229) Why My Investment Returns Different From Fund's Performance Report?

229) Why My Investment Returns Are Different From The Fund's Performance Report?

You have read and seen the Unit Trust Fund Performance Reports. You are impressed with the returns. However, when you check with your actual investment, the returns are different.

You may start to wonder why there are differences? Is the report accurate?

These are common questions from Unit Trust investors.

Here are possible reasons why there are differences.

1) Different Dates.
The Fund Performance Graph & Report are based on lump sum investment on the specific first and end dates.

For example, if you are reading the 2019 Quarter 1 report, the 3-year Total Return is based on the last 3 years performance up to the Report date. If the report is dated 29 Mar 2019, it may show the report of the fund performance from 30 Mar 2016 to 29 Mar 2019. There may be slightly different dates due to weekends are non business days.

Your investment dates may be different from those 2 dates. Even 1 day difference will have an impact on the total returns. The stock market may have experienced a change of 1% to 2% in a day.

2) Invest multiple times.
As the report is based on 1 lump sum, the fund performance report will be different from your actual fund's performance. As most investors do regular Unit Trust investments, the different times and periods will affect differently on the Total Returns.

3) Withdrawals and Reinvestments.
Your redemptions and investments have affected your funds performance differently. The different transactions on different dates will have different prices and units.

4) Switching between different funds.
Switching of funds involves selling out of one fund and buying into another fund. The investment values are calculated based on different funds.

5) Initial Service Charge
For unit trust investments, investors are charged an Initial Service Charge. If the fund is charging 5%, then your actual investment amount is the amount paid less the charges.

For example, you invested $10,000 into a fund with 5% Service Charge.

Actual Investment (or also known as Working Money)
= Amount Paid / (1 + Service Charge)
= 10,000/(1 + 0.05)
= 9,523.81

Only $9523,81 is used to invest.
Your fund future value is based on the actual investment amount.

What is the actual value if the fund grows 10% over the next 1 year?

The actual future value is:

FV = PV(1+i)^n
      = 9,523.81 (1 + 10%)^1
      = 9,523.81 (1.10)
      = 10,476.19

It is not,
FV = 10,000 (1+10%)
      = 11,000

The Initial Service Charge is only charged on the first day of the investment.

6) Distribution Payout
Paying out the distributions basically will also reduce the invested capital. When your investment value is reduced, the actual returns performance will also be lower. Distribution Reinvestment would not affect your investment performance.


There may be other reasons on the fund performance differences that is not listed here.

Please contact your Unit Trust Consultant for more details.


Links to other related articles:

143) Service Charge and Other Considerations in Unit Trust Investment.

https://highlevelrules.blogspot.com/2018/01/service-charge-and-other-considerations.html

106) Is Unit Trust Initial Service Charge really that HIGH?

https://highlevelrules.blogspot.com/2017/09/is-unit-trust-initial-service-charge.html

186) Does Unit Trust Fund Performance include Service Charge?

http://highlevelrules.blogspot.com/2018/07/does-fund-performance-include-service.html

133) Benefits of Distribution in Unit Trusts

http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html

228) Bond Coupon Rate & Maturity

If you have been reading about the Bond Fund pages in the Quarterly Reports, you will see percentage and  there are one or two years indicated after the bond issuer’s name. Have you wondered what the numbers mean?

Example 1: Sabah Development Bank Berhad – 5.50% / 2026

The number 5.50% indicates the yearly coupon rate.

The year 2026 indicates the bond maturity date.

This is a bond with plain structure. No callable feature.

Example 2: AmBank (Malaysia) Berhad – 5.20% /2022 / 2027

The year 2022 is the callable date. If the issuer don't call the callable bond (means repay the principal to investors) in 2022, then the issuer can have the option to call the bond after every 6 months during coupon payment date. The year 2027 will be the legal maturity where the issuer must pay back the principal to investors.

Example 3: CIMB Group Holdings Berhad – 5.80% / 2021 / 2116.

The year 2021 is the first call date. If the issuer don't call back the bond, they can call the bond back every 6 months during coupon payment time.

The year 2116 is a very long time from now. This is a perpetual bond structure, where the maturity date is after very long years like 2110, 2116, etc. There is still a maturity year indicated, just for system recording purposes.

When a bond investor see this kind of long maturity years, they know that this is a perpetual bond. It means a Bond without legal maturity dates.

Perpetual bonds normally gives a higher coupon rate. Although it is perpetual, the issuer normally call back the bond on the first call date.

Please contact your Unit Trust Consultant for more details.

Links to other related articles:

22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

222) Does Bond Fund Move Opposite to Equity Fund

https://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html
 

227) Why You Should Think Twice Before Selling Losing investments

227) Why You Should Think Twice Before Selling That Losing Unit Trust Funds

You had made your Unit Trust investment earlier. After you invested, the fund starts to lose money due to market down turn.

You waited for a while longer as you are hoping that the fund will start making money again. As you wait longer, the fund lost more money.

By now, you are already stressed with the losing investment. You are thinking whether to sell or not?

