value here means what the market is giving us.

In conclusion, this top table is actually a representative of asset allocation seen in 3 forms, i.e.

proposed, current invested and current value. This table doesn't assist me to know the invested

value but rather supports me in way of monitoring the asset allocation of all your unit trust funds.

The bottom table, on the other hand functions differently.

It will show all the funds i have chosen consistent to your Expected Return table in Part 2 article.

From the previous example cited, your portfolio of unit trust investment will look something like

the one displayed in the table below.

I have chosen ( example only) 4 equity type funds and 2 passive types. This diversification of

funds is in tandem with the Expected rate of return table displayed in Part 2 which would

anticipate a return of 6.20% (moderate type profile). See carefully the table above. Notice

that it also conforms the amount dispersed for equity and Bond/MM which is RM 15000

and RM 35000 respectively. Look also the top table on the strategy plan column and current

exposure column. The current return column is left empty obviously! Figures will appear in this

column once the value invested is shown on the lower table.

Why you may ask, i choose 4 equities and not 1? Well, it a question of mitigation of RISK!

It means i have leverage the inherent risk of the aggregate equities exposure to minimum. 

Confused??? Don't worry. It is my job to maintain your investment therefore it is suffice for me

to know and not you. Cheers..!

This is the end of Part 3. In my subsequent posting, i have embedded the similar chart
as above but with invested value. Please ZOOM yourself in there now!

HOW I MANAGE YOUR INVESTMENT? < PART1>

How do you choose your Unit Trust Consultant?

If you want to invest in unit trust scheme, foremost you must start to shop for the best

UTMC (unit trust management company) in town. Assume that you have done that part and

now you are left to find the best consultant/agent whom you can entrust to manage your

investment throughout your aspired investment period. How do you go about with this task?

Word-of-mouth is the best information sharing tool that can fast disseminate information from

one source to another. In the International Bestseller book 'The Tipping Point' authored 

by Malcolm Gladwell, he mentioned that 'connectors' (people who goes around telling 

about another person's meritocracy) were vital pillars in social circle that promotes social 

epidermic. Likewise, if you want to pick the best consultant, start looking and start asking for

'connectors' around you!

Now, let me tell you how i manage funds of investors who have chosen me as their 

intermediary.

Initially, throughout my first meeting with clients, i will extract among other things, the investors' 

Risk temperament or their Risk tolerance profile. There are 2 ways i can do this task, namely

by letting them to answer the Risk Tolerance questionnaire or alternatively by allowing them to 

narrate to me of their behavioural pattern in finance. I conduct this because i need to understand my

client's attitude and feelings towards market volatility, and from here to enable me to pick the

best asset allocation strategy. All potential investors should know that there is always a trade-off

to return in any investment. Riskier investment promises high reward, vice-versa.

Subsequently, while still in the first meeting, i will require my clients to determine their proposed 

asset holding period or timeframe. By knowing how long they can part-away with their invested

money, i will choose the appropriate funds (asset). 

For an example, if clients can part away their money for approximately 3 years, i will ignore

picking high volatility types of funds as these funds require longer gestation period. Money

market or income funds are of better option in this context.

Now, since i know my client's risk tolerance plus their asset holding period, i am now ready to 

jump to my next task, i.e. to construct a simple 'Expected Rate of Return' table. 

You have reached the end of Part One, please go to the next article -Part Two; to

discover  how i construct a simple 'Expected Rate of Return' table for my clients.  

  

USING CAPM METHOD TO PICK A FUND



If you are thinking which Unit Trust fund to choose from, you should be the

one who is reading this article now. Do you know what method to use?

Although there are other ways you can choose a fund, i prefer the CAPM method.

Here is how i choose funds for my clients:-

STEP ONE

Prepare a table that list out all the funds. In the case above, i have listed only 6

equity funds which is of the aggressive category type.

STEP TWO

Prepare columns that shows Market return, fund returns and Beta. All these

informations can been plucked out from the Public Mutual's Market wrap

report.

STEP THREE

Prepare the column that shows Risk Free return. I have taken the Public Bank's

One Year Fixed Deposit rate as the Risk free rate i.e., 3.10%

STEP FOUR

Find the Market risk premium. Market risk premium = Market return-Risk free rate.

STEP FIVE

Finally, find the Expected return of the fund, given all the data above.

Expected return of the fund= Risk free rate + Beta[Market return-Risk free rate]

Replacing all the data into this formula, you will get the expected return

(as shown on the last column of the table above)

STEP SIX

Now, based on the expected return of each of the 6 funds, do the comparison

against the actual return in the 4th column (fund returns).

You will find that fund PAGF has the widest variance. I deduce this as

PAGF is undervalued and i will pick this fund because of the potential

to make big return if the Expected return in column 8 is matched.

However, if you are the conservative investor(highly risk averse), i would

suggest to pick the lowest variance between the Expected return in column 8

and the actual return in column 4, and that fund will be PGF!

Happy Investing!





DOLLAR COST AVERAGE - It's Your Call!! Part 3 of 3

DOLLAR COST AVERAGE - It's Your Call!! Part 2 of 3

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DOLLAR COST AVERAGE - It's Your Call! : Part 1 of 3

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