Wednesday September 9, 2009
Personal Investing - By ooi Kok Hwa
AS a result of the sharp stock market crashes in September and October last year, a lot of traditional unit trust funds suffered huge losses last year and early this year.
Even though the performance of those funds has recovered greatly over the past few months, the bad experience has caused some investors, especially those with low risk tolerance, to sell a big portion of their holdings as they felt very uncomfortable with the risks involved.
There are three main approaches in managing a portfolio, namely relative return, absolute return and total return approaches.
Most of the unit trust funds in the market use the relative return approach. Their key objective is to beat the stock market index.
For example, if we are buying normal equity unit trust funds, the key objective is to beat the benchmark index, FTSE Bursa Malaysia KL Composite Index (FBM KLCI).
As long as they are able to beat the FBM KLCI, they will claim that they have already outperformed the market.
For example, if the FBM KLCI plunged by 40% and their fund returns dropped by 30%, as their fund returns dipped less than the KLCI by 10% (40% - 30%), they would claim that their funds outperformed the market by 10% even though their funds still incurred a big loss of 30%.
Investors with low-risk tolerance level would feel very uncomfortable as they have suffered a loss of 30%! As a result, investors with high aversion to losses and fear about market uncertainties may prefer the absolute and total return approaches.
One of the key advantages of using these approaches is that they use cash return as the benchmark.
For example, they can use fixed deposit (FD) returns as the benchmark return. Given that FD cannot provide negative returns, fund managers using these approaches will have to generate positive returns to outperform the FD returns.
Normally, fund managers will set a target return above the cash return.
For example, they may set a target return of 5% above the 12-month FD return. If the 12-month FD return is 2.5%, they need to generate a return of 7.5% (5%+2.5%) each year.
Given that absolute and total return approaches do not need to benchmark against the stock market index, fund managers using these approaches will hold all cash whenever the market experiences big crashes whereas the relative return approach requires the funds to stay invested i.e. may be at least more than 50%.
This explains why traditional unit trust funds, which mainly uses the relative return approach, suffer big losses whenever the stock market crashes as they are required to keep investment at big percentages even though the stock market is heading south.
To them, the biggest risk is to underperform the benchmark index whereas the biggest risk faced by the absolute and total return approaches is losing the capital.
Apart from constantly looking for positive returns, the absolute and total return approaches may use derivative instruments to enhance their returns. They may buy futures to generate higher returns if they feel that the stock market sentiment is bullish and the overall market is on the uptrend.
Besides, they can adopt any investment strategy and invest in any asset classes or any markets to generate positive returns.
Hence, investors may invest in various types of assets, including some alternative investments like exchange-traded funds, commodities and properties or different overseas markets, like the United States, Hong Kong or Singapore.
As a result, the funds’ performance will have low correlation to the overall market movements.
The main difference between the absolute return and total return approaches is that the former may borrow money to invest whereas the latter does not allow gearing.
Besides, for those countries that allow short-selling, the absolute return approach may sell short the market.
Nevertheless, the key risk faced by both approaches is that they may underperform the overall market during a bull market.
Given that they do not have to benchmark to the stock market index, they may be under-invested during a bull market.
As a result, their returns will be lower compared with those traditional unit trusts that adopt the relative return approach.
In short, investors need to understand that investing funds using either the absolute and total return approaches or relative return approach involve risks.
Investors need to understand their own risk tolerance levels before investing in funds using the absolute and total return approaches because they may be investing in some investment instruments that they are not familiar with.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Wednesday, September 9, 2009
Gold price touches highest mark in 18 months, US$ down
Wednesday September 9, 2009 MYT 7:54:00 AM
NEW YORK: Gold pushed above the US$1,000 mark Tuesday for the first time since February as hopes for an improving economy fed a broader rally in commodities.
It had risen as high as $1,009.70, the first time it topped $1,000 since early this year and the highest level since mid-March last year.
Gold closed under $950 on Aug. 27.
December silver jumped 22.5 cents to $16.510 an ounce and hit a 13-month high of $16.860.
A weaker dollar also drove prices higher, analysts said.
The gains also came after the Group of 20 leading economies pledged at a weekend meeting in London to maintain higher levels of government spending and low interest rates to help the world's economies recover from recession.
