I have briefly shared about how we can make use of equity funds in unit trust previously in Equity Funds~Our Best Weapon ( I ) . I shall share more on fund selection on this article. I mentioned about selecting local funds in Malaysia, while also recommended a fund for you to consider involving yourself with a simple fund selection principle I normally use. (For your information, that Fund has risen more than 4% after my recommendation 2 weeks ago and I believe it’s going to continue to grow.) Though there are many fund types and classes, I shall not deal with them too deeply because it will divert our readers’ attention and would not serve any good purpose at this point. I will discuss them when the appropriate time arrives. I shall move on to share about fund selection internationally at this article.
Mutual fund or unit trust investment has an edge over stock investment in a way that we can shift the market any time from local fund to international fund whenever we see the need. For example, Malaysia was confronted with many issues for about four years in the past (Chart A). Avoiding the Malaysia market would have saved a lot of unnecessary headaches then. While on the international front such as China, the US or Australia have been blooming. When we shifted our investment focus on the international markets, our capital can continue to enjoy steady growth.
There are many types of international funds; some of them come as single countries involving higher risk but the higher potential for profit growth at the same time. It’s all depends on our understanding of that single country economic condition. If we see the right opportunity and dive in, we can enjoy a certain rate of profit return.
For example, when Modi became the Prime Minister of India, he initiated a lot of evolutionary economic changes in the country, including curbing corruption issues. He led the demonization exercise of the India currency to fight corruption in November 2016. India stock indices reacted and had a steep decline. When the right moment arrived, I dive in using Manulife Investment India Equity Fund on January 31, 2017. And I saw the India indices rose steadily for several months. Finally, I withdrew my fund by August 8th, 2017 with a profit of 21.75%.
It was just the right time to quit the India market. If I were to remain invested, I would have wasted my precious three years without any significant profit (Chart B). I did the same with the Indonesia market with a single country fund and collected a handsome return when their new President opened up their country for foreign investment.
For the current market condition in the global scenario, the US market remains a single country where we can consider investing our capital for the time being. I believe the US economy is the only country right now can be considered strong and bullishly reliable. Though there might be possibly some weaknesses ahead of time, the Fed is there ready to cut rate to support the US economy if it deems necessary. Funds are such as Manulife Investment US Equity Fund or RHB- GS US Equity Fund worth our consideration. Investing through these funds, you will have a share of investing in some big names such as Apple, Google, Facebook, Microsoft, etc in the US markets.
Multiple Country Exposures
However, there are times when you are not sure whether a single country will hold steady profit for you throughout a certain period, you may consider funds with multiple countries exposure to lessen your risk exposure.
For the developed Western countries, you would have the CIMB Principal Global Titans Fund (a mix of European and US markets) for you to be involved. For China, you will have Greater China funds (a mix of China, Taiwan, and Hong Kong markets). Whereas for Asia countries, you will have many selections such as Asia ex-Japan, Asia Pacific, etc. By then, you would have to make use of the fund selection tool for screening. The top winner would usually be the best choice for your selection decision.
In selecting fund investing in a mixture of multiple countries, you may lower the risk of a single country if it is not doing as well as what you have expected; however, you may also lower the rate of your return at the same time if the intended country you are interested to invest happen to perform better than the others in the mix.
One last precaution before I close this article while sorting out the best fund in a certain country or regional mix through fund selection tool, you should not focus on its past performance to predict its future return for you.
For example, a fund that has a 30% return in 1 year for the past, you should not expect that particular fund will give you a 30% return on your investment after you stay with it for a year. In reality, when your time comes, it may be higher or lower. Because when we invest, we are investing in the future, not the past. In the same way, a bad return in the past might not be repeated as bad as well.
If China Fund A has a return of -10% in the past one year, for example, but the trade dispute with the US has been totally resolved and all previous tariff removed, then you can invest into China Fund A. Investing into China Fund A may give you a return of 30 or 50% more in a year later. The point here is that even if a fund dropped a negative return, it is still possibly a good fund. When the right time comes, you should go in. You enter a fund based on that particular market condition, not the fund’s current performance condition.
Past performances are only good for comparison purposes. For example, when you are seeking out China fund to invest when the right condition arrives, you found out China Fund A has a negative -10% in the past one-year performance, while China Fund B was -20% and China Fund C was -40%. Then of course China Fund A is a better choice. Past performances are only useful when you use it to compare with funds with a similar focus.
That’s why you often see the phrase “Past performances are not an indicator of future performances” in most of the fund writing. This, of course, is common sense but must be there to serve as a good warning, because there are still many investors do not know how to treat past performances, including seasoned investors.
After you have invested, you should not close your eye and plan to come back to see your investment after 10 years. Monitoring your investment just like the stock investment is what you need to do next. The only difference is that the monitoring effort for unit trust is quite simple and easy comparatively. Unit trust investment is also dealing with the stock market. Your profits or losses depend merely on market rise and fall. But we can instill a strategic edge to take advantage of all circumstances. I shall share more on this topic later on.
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.