THE recent declaration of a record-low dividend yield of 4.25 sen per unit for Amanah Saham Bumiputera (ASB) (excluding the 0.75 sen Ehsan income for the first 30,000 units of ASB) has cast a dark cloud over prospects of other funds under the Permodalan Nasional Bhd (PNB) stable.
This is especially if the pandemic-stricken economic environment could serve as a harbinger of a similar pattern repeating for its public-wide unit trust funds, namely Amanah Saham Wawasan 2020 (ASW 2020), Amanah Saham Malaysia (ASM), Amanah Saham Didik (ASD) and Amanah Saham 1Malaysia.
Below are some realities that unit trust holders have to factor in:
Low interest rates don’t really mean that dividend would be low: This very much depends on the funds’ asset allocation strategy (ie for pension fund, the weightage is higher (> 50%) on fixed income assets while for equity fund, the public equity percentage is higher (>70%).
In general, with fixed income at lower return rate (but less risky), one can foretell that return will be lower amid the low interest rate environment.
But don’t rule out the fixed income market because foreign investors could see an arbitrage opportunity by taking debt (at much lower interest rate in their home country) and then investing into the fixed income market here.
Rebound in equity market: And monies post profit taking in the equity market could find shelter in fixed income assets. When talking about return, there are two parts to it – notably income return from the coupon payments and rise in asset prices.
Once both factors are set in motion, we could potentially see a rise in the latter from capital gain stemming from an increase in demand for fixed income assets.
The Employees Provident Fund (EPF) benefitted from this in 2019 along with a rise in the gains from its overseas investments.
Not all sectors gain: For fixed price unit trusts, the recovery of the equity market especially in the past few months have certainly be a boon, but a point to note is that despite the FBM KLCI having risen 3.08% year-to-date (YTD), only a handful of sectors have recorded gains.
Only healthcare (+190% YTD from the rise in mainly glove stocks), technology (+79% YTD from the recovery of exports of electrical & electronic (E&E)/semiconductor sub-sectors) and industrial products (+15% YTD from recovering oil price) have thus far seen light at the end of the tunnel.
Recovery of financial sector (currently -1.02% YTD) is a good omen but concerns still loom on the post-moratorium impact, notably whether the prolonged conditional movement control order (CMCO) would pile pressure on asset quality with the likelihood of further extension of the moratorium amid a spike in the rate of COVID-19 infection worldwide.
And how these would impact demand of exports particularly commodities (oil and palm oil). The energy index is still hovering -29% YTD and plantation index -4.3% YTD.
Business activities in new normal: Another concern is that while the economy recovers, would things return to normal? The dwindling income factor that stems from pay cuts or job lost would mean diminishing spending power which ultimately translates into lesser earnings potential of many sectors in the domestic equity market.
While sectors providing stable dividends such as telco (-3.2% YTD) and utilities (-1.7% YTD) should see recovery with people continuing to work from home as a result of the CMCO extension or restart/increase in manufacturing activities, there are others like the real estate sector that remains in the doldrums due to the lingering soft market.
The usual complaints from many industries, especially the plantation sector, is that they cannot find locals to work as harvesters – thus the high dependency on foreign workers – is something that could mean things will never really return to pre-pandemic level.
Skill of fund managers: Despite the limitations on the domestic front, the very fact that with funds like EPF and PNB making forays overseas – and reaping great returns – can potentially benefit the fixed income market.
Moreover, there are still opportunities for both entities to generate acceptable returns to the members and unit holders.
Notwithstanding the above, certainly the skills – or agility – of fund managers will be put to test again in 2021. And as we have seen in 2020, fundamentals aside, there is a need to consider sentiment in investment decision making process.
Knowing when to take profit, ability to cut losses and going back to basics of investments are as crucial given financial markets will likely remain volatile in the near term. – Dec 30, 2020