Concerns that a recovery could spark inflationary pressures helped lift prices for gold, which investors often use as a hedge against inflation.
Gold for December delivery rose $3.10 to settle $999.80 an ounce on the New York Mercantile Exchange.
Copper, nickel and zinc also gained.
Benchmark crude rose more than $3 a barrel.
Tom Winmill, portfolio manager of the Midas Fund in New York, contends that the gain in gold is, in part, a show of confidence by investors and not just a guard against the dollar.
He said rising prices for commodities like platinum and oil signal that investors are placing bets on an improvement in the economy.
"Prices are rising for commodities and that's going to carry gold," he said. Winmill said, however, that a weaker dollar eventually could be the biggest force pushing gold higher.
"Ultimately, weakness in the dollar is going to be the thing that is going to underpin a big, big move in gold," he said.
The gains in gold prices follow a rally last week that came as the dollar weakened and as analysts said investors were looking for areas of safety.
A six-month surge in stocks has left the Standard & Poor's 500 index up 50 percent from a 12-year low in early March.
Gains of that size often take years to accumulate, and some investors are worried the stock market is due for a correction.
In other trading, light, sweet crude for October delivery rose $3.08 to settle at $71.10 a barrel on the New York Mercantile Exchange.
Gasoline futures for October delivery rose more than 5.26 cents to $1.8289 a gallon. Heating oil advanced 6.2 cents to $1.7825 a gallon.
Natural gas rose 7.9 cents to $2.807 per 1,000 cubic feet.
Grain prices were mixed on the Chicago Board of Trade.
December wheat futures fell 12.75 cents to $4.59 a bushel.
Corn for December delivery rose 1.25 cents to $3.0750 a bushel.
November soybeans rose 14.5 cents to $9.3650 a bushel.
Other soft commodities, like cotton, cocoa and coffee rose. Orange juice and sugar fell.
Meanwhile United States dollar fell to a low for the year Tuesday as gold prices shot above $1,000 an ounce before giving some ground and investors switched funds into riskier investments.
Commitments from global leaders this weekend to continue underwriting the global recovery helped drive investors away from the "safe haven" dollar and into emerging-market currencies and equities, analysts said.
Published comments from a Chinese government official in a British newspaper knocking the Federal Reserve's policy of buying bonds also drove the dollar lower, said Joseph Trevisani, chief market analyst at FXSolutions.
"The Chinese have serious influence," he said. China is the largest holder of U.S. Treasury securities, and its buying of U.S. debt enables the government to fund its deficit spending.
The 16-nation euro rose as high as $1.4535 in afternoon trading, its highest level this year, from $1.4337 late Monday, before backtracking to $1.4490 in later trading.
The British pound rose to $1.6487 from $1.6335, while the dollar dropped to 92.32 Japanese yen from 92.96 yen.
The dollar index fell as low as 77.05 against a basket of six major world currencies that includes the euro, yen, Canadian dollar, British pound, Swedish krona and Swiss franc.
That's its lowest since last September.
Markets have been rising after finance officials from the Group of 20 leading economies pledged to maintain government spending, low interest rates and expansion of the money supply in order to buck up the global economy.
The ministers met this weekend in London. Those moves could help boost economic activity and liquidity in financial markets, but can weigh on the value of a currency.
The current U.S. rate near zero means investors can earn better returns on their funds in countries with higher yields, such as, for example, Poland, Turkey, Brazil and Australia.
"People are loading up on high-yielders," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York, as they get more optimistic about the global economy's growth outlook.
A report from a United Nations agency released on Monday also called for a reduced role for the dollar as the world's primary reserve currency.
And in an interview published on Sunday, Cheng Siwei, a Chinese official, knocked the Fed's policy of buying bonds as an inflation trigger that will undermine the dollar.
The Federal Reserve has committed to buying up to $300 billion in longterm Treasurys to boost liquidity in financial markets and hold down interest rates.
"Most of our foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," the Chinese official said in the interview in the U.K.'s Telegraph newspaper.
China and Russia have been vocal this year about the need to diversify reserves away from the dollar as its value dropped.