Before you decide to sell or not, do think again what was the objective of the investment.
Why did you invest into that fund?
What was the money reserved for?
Is it for retirement, education, house down payment, pilgrimage fund, etc.

Is the objective time frame achieved?
Is the investment still valid?
What are the market future potential?

If the objectives still valid and still within the investment time horizon, then you should hold on the investment.
Investments have their ups and downs. Remember the saying,
.
"Higher Risks, Higher Returns."

Nobody will give you a high return from low risks.
Everybody will expect a high return from high risks.

Many investors sold too early and only later to see the investments recover the losses and gain more.

When the investment is sold, the investor made losses and realised the losses. They will miss the upward recovery that is normal for a stock market.

They cannot stand the pressure of waiting and seeing their money keep losing more.

If the investment was made with the right objectives, the investor should stick to the objectives.
A strong investment that still has value will have the price recover.

"Price is What You Pay, Value is What You Get" ~ Warren Buffet

Be clear of the Price vs Value of your investments.

The simple idea of any investment or trade is to:
"Buy Low, Sell High"

Very simple to understand, but very difficult to follow.

Most people think they are investing, but in actual fact, they are trading.

Investors should know the time frame on how long to stay invested.
Traders should know the time to buy and sell.

If you find out the value of the investment and see the potential growth, then you are an investor.

If you keep monitoring the prices to find the lowest and highest, then you are a trader.

Be clear of what you are doing to the investments.


For more related articles:

Trader vs Investor
http://highlevelrules.blogspot.com/2018/07/trader-vs-investor.html


Time In vs Timing the Markethttp://highlevelrules.blogspot.com/2017/10/time-in-vs-timing-market_24.html


Price Top & Bottom Cyclehttp://highlevelrules.blogspot.com/2018/08/price-top-bottom-cycle.html
 

226) No Distribution? Did the Fund Make Money?

This is a popular question about Unit Trust investment.

The Unit Trust fund did not give any distribution.
Does this mean the fund is not making any profit?

The Unit Trust fund gave distribution even during a crashed market.
Does this mean the fund is making profit?

The Unit Trust fund gave a lower distribution than last year.
Does this mean the fund is making less profit?

Have you wondered about these questions?

Many people are confused between the term dividend and distribution in the Unit Trust context.
Unit Trust funds only give Distribution. Never give Dividend. 

Companies give dividend to their share/stock holders.

The main difference is the Distribution payment is from the Asset of your Unit Trust Units.
It means the payout amount will reduce the current Unit Price.

For example, the Unit Price is $1.00 and giving a distribution of $0.10.
The Unit Price will be $0.90 immediately after the distribution payment.

What if the same Fund did not give any distribution?
The Unit Price will still remain at $1.00.

It is the same like any other day between the distribution dates.

The Unit Trust fund price fluctuates according to all the investments market values.
If the current total value is higher than yesterday's total value, then the unit price will go higher.

Similarly, the reduction of the total values will reduce the unit price.

The Unit Trust fund give or not give any distribution is decided by the Fund Manager. It depends on the fund strategy, accumulated values, market conditions and future market outlook.

If the Fund Manager decides to keep all the investment value and want to invest as much as possible, they may not declare any distribution.

If the Fund Manager decides to reduce some of the investment value and not to invest all the amount, they may declare a distribution payment.

Normally, the Fund Manager will declare the distribution amount at the end of the Fund financial year's end. Although there are some funds that declare distributions twice a year. Some funds even declare distribution on monthly basis.

A fund that gives distribution can also be losing their total value during the market downturn.

For example, in 2018, the world stock market was affected by the US Federal Reserve increased the interest rates and the US - China trade war. Although most Equity funds lost value, many Equity funds still declared distributions.

As a summary, Distribution payment is not an indication of the fund's performance. 

Check the fund's actual performance by reading the Annual Report and Performance Graph. 

Distribution payment is more on the Fund Manager's fund management strategy.


For more information, please consult your Unit Trust Consultant.

More Related Articles:

253) Why My Unit Trust Fund Did Not Give Distribution?

http://highlevelrules.blogspot.com/2020/07/253-why-my-unit-trust-fund-did-not-give.html

250) Distribution Yield vs Total Return

https://highlevelrules.blogspot.com/2020/05/250-distribution-yield-vs-total-return.html

Click the link below to know the differences between Dividend vs Distribution.
http://highlevelrules.blogspot.com/2017/11/dividend-vs-distribution.html

Click the link below to know the Benefits of Distribution.
http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html

225) The Fund Price Dropped. Do You Lose Money?

Recently, there was an angry comment by a Unit Trust investor and published in a local newspaper. The Unit Trust investor was angry because his fund's Unit Price dropped. He had bought the Unit Trust fund in 1994 when the fund price was $1.24.

Currently, the Unit Trust fund price is around the range of $0.40 to $0.45. That is a drop of more than 60% since the day he started the investment.

Do you have similar experience? Even after 25 years (1994 to 2019), you lost 64% (1.24-0.45/1.24) of the fund price.

Does it really mean you lost 64%? 

