EPF-FIMM move on investments draws mixed response
Fund managers say there are pros and cons in limiting investment to funds with at least a three-year record
PETALING JAYA: The move to allow Employees Provident Fund (EPF) members to buy only funds with a track record of at least three years has drawn mixed reactions.
Effective August, funds with a less than a three-year performance track record as well as newly launched ones will not be sold to EPF contributors.
The new rulings also reinstated a previous move to allow EPF members to invest in funds with foreign exposure, but now with a limit of up to 30%.
The Federation of Investment Managers Malaysia (FIMM) recently said the reason to allow EPF members to invest in performing funds — those that have higher consistent returns for at least three years, was to strengthen trust and confidence in unit trust investment.
Efficient Frontier Capital Advisors Sdn Bhd executive director Munawir Mohammad said while he appreciated the rationale behind the three-year track performance ruling, he felt members might also lose out as good investment “windows” did not last that long.
He pointed out that this was especially true for “thematic” investments. Thematic investing is an approach that seeks to identify and capitalise on economic, political, and social trends that are likely to have significant implications on important sectors of the economy and financial markets.
Munawir added that the 30% limit was still low and that the EPF should consider admitting funds with higher foreign exposure as investment opportunities appeared under many themes and more often outside Malaysia.
From a risk management point of view, he said members’ investments should be looked at “in total” as EPF has its own internal mechanisms to safeguard contributors’ savings for old age. But Areca Capital Sdn Bhd CEO Danny Wong has described the EPF-FIMM move as a good one as the three-year performance time frame would help investors choose funds that perform consistently and eliminate those that underperform.
But he warns that the selection criteria may lead members to focus too much on the past performance of a fund which may not necessarily be indicative of future performance.
There are other factors to consider in choosing the right investments, such as risks profiling, time horizon, qualitative factor and others, according to Wong. He said he supported the 30% foreign exposure limit, adding that it reflected the cautious stance of EPF in not wanting its investors to be over exposed.
HwangDBS Investment Management Bhd chief investment officer David Ng feels the EPF’s and FIMM’s efforts in setting minimum qualification standards for funds provides a more thorough screen or control in terms of the type of products that can be offered to EPF contributors.
For the industry, Ng said it meant fund managers would have to improve their performance and maintain an acceptable and consistent standards, which were critical for funds meant for retirement. “I see this as the first level of screening where offerings are limited to a qualified few. The next step is to ensure investors are well-informed of what they are investing in and the incidences of mis-selling are minimised,’’ he said.
The Federation of Malaysian Consumers Association (Fomca) secretary-general Muhammad Sha’ani Abdullah said unit trust companies offering products to EPF members should offer guaranteed minimum returns higher than the current EPF dividends, and that members opting for returns from financial markets must be protected through the imposition of standard obligations on fund managers.
Consumer Association of Penang (CAP) president S.M. Mohamed Idris said the association was against EPF members investing in unit trusts as many did not understand the risks involved.
He said many “had been burnt” by investing their EPF savings in unit trusts and that they would have done better by leaving their retirement savings alone
BY DALJIT DHESI
daljit@thestar.com.my
PETALING JAYA: The move to allow Employees Provident Fund (EPF) members to buy only funds with a track record of at least three years has drawn mixed reactions.
Effective August, funds with a less than a three-year performance track record as well as newly launched ones will not be sold to EPF contributors.
The new rulings also reinstated a previous move to allow EPF members to invest in funds with foreign exposure, but now with a limit of up to 30%.
The Federation of Investment Managers Malaysia (FIMM) recently said the reason to allow EPF members to invest in performing funds — those that have higher consistent returns for at least three years, was to strengthen trust and confidence in unit trust investment.
Efficient Frontier Capital Advisors Sdn Bhd executive director Munawir Mohammad said while he appreciated the rationale behind the three-year track performance ruling, he felt members might also lose out as good investment “windows” did not last that long.
He pointed out that this was especially true for “thematic” investments. Thematic investing is an approach that seeks to identify and capitalise on economic, political, and social trends that are likely to have significant implications on important sectors of the economy and financial markets.
Munawir added that the 30% limit was still low and that the EPF should consider admitting funds with higher foreign exposure as investment opportunities appeared under many themes and more often outside Malaysia.
From a risk management point of view, he said members’ investments should be looked at “in total” as EPF has its own internal mechanisms to safeguard contributors’ savings for old age. But Areca Capital Sdn Bhd CEO Danny Wong has described the EPF-FIMM move as a good one as the three-year performance time frame would help investors choose funds that perform consistently and eliminate those that underperform.
But he warns that the selection criteria may lead members to focus too much on the past performance of a fund which may not necessarily be indicative of future performance.
There are other factors to consider in choosing the right investments, such as risks profiling, time horizon, qualitative factor and others, according to Wong. He said he supported the 30% foreign exposure limit, adding that it reflected the cautious stance of EPF in not wanting its investors to be over exposed.
HwangDBS Investment Management Bhd chief investment officer David Ng feels the EPF’s and FIMM’s efforts in setting minimum qualification standards for funds provides a more thorough screen or control in terms of the type of products that can be offered to EPF contributors.
For the industry, Ng said it meant fund managers would have to improve their performance and maintain an acceptable and consistent standards, which were critical for funds meant for retirement. “I see this as the first level of screening where offerings are limited to a qualified few. The next step is to ensure investors are well-informed of what they are investing in and the incidences of mis-selling are minimised,’’ he said.
The Federation of Malaysian Consumers Association (Fomca) secretary-general Muhammad Sha’ani Abdullah said unit trust companies offering products to EPF members should offer guaranteed minimum returns higher than the current EPF dividends, and that members opting for returns from financial markets must be protected through the imposition of standard obligations on fund managers.
Consumer Association of Penang (CAP) president S.M. Mohamed Idris said the association was against EPF members investing in unit trusts as many did not understand the risks involved.
He said many “had been burnt” by investing their EPF savings in unit trusts and that they would have done better by leaving their retirement savings alone
BY DALJIT DHESI
daljit@thestar.com.my
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