Malaysian Investors Eye Unit Trusts for More Diversification and Less Volatility – Manulife

Appetite for unit trusts is growing among retail investors in Malaysia, with more than half already investing in such funds and nearly three quarters of those making regular investments, according to new research from Manulife. Furthermore, of those who do not currently invest in unit trusts, 65% said they plan to buy into them this year.

The research, 53% of Malaysia investors invest in unit trusts, well above the regional average of 44%, with 73% of them making regular investments as opposed to one-off payments. They also take a medium- to long-term view of their unit trust investments, with the research showing that a vast majority (88%) who invest in unit trusts hold onto them for more than a year.

The findings revealed that more than half of investors (57%) consider it a good time to invest in unit trusts, perhaps reflecting awareness that these investments tend to be less volatile with the potential for capital growth over the medium- to long-term. More than half (56%) also expect to invest more in their unit trusts, while 44% of those already holding funds said they hold on to each fund investment for three years or more.

“The interest in unit trusts can be explained in part by the local market performance this year. For those investors holding cash or investments purely in local currency, it’s been a tough year,” said Mark O’Dell, Group Chief Executive Officer of Manulife Holdings Malaysia. “But, as well, the appetite for unit trusts is partly borne of growing awareness of the benefits of diversification, not least as a way to limit ringgit exposure. Nearly half (45%) of those surveyed chose unit trusts with overseas exposure.”

Unit trust Appeal Grows as Ringgit Falls and Malaysia Stocks Slide Investors’ interest in unit trusts comes against a backdrop of local market weakness and volatility on several fronts. At the time of the survey (late May), the ringgit was down just over 3% against the US dollar since the start of the year. By mid-September, it was down about 23% at MYR4.30. Meanwhile, the Malaysian stock market down almost 9% since the start of the year.

“The ringgit has fallen precipitously this year, particularly during the past couple of months,” O’Dell continued. “Low oil prices and political concerns have dented confidence, particularly among overseas investors, and that’s hurting the currency. For investors, more than ever, cash isn’t a good option. A better option right now would be unit trusts that offer growth stocks in domestic and regional markets, along with other assets.”

The Manulife research showed Malaysia investors have concerns about investments perceived as risky. This includes investing overseas. For example, less than half (45%) of those investing in unit trusts have overseas exposure. Those who elect for unit trusts without overseas exposure mostly cite risk (61%) as the reason, followed by a lack of knowledge of foreign markets (58%).

Despite concerns over risk, two in five investors (41%) paradoxically say they would invest directly in stocks if they were to switch out of cash. And, of these, three quarters say they would most likely invest in growth stocks.

“In general, we look for stocks – whether growth or value – with relatively high earnings visibility in order to control our risk exposure,” said Jason Chong, Chief Investment Officer for Manulife Asset Management Services Berhad. “While some higher risk investments have their place in a portfolio, it is prudent to balance such exposures with a mixture of assets to achieve an acceptable overall risk profile that matches the investor’s goals. This could include a mix of stocks and bonds issued by companies in different industries, on different markets and even some in foreign currencies.

“That being said, we understand that some investors feel they lack the knowledge required to invest in diverse asset classes, markets and currencies. Such investors can benefit from tapping the expertise of professional investment managers with deep knowledge of these markets by making regular contributions to a well-diversified unit trust.”

The research showed that investors’ expected average rate of return on investments is 8.6% for 2015. While this is lower than the 10% expected return cited in the fourth quarter of 2014, Mr. Chong indicated that it may be overly ambitious considering the level of losses Malaysian equities have posted so far in 2015.




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