Well, it depends on the fund you invested. For unit trust funds, most funds give out Distributions regularly.

If the investor had requested for Distribution Payout, then the investor should have received the distributions payment money on regular basis. It is part of the funds returns.

If the investor had requested for Distribution Reinvestment, then the investor should have received more Unit Trust units. New units were bought with the distributions money on regular basis.

To know the total investment value, you need to multiple the current number of units with the current unit price. The formula is a shown below:

Total Value = Number of Units X Unit Price

Refer to the Fund Performance graph above, comparing a Unit Trust Growth Fund vs FBM-KLCI since Jun 1994 to Jun 2019. The Growth fund gave a Total Return of 327% for 25 years. That is around 6% Annualized Return.

For FBM-KLCI, it only gave a Total Return of 65%. That is only around 2% Annualized Return.


In Conclusion, do check the Total Value of the investment to determine whether you gain or loss in the investment. Not only based on the fund price.

For more information, please consult your Unit Trust Consultant.

More related articles:

226) No Distribution? Did the Fund Make Money?

https://highlevelrules.blogspot.com/2019/06/226-no-distribution-did-fund-make-money.html

250) Distribution Yield vs Total Return

https://highlevelrules.blogspot.com/2020/05/250-distribution-yield-vs-total-return.html

132) Differences between Dividend vs Distribution.

http://highlevelrules.blogspot.com/2017/11/dividend-vs-distribution.html

133) Benefits of Distribution.
http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html

224) What To Do With Your Investment If You Think The Stock Market Is Going To Crash?

Some of you may think that the stock market is going to crash soon. So, what to do with your Unit Trust investment now?

Ideas for you to consider as listed below.

A) You had already Invested 

First, check what Unit Trust funds have you invested?

If you had invested into Bond or Money Market funds, the stock market crash will not affect much on your funds.

If you had invested into Equity funds, then the stock market crash will affect your Equity funds directly.

Second, which country are your funds invested into?
If your Equity funds are invested into the affected country, then your Equity funds will be affected directly. Do take note that the economies of the different countries affect one another. As USA and China are the 2 largest economies, their stock market crashes will affect the whole world stock markets.

If you had invested into Equity funds in the countries that are going to be affected, then you should switch out of equity to bond or money market funds.

Do not sell your equity funds as there will be Service Charge costs again when you invest back in again.

Use this idea only if you are very certain that the stock market is going to crash.

What if you are right, and the stock market crash?
You had saved your money. Congratulations on your right timing.

What if you are wrong, and the stock market did not crash?
You had lost the opportunities to make money when the stock market rally. Too bad.

B) You have not invested

If you have not invested, then the scenario below will happen.

If you think the stock market will crash, you would have been waiting for the crash to come.
For some of you, it may had been a long wait.

What if you are right, and the stock market crash shortly after?
You had saved your money. Congratulations on your right timing.

What if you are wrong, and the stock market did not crash?
You had lost the opportunities to make money when the stock market rally. Too bad. 
Next question to consider....

What do you do with your money while waiting for the right time?

You must have placed your money into the bank to earn some interest from Fixed Deposit or Savings Account.

If you had placed into the Savings Account, your interest would have been very little.
If you had placed into the Fixed Deposit Account, your interest is slightly better than the Savings Account.

However, currently in Malaysia, you will not get any interest if you redeem/withdraw your Fixed Deposit before its maturity.

For example, if you placed $10,000 for 12 months maturity, no interest will be given to you if you withdraw after 11 months. You will only get the $10,000 capital.
You have to wait for the full 12 months for you to get the $10,000 capital plus the interest.

If you have a large amount, you may place your Fixed Deposit into multiple amounts and maturity periods. This will allow you to withdraw any time and at least get some interests for those already matured earlier. However, you will need to monitor and manage the multiple accounts and maturities.

Now, you may ask another question.

Is there any better way:
1) Earn higher interest than Savings Account
2) Still gets interest even if withdraw any time before the maturity
3) Put all the money into 1 account for easy management
4) Do it online without going to different banks and queue.

You may want to consider putting your money into a Cash Deposit fund.

There are Unit Trust Cash Deposit funds that allow you to add and withdraw money any time like a Savings Account. The interest is accumulated daily and your money value will increase continuously almost every day.

You can earn interest even if you placed your money for 7 days. There is no maturity period. So, you can keep your money as long as you wish, and keep earning the interest daily.

How much can you earn interest in a day? Let's do the calculation.
If you have place $10,000 and get 3.65% interest per year, how much do you get a day?

$10,000 x 3.65% divide by 365 days = $1 per day.
You will see your Cash Deposit account gets higher around $1 every day.

After 1 year, your money will be more than $10,365.
This is because the earned interest gets higher and higher due to the compounding effect.

There are also some Cash  Deposit funds that give free Personal Accident Insurance.


For more information, please consult your Unit Trust Consultant.

Click the link below for more information on the differences between Money Market Fund vs Fixed Deposit.
http://highlevelrules.blogspot.com/2017/06/money-market-fund-vs-fixed-deposit.html