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Friday, 24 October 2008

Unit trusts lose over 20%

THE financial markets maelstrom has turned retirees such as Mr T.P. Wong, 57, into a 'bundle of nerves'.

He is sitting on paper losses of about $20,000 so far this year - even though he has avoided investing in the stock market directly. He had invested in eight unit trusts, thinking that they are safer than stocks because they are diversified and managed professionally.

The returns of his unit trusts, which include one in Vietnam, another in United States stocks and a technology fund, have ranged from negative 7 per cent to negative 26 per cent in the nine months to Sept 30.

'I sold off part of my unit trusts at a loss, but decided to hold the rest as it was too painful to swallow more losses,' he said ruefully.

Mr Wong is among investors who have been hit by a drop of well over 20 per cent in returns of unit trusts invested in equity and commodity markets during recent weeks.

Not surprisingly, funds sold here have also seen redemptions spike while sales dry up as investors flee from market turbulence to the safety of cash.

With the US market tumbling well over 20 per cent and Asia ex-Japan markets suffering falls of over 45 per cent in the year to date, the red ink is flowing deeper than during the Sars period.

Equity funds' performances have generally dropped less precipitously than those of stocks as they are diversified and managed by professionals.

Nevertheless, panicky investors have still been pulling money out of funds, note unit trust distributors and banks.

They declined to comment on the magnitude of redemptions in recent weeks but one bank executive said they were 'the highest he had seen since the Sars period', while sales are 'practically zero'.

Investors in funds approved under the Central Provident Fund Investment Scheme (CPFIS) have also been hit. These funds had returns of negative 11 per cent last month.

They 'were one of the lowest-performing products to date, with all component groups experiencing negative returns', said Mr Suthee Luangaramkul, a Lipper analyst, in a recent report.

CPFIS bond funds on average saw a negative 1 per cent return, while equity funds were in the red by 13.52 per cent.

Investors have flocked to cash while waiting for good equity opportunities. So the best-performing funds this year for distributors like Fundsupermart have been money market ones.

Still, daring investors are starting to dip their toes into certain funds with exposure to some emerging markets where shares have plunged steeply enough for analysts to call valuations attractive.

Just last week, Franklin Templeton Singapore launched three funds, including one invested in emerging or 'frontier markets' and another focusing on small Asian companies.

Mr Ernest Low, head of fund analytics at Providend, an independent investment manager in Singapore, advised investors to stay invested for the longer term, noting that 'this is the worst time to consider redeeming'.

Indeed, retired human resource professional Peter Wong, 67, has decided not to withdraw his money from unit trusts and stocks despite the 30 per cent paper losses that he has suffered so far.

He views them as long-term investments: 'What goes down must come up. I won't withdraw unless I need the money urgently. I still have some liquid cash,' he said. 'I'm not so worried unless it stretches to eight or 10 years. For one to two years, I think I have enough spare cash to tide me over.'

Mr Low noted that it is actually 'time to get back into equities because markets tend to move upwards earlier than economic growth'.

'We personally prefer to start buying again,' he said, adding that US equities looked attractive as 'the economy has been the first to soften and is likely to be first to rise', while the US dollar may strengthen in future.

He warned against buying global fixed income like US Treasuries and Euro bonds now as they are very expensive. He also advised investors to spread out their new investments to take advantage of value cost averaging, buying more of those that have fallen more in price and less of those whose prices have not fallen as much.

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