Chinese officials have called for the creation of a new global reserve currency by the International Monetary Fund.
Siwei's interview and the U.N. report have "drawn attention back to the fact that we have twin deficits and low interest rates," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York.
That's "simply feeding into current negative dollar sentiment" as sovereign nations gradually sell their U.S. dollars.
There's an assumption that "when Chinese officials speak on this topic they are not doing it without having their remarks vetted by the Chinese government," Trevisani said.
Whether that is true or not, he said, "you assume that there is some warning here."
China, the largest foreign holder of U.S. Treasury securities, trimmed its holdings, to $776.4 billion in June from $801.5 billion in May.
Russia also reduced its holdings 3.7 percent to $119.9 billion in June.
The price of gold, meanwhile, shot past $1,000 an ounce for the first time since February. Gold for December delivery peaked at $1,009.70, the highest since March 2008, on the New York Mercantile Exchange before falling back to settle at $999.80.
Gold is often used as a hedge against inflation and a weak dollar.
Other currencies also climbed against the dollar, especially those in countries which are major exporters of commodities, as oil prices gained more than $2.
A strong economy would use more commodities in factories and transportation.
The New Zealand dollar hit its strongest point since last September at 69.83 U.S. cents, while the Australian dollar peaked at 86.58 U.S. cents, its highest level in more than a year.
The dollar dropped to 1.0807 Canadian dollars from 1.0763 and tumbled to 1.8260 Brazilian reals from 1.8445 reals late Monday.
In other trading, the dollar hit a low for 2009 against the Swiss franc at 1.0428 on Tuesday, down from 1.0597 late Monday.
It later traded at 1.0472 Swiss francs. AP
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
NEW YORK: Gold pushed above the US$1,000 mark Tuesday for the first time since February as hopes for an improving economy fed a broader rally in commodities.
It had risen as high as $1,009.70, the first time it topped $1,000 since early this year and the highest level since mid-March last year.
Gold closed under $950 on Aug. 27.
December silver jumped 22.5 cents to $16.510 an ounce and hit a 13-month high of $16.860.
A weaker dollar also drove prices higher, analysts said.
The gains also came after the Group of 20 leading economies pledged at a weekend meeting in London to maintain higher levels of government spending and low interest rates to help the world's economies recover from recession.
Concerns that a recovery could spark inflationary pressures helped lift prices for gold, which investors often use as a hedge against inflation.
Gold for December delivery rose $3.10 to settle $999.80 an ounce on the New York Mercantile Exchange.
Copper, nickel and zinc also gained.
Benchmark crude rose more than $3 a barrel.
Tom Winmill, portfolio manager of the Midas Fund in New York, contends that the gain in gold is, in part, a show of confidence by investors and not just a guard against the dollar.
He said rising prices for commodities like platinum and oil signal that investors are placing bets on an improvement in the economy.
"Prices are rising for commodities and that's going to carry gold," he said. Winmill said, however, that a weaker dollar eventually could be the biggest force pushing gold higher.
"Ultimately, weakness in the dollar is going to be the thing that is going to underpin a big, big move in gold," he said.
The gains in gold prices follow a rally last week that came as the dollar weakened and as analysts said investors were looking for areas of safety.
A six-month surge in stocks has left the Standard & Poor's 500 index up 50 percent from a 12-year low in early March.
Gains of that size often take years to accumulate, and some investors are worried the stock market is due for a correction.
In other trading, light, sweet crude for October delivery rose $3.08 to settle at $71.10 a barrel on the New York Mercantile Exchange.
Gasoline futures for October delivery rose more than 5.26 cents to $1.8289 a gallon. Heating oil advanced 6.2 cents to $1.7825 a gallon.
Natural gas rose 7.9 cents to $2.807 per 1,000 cubic feet.
Grain prices were mixed on the Chicago Board of Trade.
December wheat futures fell 12.75 cents to $4.59 a bushel.
Corn for December delivery rose 1.25 cents to $3.0750 a bushel.
November soybeans rose 14.5 cents to $9.3650 a bushel.
Other soft commodities, like cotton, cocoa and coffee rose. Orange juice and sugar fell.
Meanwhile United States dollar fell to a low for the year Tuesday as gold prices shot above $1,000 an ounce before giving some ground and investors switched funds into riskier investments.
