157) How to Compare Funds Performance

157) How to Compare Unit Trust Funds Performance?

A question when unit trust investors start to compare Unit Trust funds performance.
How to compare different funds performance? Especially when the funds are from different companies.

It will be good if you get the details of the funds and compare them. Having a general statement about one fund is better than another can be very misleading and unfair.

Basically, you need to compare Apple to Apple. 
Comparing the performance from the same type of funds.

Here's a list of factors to consider:

a) Fund Performance
This is the most obvious. Most people will compare and look for the highest return percentage.

b) Asset Types
The funds should be in the same asset types. You compare equity with equity, bond with bond and money market with money market. It is not fair to compare the performance of an equity fund with a bond fund because they belong to different asset types.

Comparing Investment with Fixed Deposit returns is also not proper. Fixed deposit is considered as savings.
Equity, Balanced, Mixed Asset or Tactical Allocation funds have different percentage range of asset types.

i) Equity fund will have about 75% to 98% into equity.
ii) Balanced fund will have about 40% to 60% into equity.
iii) Mixed Asset fund will have about 30% to 70% into equity.
iii) Tactical Allocation fund will have about 30% to 98% into equity.
iv) Bond fund will have 0% into equity.

c) Risk Level
You may have already  know about the saying, "Higher Return, Higher Risk" 
Risk are measured by the price volatility.
Equity funds have higher volatility compared to bond funds.
Growth funds have higher volatility than Dividend funds.
Foreign funds have higher volatility than Local funds. This is because there are additional country risk and currency risk.
When the currency exchange rate is volatile, the foreign funds performance will be even more volatile.

d) Local & Foreign Exposure
Local funds invest mostly in this country. Funds with foreign exposure have a certain permitted percentage to invest into other countries. For example, up to 30% can be invested into foreign countries. Those with 100% local can only invest in this country.

e) Foreign Country
A foreign fund invests mostly into that country's stocks. For example, a China fund invests into stocks listed in China and China based companies listed overseas.


f) Funds Classification or Category
The funds to compare must be in the same Classification or Category. Those funds in the same classification or category are grouped together. They have similar market capitalization and countries.

One of the easiest way is to compare funds in the same Lipper Classification or Morningstar Category.
The rating agencies already done the grouping and have their own ratings published in their own website. Their results are also published by the UTMC's own Quarterly and Monthly reports.

g) Same Period
The comparison is also to be based on the same period. Market performed differently in different years. For example, the stock market crashed in 2008. It is not fair to compare fund performance in 2007 vs 2008.

Yearly returns (1 Jan to 31 Dec) are commonly used for comparisons. All UTMCs will publish their funds yearly returns.

h) Longer Time
Better to compare a longer period (many years) instead of only 1 year. Funds that only performed very well in 1 year is not consistent. You need to look at consistently good performance over many years. Most of the financial goals are over a long period.
Investment is a marathon, not a 100m sprint race.

i) Same Terms
Be aware of the different definitions of returns. Know the differences between:
i) Annual Return
ii) Total Return
iii) Average Total Return
iv) Annualized Return

j) Other benefits
There may be other extra benefits given to the investors, such as:
i) Free insurance
ii) Optional Group insurance
iii) Will writing, Wasiat, Hibah, Trust Nominations
iv) Gold membership
 
k) Other Considerations
i) UTC's service level and knowledge
ii) Company branches locations
iii) Company reputations

Fund performance is only 1 of the comparison factors. Do look at the details of the funds for a more proper comparison.

You can use the factors listed above to compare and decide which funds are the best for you.