To all sifus,

I am still new here and never posted on the thread before. I have some questions and clarifications regarding the 1Malaysia Fund and Amanah Saham Malaysia. I would be glad that some sifus here can help me clarify my doubts. I am still young (20 years only la so still a bit ignorant) so please enlighten me.

1. So, this 1Malaysia and Amanah Saham Malaysia is a fixed-price equity fund right? What does that means? Does it means that the price is fixed at RM1 forever? Even if we redeem our fund, the value we redeem is RM1?

2. If the price is fixed forever as in RM1 regardless of the investment performance, how does it make sure i.e. what type of investment strategy they take to make sure they don't lose their capital? For example, if our stock market drops 30%, the net assets value of the fund should also dropped around 30% depending on the portion of their portfolio on equities right? So, how they make sure that their net assets value does not drop? It sounds kinda impossible to me. So, any sifus here can clarify the strategy they employ? As far as I know, most capital protected fund run by private investment firm usually invest 90% of their portfolio in safe assets i.e a 10% per annum bond then the remaining 10% invested in high risk stuff like options and other derivatives so as to make sure the capital is protected in the end. Does PNB employ this strategy as well?

3. Do you all think that the information provided in the PNB annual report a bit too vague. I compared their annual report with other privately run unit trust. The annual report in ASM seems to be a bit vague compared to the private one. For example, it does not state their cost of purchase and the current market value of their investments. It just states the percentage of the fund is invested in a certain company. Do you think it is ok for PNB to be this vague in this report?



4. This is a clarification, the 1 Malaysia fund is bench marked against Malaysian Govt Securities(MGS)[It is like US T-Bills or can say it is our govt Bond ]. The MGS is yielding around 3.7% to 4% now. It is a benchmark. It means that it is a relative measure of performance for the fund manager. If they beat this benchmark, it means that they are successful in their investment. This does not means that the 1 Malaysia Fund will only yield 3.7-4%. As a matter of fact, the ASM that most people invest in, the benchmark is our KLIBOR which is about 2% but the ASM is still yielding 6-8%.

5. However, this leads to another question, does KLIBOR and MGS is the RIGHT benchmark to be used? For example, ASM invested around 60-80% of its NAV in local equities, shouldn't the performance be benchmarked against the Composite Index rather than KLIBOR and MGS? If our composite index is more apt, then why would they use the MGS and KLIBOR as benchmark? It is due to that it is rather easy to beat that benchmark? For example, to match KLIBOR, you just need to put your money in FD.

That's all for my long-winded queries, I hope all the sifus here can clarify my doubts.

This is a blogpost from one of the most prominent Malaysian Financial Blogger about AS1M ... It touch on the capital protected thingy and some question about the benchmark being used...

http://malaysiafinance.blogspot.com/2009/0...ysia-facts.html

4% is the current return of the benchmark which are Malaysian Govt Securities (MGS) not the return of the fund. ASM is bench mark against KLIBOR which yields 2% but ASM still pays out around 6-7%.

I think investor in both ASM and AS1M should be more curious about how they keep the fund as a fixed price fund even though they invested heavily in equities. If equities dropped 30%, the Net Asset Value(NAV) of the fund should decrease as well. So, how they keep it at RM1?

It is ok i guess if not much people redeem their investment. It would also be ok if they are people redeem and at the same time others are buying. The people who are buying is replenishing the money of those who pull out. But, what if, Malaysia suffer huge recession and equities dropped by 50%, so the fund NAV must also fall around 50%,and a lot of people who are jobless started to pull out their money? Some may say govt can repay back the money, but how the govt can get the money? Petronas paid RM 70 billion of to the govt this year. That is only 7 times the fund size of the AS1M and we haven't consider other fund yet which surely suffer the same problem of investor redemption. Govt can raise taxes to plug the hole, but in recession, the raising taxes will only makes the economy worse, so, it is an unlikely option for the govt to take. Do you think the govt will repay the investor first instead of using the money to stimulate the economy in a severe recession?

Anyway, this is the perfect storm or worst case scenario I am talking about la. The probability of that happening is low but it is possible. Think 1997.

I think part of the objective this huge fund launch this few months is to soak up some huge MGS that are being issued by the govt to fund the budget deficit. It is to make sure the govt borrowing cost remains low.

But that is my views la..Enlighten me if I am wrong..I am just a student

Yup, there are as big as you can get in Malaysia. But, does their profit they make is reinvested into equities or they are able to hold on to it in cash? Or do they have a minimum portion of their portfolio to be in equities as per prospectus? It would be better if they can hold on to cash because during the falling market, in order to pay the dividend and to cope with the increase in redemption ( it is unavoidable during recession), they need to sell, but due to their huge size, if they sell, they have a huge effect on the market which in turn lose money on their remaining investment in equities. It is like a catch-22 situation..

Thx cherroy for the info..I now have a better understanding on how it is run.

Here is another blogpost that are explaining the PNB strategy quite well. Explaining why they can fixed the price at RM1. http://malaysiafinance.blogspot.com/2009/0...tegy-ahead.html