22 January 2015

The Performance of Unit Trusts in 2014 and an Important Problem with Unit Trusts

The performance of Unit Trust Funds in 2014 offer some interesting insights.

The Best and the Worst

The Top 10 performing funds returned in the region of 49% to 67% (rounded). The Bottom 10 funds on the other hand returned -28% to -44%.

The Top 10 performing sectors returned 21% to 45%, while the Bottom 10 sectors returned -9% to -43%.

The risk-reward seems to be favourable for the investor, but clearly, the risks are also high.


The infamous Brazil, Russia, India, China quartet was all the range a few years ago and gave rise to the acronym BRIC. So how did these infamous 4 performed in 2015?

Well, China and India appeared among the Top 10 best sectors. Russia and Brazil in the Bottom 10! The score was 2-2. Looks like a draw.

Diversification across markets and sectors seem like a smart thing to do to manage risks. We are after all not clairvoyant.

About Unit Trust and the Problem With It

Unit Trust was one of my first forays into investing. I am ignoring all those insurance related things that I got into much earlier of course. Its liquidity, to be able to buy and sell at anytime, remains attractive. ETF is another alternative.

One of the strategies that I adopted in the early days was to buy a fund in sectors that were going through major trauma. Being a contrarian, I was doing so to 'bottom-fish'. Unfortunately, there is a VERY VERY SERIOUS problem with Unit Trust funds when you try to do this.

What happens is that because market sentiments is so bad, everybody is exiting from the fund. It reaches a point where the fund size becomes very small. When that happens, the Expense Ratio of the fund becomes magnified and hence unattractive. The fund manager isn't going to be too incentivised to manage a small fund as his cut becomes small.

In addition, the market like it or not, tends to chase after funds that seem to be performing well rather than those in the red. So, it suffers from a sense of negativity and low take-up thereafter. Given the misalignment of interests, the fund manager is going to close such funds. When we look at the current list of funds, the picture is therefore actually rosier than reality because of survivorship.

Alas, as the investor, I am trying to bottom fish, but only to see the fund closing instead! Not only do I not get to ride its recovery, more salt is rubbed in the wound as I also suffered from expenses when buying the fund. The fund manager loses nothing, but I'm losing both ways. All the risks lie with the investor.

After a few episodes of this, I pretty much wised up to this fact. Nothing illegal on the part of the fund manager, but I view these companies as highly unethical bloodsuckers who only look after their self-interest. Stayed away from these companies thereafter. Shoo. Best to go with funds that have a long history. And by long, I mean 5, or better yet 10+ years of existence.

Caveat emptor (buyers beware) as they always say.


Singapore Man of Leisure said...


Thanks for sharing your experiences with unit trusts.

They are OK if we take a 3-5 years time horizon. To take advantage of a correction and sell when mean revision reverts ;)

For shorter time frames, I prefer ETFs.

Try exploring the US ETFs. It's a giant candy store and the problem now is which ETF to buy!?


Lizardo said...

Hi SMoL,

Unit Trust hasn't exactly been bad for me. It is actually giving me much better returns on those using CPF-OA compared to the 2.5% otherwise.

US ETFs are a dime a dozen. Is there anything we can actually do about the 30% withholding tax? Seems to an expense.

Singapore Man of Leisure said...


1. I just forget about the dividends when trading US ETFs - I go for plain vanilla capital gains ;)

My time frame is usually 3 to 18 months for trading ETFs.

2. Ah! Good for you on beating the CPF OA 2.5% hurdle rate ;)

Yup, due to limitations in CPF OA rules, I too am "forced" to use unit trusts when the right opportunity appears.

Different vehicles for different seasons.

I am a speculation man-whore. I have no loyalty to any one vehicle.

Can make money I'll call you daddy!


Lizardo said...


Ambivalence! So long as its money making.