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First-timers are likely to be more concerned about the cost of investing. The
fee details can normally be found in the prospectus.
Check whether the same management team that got the fund where it is today is still
handling the investment. Bear in mind that new management team may have different
investment styles and objectives thus the funds' historical performance will not
be a reliable indicator.
Know also the background of the investment companies. Reputable investment companies
are usually backed by funds which have impressive track records.
However, this should not suggest that you seek only "branded" investments.
Evidence points that some reputable companies that have been in the market for a
long time have not been performing well in general as compared to the newcomers.
Some investment companies may become household names simply because of their aggressive
advertising on the media - actual track record should be the primary consideration
instead.
Investors should not use the preceding year as a basis to gauge the performance of
the fund. A wise investor does not look at short-term performance. How does an investor
effectively evaluate the performance of the fund managers then?
Most investors are largely short-term oriented and often look at the short-term track
records in order to predict future prospects. This is extremely dangerous as indeed
history may not repeat itself and past performance may give no clue to future performance.
Long-term managers who show consistency and discipline in trading with superior timing
skills are the ones that investors should look for. Most professionals agree that
if you select a particular unit trust or fund manager for the knock-out returns over
a few years span, you are in danger investing at the peak of the cycle, and you are
likely to be very disappointed with the results.
How do managers cope with changing market conditions? Analyze the managers' performances
during bulls and bears will give you a better indication.
Outperformance during bear market could indicate the particular manager's ability
in stock selection while underperformance during bull periods could imply an overly
conservative market approach.
If the funds have been consistently underperforming the market, check whether the
managers have been making mistakes or is it the underlying market that has not been
performing well. In short, it is useful to see the funds go through a full market
cycle.
Sadly, many local investors appear to respond solely on raw returns without consideration
for the risk factors. To make wiser investment decisions, you should look at the
long-term risk-adjusted performance.
Studies have indicated that fund managers with good past records tend to perform
better than those with dismal past performance. Normandy's fund performance table
can be used as a general yardstick as it shows the performance of various fund classes
over various periods. The table shows you how the funds are ranked against other
similar funds. Pay greater attention to the other aspects of those funds which have
shorter or no track record.
The Kuala Lumpur Composite index (KLCI) is commonly used as a performance benchmark
as most local funds invest predominantly in the Kuala Lumpur Stock Exchange (KLSE).
However, you should be careful when using the index as it proves nothing if you invest
in a bond fund.
Investors particularly the first-timers who are thinking of investing in unit trusts
should capitalize on the current low prices as buying opportunities.
What might be appropriate for others may not be the same for you as different individuals
have different investment needs. Obviously, the above discussion has been simplified.
Seek more than one opinion before committing yourself to any fund. Check with an
independent financial advisor for impartial advice if you are not sure.
They will be in a better position to help you so that you will not end up with a
lemon. Make sure you are happy with the funds you select.
Lastly, investing in managed investments such as the unit trusts is a long-term affair.
For those who have invested, do not worry about the current market spinning and most
importantly do not panic and sell unnecessarily.
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