Commitments from global leaders this weekend to continue underwriting the global recovery helped drive investors away from the "safe haven" dollar and into emerging-market currencies and equities, analysts said.
Published comments from a Chinese government official in a British newspaper knocking the Federal Reserve's policy of buying bonds also drove the dollar lower, said Joseph Trevisani, chief market analyst at FXSolutions.
"The Chinese have serious influence," he said. China is the largest holder of U.S. Treasury securities, and its buying of U.S. debt enables the government to fund its deficit spending.
The 16-nation euro rose as high as $1.4535 in afternoon trading, its highest level this year, from $1.4337 late Monday, before backtracking to $1.4490 in later trading.
The British pound rose to $1.6487 from $1.6335, while the dollar dropped to 92.32 Japanese yen from 92.96 yen.
The dollar index fell as low as 77.05 against a basket of six major world currencies that includes the euro, yen, Canadian dollar, British pound, Swedish krona and Swiss franc.
That's its lowest since last September.
Markets have been rising after finance officials from the Group of 20 leading economies pledged to maintain government spending, low interest rates and expansion of the money supply in order to buck up the global economy.
The ministers met this weekend in London. Those moves could help boost economic activity and liquidity in financial markets, but can weigh on the value of a currency.
The current U.S. rate near zero means investors can earn better returns on their funds in countries with higher yields, such as, for example, Poland, Turkey, Brazil and Australia.
"People are loading up on high-yielders," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York, as they get more optimistic about the global economy's growth outlook.
A report from a United Nations agency released on Monday also called for a reduced role for the dollar as the world's primary reserve currency.
And in an interview published on Sunday, Cheng Siwei, a Chinese official, knocked the Fed's policy of buying bonds as an inflation trigger that will undermine the dollar.
The Federal Reserve has committed to buying up to $300 billion in longterm Treasurys to boost liquidity in financial markets and hold down interest rates.
"Most of our foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," the Chinese official said in the interview in the U.K.'s Telegraph newspaper.
China and Russia have been vocal this year about the need to diversify reserves away from the dollar as its value dropped.
Chinese officials have called for the creation of a new global reserve currency by the International Monetary Fund.
Siwei's interview and the U.N. report have "drawn attention back to the fact that we have twin deficits and low interest rates," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York.
That's "simply feeding into current negative dollar sentiment" as sovereign nations gradually sell their U.S. dollars.
There's an assumption that "when Chinese officials speak on this topic they are not doing it without having their remarks vetted by the Chinese government," Trevisani said.
Whether that is true or not, he said, "you assume that there is some warning here."
China, the largest foreign holder of U.S. Treasury securities, trimmed its holdings, to $776.4 billion in June from $801.5 billion in May.
Russia also reduced its holdings 3.7 percent to $119.9 billion in June.
The price of gold, meanwhile, shot past $1,000 an ounce for the first time since February. Gold for December delivery peaked at $1,009.70, the highest since March 2008, on the New York Mercantile Exchange before falling back to settle at $999.80.
Gold is often used as a hedge against inflation and a weak dollar.
Other currencies also climbed against the dollar, especially those in countries which are major exporters of commodities, as oil prices gained more than $2.
A strong economy would use more commodities in factories and transportation.
The New Zealand dollar hit its strongest point since last September at 69.83 U.S. cents, while the Australian dollar peaked at 86.58 U.S. cents, its highest level in more than a year.
The dollar dropped to 1.0807 Canadian dollars from 1.0763 and tumbled to 1.8260 Brazilian reals from 1.8445 reals late Monday.
In other trading, the dollar hit a low for 2009 against the Swiss franc at 1.0428 on Tuesday, down from 1.0597 late Monday.
It later traded at 1.0472 Swiss francs. AP
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
Wednesday, August 26, 2009
Oil touches ten-month high of US$75, then tumbles
Published: Wednesday August 26, 2009 MYT 7:21:00 AM
HOUSTON: Oil prices fell more than 3 percent Tuesday after a new report from Washington projected a cumulative US$7 trillion U.S. deficit for the next decade.
