Top Equity Fund 2012: Funds with dividend-paying equities won the race

Chart shows returns distributions for equity funds in 2012

MOST of the equity markets delivered fairly good returns in 2012, led by Asia ex-Japan markets, allowing almost all the equity funds on our platform to deliver positive returns for the year. Out of the 128 equity funds on our platform, 117 (91.4 per cent) recorded positive returns in 2012 while the rest (11 funds) were in the red in 2012. As shown in Chart 1, most of these equity funds delivered returns ranging from 8.01 to 17.90 per cent in 2012.

We now take a closer look at some of the performing equity funds and identify some of the key reasons for the outperformance and underperformance for each fund.

To shelter against the market uncertainties and volatility, investors have opted to focus on dividend-paying equities, driving these equities to outshine others in 2012.

OSK-UOB Asian Real Estate Fund (increase by 40.7 per cent)

OSK-UOB Asian Real Estate Fund, a fund that invests in the Asian property development companies and companies investing in REITs, delivered hefty returns of 40.7 per cent in 2012. As of November 30, 2012, the fund held 76.4 per cent of the portfolio in property companies sectors and 8.9 per cent in REITs.

In terms of country allocation, the fund had a 70.1 per cent allocation to Hong Kong and 17.4 per cent to Singapore. The exposure to the property sectors of Hong Kong and Singapore was the main reason for the fund’s strong performance as the low interest rate environment and capital inflows spurred by quantitative easing measures pushed the prices of property developers in these countries higher.

As represented by the Hang Seng Property Index and FTSE Straits Times Real Estate Holding & Development Index, property stocks in Hong Kong and Singapore reaped returns of 41.5 per cent and 59.9 per cent in 2012 respectively (including dividends and in local currency terms).

Hwang Select Dividend Fund (increase by 28 per cent)

The Hwang Select Dividend Fund, a fund that intends to invest in high dividend yielding equities (with a minimum investment of 70 per cent of the fund to be focused in Malaysia and the remaining 30 per cent in the Asia Pacific region), delivered a 28.0 per cent return in 2012.

The fund has consistently outperformed its benchmark (70 per cent FTSE Bursa Malaysia Top 100 Index and 30 per cent Dow Jones Asia Pacific Select Dividend 30 Index) since February 2012.

Some of the fund’s top holdings that contributed to the strong returns include KLCC Property Holdings Bhd and Hong Leong Bank Bhd, which returned 107.4 per cent and 39.3 per cent respectively in 2012 (including dividends and in local currency terms).

We have observed that the fund has demonstrated a higher resiliency as compared with its benchmark. One way the managers have reduced the downside risk and volatility of the fund is to trim the foreign equity exposure and raise the cash level.

The fund would thus be suitable for investors who are fans of the manager’s astute stock-picking skills and want exposure to the higher-dividend segment of the Asian stock market with a focus on Malaysian equities.

AmAsia Pacific REITs (increase by 26.5 per cent)

Aided by the strong performance of REITs in Australia and Singapore in 2012 which reaped 32.9 per cent and 46.1 per cent returns in 2012 respectively (as represented by S&P/ASX 200 A-REIT Index and FTSE Straits Times Real Estate Investment Trust Index, including dividends and in local currency terms), AmAsia Pacifc REITs, a fund that primarily invests in REITs listed in Asia Pacific region, delivered a 26.5 per cent return in 2012.

However, as compared with its benchmark, the Bloomberg Asia REITs Index, the fund underperformed that the benchmark’s 30.4 per cent return in 2012.

Moving forward, the fund manager continues to see growth in the REITs in Singapore, Hong Kong and Thailand, while Japan and Australia are viewed as defensive markets.

Hwang Select Asia (ex Japan) Opportunity Fund (increase by 23.9 per cent)

The Hwang Select Asia (ex Japan) Opportunity Fund (formerly known as Hwang Global Opportunities Fund), which invests in equities in the Asia ex-Japan markets, delivered a 23.9 per cent return in 2012.

The fund changed its investment objective effective from June 15, 2012.

Prior to that, the fund invested in equities of global developed and leading emerging markets. The strong performance of the fund may be attributed to its country and sector allocation.

As of November 30, 2012, the fund invested 46.6 per cent of its assets in Hong Kong, Singapore and Thailand, which were the top three performing markets in 2012.

Furthermore, the fund also invested 49.8 per cent in banking, consumer goods and services, and telecommunication sectors, which are sectors that generally pay generous dividend to investors and fared well in 2012 as investors were on the hunt for yield.

AMB Dividend Trust Fund (increase by 22.7 per cent)

AMB Dividend Trust Fund, a fund which invests primarily in high dividend yielding equities (a minimum of 70 per cent of the fund will be focused in Malaysia and maximum of 30 per cent in Asia ex-Japan markets), delivered a 22.7 per cent return in 2012.

Over 50 per cent of the fund was invested in dividend yielding equities such as banking, telecommunication, consumer and REITs, sectors which contributed to the fund’s outperformance in 2012.

As of November 30, 2012, the cash level of the fund remained at 21 per cent, which could explain why the fund tended to hold up well during periods of market uncertainty.

2012 Turning out to be a good year, employ a portfolio approach

With most equity funds having delivered strong returns in 2012, we would caution investors against ‘chasing’ the funds with the hottest returns, but would instead encourage investors to look at the underlying fundamentals of the markets which the fund invests in.

Given the current attractive valuations of most equity markets, along with the low-yield environment which has characterised fixed income markets over the last couple of years, we continue to favour equities as a longer-term growth driver of investment returns.

We advocate investors employ a portfolio approach to investing. With a diversified portfolio of equity and fixed income funds, investors stand to benefit from the upside of equity markets, while also having some defensive assets like safer fixed income funds to buffer downside risks.

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