Published August 17, 2011
Analyst says it's difficult to justify a passive stance in current conditions
By GENEVIEVE CUA
BUY and hold investing is increasingly 'untenable' in today's volatile environment, says Lipper senior research analyst (Asean) Rajeev Baddepudi.
In a briefing on the second quarter performance of funds in the CPF Investment Scheme, he said a buy-and-hold approach may have been rewarding more than 10 years ago. But that is not the case today.
'Between 1999 and 2011, in any three-year period there is a likelihood of (a fund) dropping in value to where it started . . .
'What will assist in a long term strategy is to focus on choosing the right fund to diversify with and generate absolute returns.'
He added: 'It's not about long term or short term (holding period) but about passive or active. It's difficult to justify a passive approach in the current market conditions.'
In the six months to end-June, CPFIS-included funds overall lost 1.89 per cent on average.
Bond funds generated the highest return of 1.83 per cent; equity funds lost 2.94 per cent. Mixed asset funds recorded a marginal loss of 0.78 per cent.
Over 12 months, the average return of a CPFIS-included fund was 7.74 per cent, and 2.4 per cent over 36 months.
In a statement, Lipper said its analysts were 'cautiously positive' about the second half.
Mr Baddepudi advocates the use of 'Lipper Leader' ratings in the choice of funds.
This method of rating ranks funds against their peer group based on four metrics - total return, consistent return, capital preservation and expense.
The ratings are subject to change every month, and are not predictive of future performance. According to Lipper literature, the ratings 'do provide context and perspective for making knowledgeable fund decisions'.
Based on some 310 funds in the CPFIS menu, for instance, 27 funds are both Lipper Leaders in terms of preservation and consistent return over a three year period. Only one fund is Lipper Leader in all four metrics. This is the APS Alpha fund.
Based on a three-year period, the top unit trust sectors in terms of their information ratio - a measure risk adjusted return - are equity (Asia Pacific) small and mid cap funds, Malaysian equity and Singapore equity.
Among ILPs, the top sectors are Singapore equity, information technology funds, and European equity.
Meanwhile, preliminary data on fund flows shows a net inflow of just under $2 billion into funds here in the first half. Most of the inflow has gone into bond funds.
This is not surprising as the second quarter saw a spike in risk aversion, with investors preferring safe haven assets.
The Citigroup World Government Bond Index rose 3.32 per cent in the quarter and the Citigroup High Yield Market Index gained 0.93 per cent.
Lipper analysts say the outlook for the second half is 'cautiously positive'.
Investors are waiting to see how key economic indicators and events unfold. These include the events concerning the Eurozone debt crisis, and the policy debate over inflation versus growth in growing economies.
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