Top Post Views

3: Malaysia REITs - Looking For My 2nd Durian Runtuh
4: Is Insurance Really Necessary?
5: Everyone Must be A Millionaire

Head to the watch list on the above tab to see my what's on my radar and foreseeable future postings =)

Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Tuesday, February 23, 2016

Aboi's Updates For Malaysian Bond Mutual Funds for 1H'2016

What were the returns of my choices in 2H'2015? AmDynamicBond (4.69%), PB Islamic Bond (4.42%), AMB Dana Arif (4.61%), Affin Hwang Select Bond (5.38%). These are inline with my expectation of 4%-6% returns per annum. Every bond fund provided a return which is more than a fixed deposit account (with the rate you can get a year ago which should be ~3.50%)

Bonds
TER is the total expense ratio, a measure of total cost (purchase, redemption, auditing, management fees) of a fund to the investor. The lower the better.
Commentary
[1] The top three fund choices are difficult for their performance are almost the same. Furthermore the TER ratios are good and close that it's negligible.
[2] As such I'm ranking them based on their long term track record in which AmDynamic wins hand down. Overall Morningstar ratings for three of them are 5, 4 and 3 in that order.
[3] For outside exposure, Affin Hwang Select Bond remains top choice.
[4] As of this writing, I own AmDynamic Bond Fund (+12.02%, 2.4 years holding periodand plan to add more.
[5] I will also inject some cash into Affin Hwang Select Bond Fund (Asia Bond) as part of diversification outside of Malaysia.

Red: Fund, Orange: Category, Green: Index 

I still cannot stomach to recommend AMB Income Trust yet nor Eastspring Investment Trust. A fund that leap frogs in ranking quickly may suggest that it is involved in high risk high return choices. It is of my opinion that a bond fund should be the least risky asset class (vs Mixed Assets & Equities type) and as such should strive for a balanced, consistent and sustainable returns. A good bond fund should give a higher return than that of a fixed deposit account but not at the expense of a lot more risk.

Take a look at what I meant by 'extraordinary results' which by my experience is associated to more risk taking in search of higher returns. The question is, what if those high risk takes don't turn out well?

*In my 2H'2015's update I did say that AMB and RHB-OSK returns should be more normalized and expected yearly returns of a typical good bond fund. Indeed the 1-year return is about 6.37% and 7.08%.

Examine the 'Extraordinary' returns for a Bond fund. Both these funds have very high Std Deviation values (5.13%, 4.09% and 3.48% respectively). AMB Income Trust is more favourable due to a far better Sharpe ratio of 1.47, Eastspring's 0.66 and RHB-OSK's 1.17.

The more consistent performers under the Bond umbrella. (Std deviation values from left to right: 2.33%, 1.33%, 1.19% and 2.47% only) with Sharpe ratio of nearly 1 except AmDynamic at 0.33. (due to massive redemption and reopening of subscription in 3Q2013)
Source: MorningStar - Rating & Risks section for respective fund
I will use a better risk-adjusted returns measure using the five principles of risk measures; alpha, beta, r-squared, std deviation and Sharpe ratio. I will just explain what they represent rather than showing hefty equations.

Alpha: A +ve of 1.0 means the fund has outperform its benchmark index by 1.0%. The opposite goes for -ve.
Beta: A +ve of 1.2 means the fund is 20% more volatile than the index. The higher the beta suggest it offers the possibility of higher returns but also posing more risk. The opposite goes for -ve. 
R-squared: A higher R-squared will indicate a more useful beta value (85 to 100) aka good correlation. A low R-squared value means you should ignore the beta. It's a measure on well the fund is measured against an appropriate benchmark.
Standard deviationA large dispersion tells us how much the return on the fund is deviating from the expected normal returns.
Sharpe Ratio: The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. It describes how much excess return you get for extra volatility you endure in holding riskier asset.

Though the Sharpe Ratio value for AMB Income Trust & RHB-OSK Islamic Bond looks solid it is difficult for me to swallow such deviation. if you look at their 10 year history they look a bit more shaky. Until these values go down to a more reasonable level I will shy away no matter how 'extraordinary' the short term returns are. It's all about managing risk.


Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

No comments:

Post a Comment