Prices initially swung higher, briefly touching $75 per barrel for the first time in 10 months on new signals that consumers are feeling a little better about the economy.
Yet lingering questions about when and how fast any recovery might occur led to some volatile markets Tuesday.
Benchmark crude for October delivery fell $2.32 to settle at $72.02 a barrel in trading on the New York Mercantile Exchange.
"Oil still struggles to follow through decisively with an upside breakout," PFGBest Research analyst Phil Flynn said in a note to clients Tuesday.
"Is oil destined to make new highs, or is it just a matter of time before we see a correction of massive proportions?"
The New York-based Conference Board provided a bit of good news when it said its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July.
Economists surveyed by Thomson Reuters had expected a slight increase to 47.5. Still, the index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth.
Energy prices have risen sharply this year mostly on the belief that the economy is getting better and demand will rebound soon.
Still, the rules of supply and demand still apply to current prices and on Wednesday, the government will release its weekly report on how much supply we have.
Last week, a surprise drawdown in crude began a rally that ran through Monday, the fourth-consecutive day in which oil prices moved higher.
Despite optimism about recovery from recession, analysts say energy demand remains in the doldrums and seasonally lower demand for gasoline as the summer holidays end will exacerbate that weakness.
"In my view, oil prices will likely give in to the fundamentals in the coming week," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
"Seasonally, oil demand is lower in autumn, so reduced demand in the shoulder season may put further pressure on oil."
U.S. gasoline prices remain pretty much flat as the peak driving season is coming to an end.
The Energy Department late Monday reported that prices at the pump moved lower for the second straight week.
In other Nymex trading, gasoline for September delivery fell 4.21 cents to settle at $2.007 a gallon and heating oil fell 6.75 cents to settle at $1.8559 a gallon.
Natural gas fell 4.1 cents to settle at $2.882 per 1,000 cubic feet.
In London, Brent crude fell $2.44 to settle at $71.82. - AP
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click hereNew York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
HOUSTON: Oil prices fell more than 3 percent Tuesday after a new report from Washington projected a cumulative US$7 trillion U.S. deficit for the next decade.
Prices initially swung higher, briefly touching $75 per barrel for the first time in 10 months on new signals that consumers are feeling a little better about the economy.
Yet lingering questions about when and how fast any recovery might occur led to some volatile markets Tuesday.
Benchmark crude for October delivery fell $2.32 to settle at $72.02 a barrel in trading on the New York Mercantile Exchange.
"Oil still struggles to follow through decisively with an upside breakout," PFGBest Research analyst Phil Flynn said in a note to clients Tuesday.
"Is oil destined to make new highs, or is it just a matter of time before we see a correction of massive proportions?"
The New York-based Conference Board provided a bit of good news when it said its Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in July.
Economists surveyed by Thomson Reuters had expected a slight increase to 47.5. Still, the index is well below 90, the minimum level associated with a healthy economy. Anything above 100 signals strong growth.
Energy prices have risen sharply this year mostly on the belief that the economy is getting better and demand will rebound soon.
Still, the rules of supply and demand still apply to current prices and on Wednesday, the government will release its weekly report on how much supply we have.
Last week, a surprise drawdown in crude began a rally that ran through Monday, the fourth-consecutive day in which oil prices moved higher.
Despite optimism about recovery from recession, analysts say energy demand remains in the doldrums and seasonally lower demand for gasoline as the summer holidays end will exacerbate that weakness.
"In my view, oil prices will likely give in to the fundamentals in the coming week," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
"Seasonally, oil demand is lower in autumn, so reduced demand in the shoulder season may put further pressure on oil."
U.S. gasoline prices remain pretty much flat as the peak driving season is coming to an end.
The Energy Department late Monday reported that prices at the pump moved lower for the second straight week.
In other Nymex trading, gasoline for September delivery fell 4.21 cents to settle at $2.007 a gallon and heating oil fell 6.75 cents to settle at $1.8559 a gallon.
Natural gas fell 4.1 cents to settle at $2.882 per 1,000 cubic feet.
In London, Brent crude fell $2.44 to settle at $71.82. - AP
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click hereNew York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
ฉ 1995-2009 Star Publications (Malaysia) Bhd (Co No 10894-D)
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