Is it too High to Enter this Fund?


Mutual FundTwo months ago, someone highlighted InterPac funds to me, saying that these funds have been performing extremely well lately. It has just come on board with Fundsupermart platform and the FSM team has written an article entitled FSM Fund Choice: Interpac Dynamic Equity Fund and Interpac Dana Safi  to introduce these new funds.  I then read through the article and felt that they were quite decent funds. So I invested into one of its funds. Now it has enjoyed 15.61% return. Along the way, I have been encouraging some others to invest into it, but I heard reluctant responses saying, “Does  this fund has gone too high? Is it too dangerous to enter now? Will I be trapped if I enter?”

Interpac Dana Safi 1 year Chart
InterPac Dana Safi 1 Year Performance Chart

It is not surprising to hear such a cautious response. Looking at its one year chart of one of its fund, for example, InterPac Dana Safi, it does really look extremely high.  You may even say so high that it almost like unbelievable and it is quite dangerous to enter.

Interpac Dana Safi 3 month Chart
Iner Pac Dana Safi 3 Months Performance Chart

Yes, it is very high when you look at 1 year chart. However, when you look at 3 months chart, it doesn’t look that spectacular at all. It even poses a very healthy and consistent growth trend.  Judging the high or low of a fund price becomes very subjective then.

Basically we need to understand how Mutual Fund is being priced everyday and what makes it high or low on daily price performance and how does its pricing different from trading stock directly.

Stock Pricing and Unit Trust Fund Pricing

Stock price fluctuates (going high and low) due to market demand.   When there are more demand to buy, prices go up.  When there are more sellers, prices drop. However, price of a mutual fund is not affected by investors buying into the fund. Prices  of a mutual fund (we normally call NAV or net asset value) are rather affected due to the average sum total of all those stocks that the fund has invested based on the daily closing market value.

When investing into a stock by individual investor, we should not chase after high flying stock. If we do, we will have the peril of being trapped. Because often time, in the game of stock purchase, prices can be manipulated by big players.  Stock prices can be chased higher to attract novice investors to join in. Once after these novice investors have entered the stock, these big players gained enough profit, they will take their hands off the table and prices can drop instantly. That’s where these retail investors are being trapped by high prices.

Whereas for prices or NAV of mutual fund,  it will not have this kind of phenomenon.  Because investors’ investment into the fund will only increase or decrease the fund house total capital asset. It will not affect the NAV or prices of the fund.  So there will not be any issue of being trapped when you invest through mutual fund due to high pricing. All fund managers want their fund prices to go up in order to look good, especially near year end reporting.  This is what we call white washing activities.

Interesting enough, do you know who those big players in the stock market are? They are fund managers from different fund houses!  That’s why it is safer to invest through mutual fund then investing directly into stock market by individual.

When Should We Avoid Purchasing a Fund

We should purchase a fund based on the market condition where the fund is being invested, not on fund NAV prices, not matter how high or low it is. When investor sees there is a growth potential of a certain segment of the market, for example oil and gas, we should buy into a fund that invests heavily into oil and gas. Similarly, when we see a certain segment of the market a fund invested is being saturated or about to turn bearish, we should sell and get out of that fund.

Secondly, we can consider selling a certain fund based on its weakening performances. When a certain fund we started with has been performing very well. But somehow, it began to slow down during the process, whereas other similar funds out of the same market has been performing very well, we should get out that fund or jump ship. That’s where we need to do fund switching. That fund might have been facing internal struggle, management problem, changing investing strategy or policy, change of key personnel or manager, etc.

Best Performing Funds 3 Month
The Best Performing Funds in Malaysia for the Past 3 Months

The most practical question now is, is it too late to buy into Interpac Dana Safi? This question should be best answered according to your market study or research. Interpac Dana Safi and Dynamic Equity Fund have invested solely in Malaysia market. For the past 6 months, these two funds were the best performing funds even if we compare with the 6 best performing funds invested in Malaysia market.

Should We Buy into InterPac Funds

The key question now is whether there is any head room for Malaysia market to go up. According to market analyst, Malaysia market has not reached its economic top currently. When rumors have been speculating that general election is coming most probably around October 2017 to May 2018, Malaysia government is most likely doing a lot of white washing activities to favor winning chances for the ruling regime. This will most probably bring new heights for Malaysia market.

Second consideration is the segment where this fund is invested. InterPac Dana Safi invested mostly in IT business sector. IT stocks have the most bullish run in the US markets recently, Malaysia IT markets, therefore, are also being pulled along. The question now is whether IT stock market has reached its top or will it consolidate for awhile and run further up?

If the above article have given you some aspirations,  I would urge you to make further study and make your own decision. If you do, make wise decision to invest through Fundsupermart.com,my. Because this is the only vehicle that offers you free entry and free exit buying into Interpac Funds. I hope you will be able to take advantage of rare investing opportunity around.  I would also welcome if you have any question, or comment regarding what has been discussed above.

 

 

Disclaimer: The author expresses his view based on his own learning experience for reference only. Readers are advised to use individual assessment to do investment.

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