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Are Malaysian funds underperforming?

March 29, 2011 Leave a comment

On my recent visit to Malaysia, I spoke to ordinary Malaysians and asked them how they invest their cash savings. Most complained of the poor performance of Malaysian mutual funds. With the KLCI and emerging market equities on a bull run (off the back of a financial recovery), I was interested in finding out why…

Aside from the three big boys – EPF (Employees Provident Fund), Khazanah (Malaysia’s Sovereign Wealth Fund) and PNB (unit trust operator and largest Malaysian fund) – the typical Malaysian fund size is about RM150 million (USD $50 m), which means there’s no economies of scale, market-moving power or real diversification. Most are under-subscribed. Individual fund managers handle up to 10 funds each, so there’s little to really differentiate each fund’s asset allocation or investment style. There are also some potential ethical conflicts, as most of the bigger fund management companies are owned by local banking groups – guess the biggest equity holdings in their portfolios?

There are nearly 600 mutual funds on the retail market, for an adult population of 11 million with maybe only about two million who actually have the discretionary saving power to invest. I’m not surprised people are finding returns disappointing. The problem is there are few alternatives – bank deposit rates are just 50bp above inflation.

*Hishamh contributed to this post. Hishamh is an applied and practicing economist in the Malaysian financial sector.

 

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