'qxlrasa, \qt louol|Dtpdard aqt u stwwluor puo z2u,pmB qq &l osl 'pN tosuow lO )ossaloe zrm.ossvot uo4tnal.I.Io s!11 ssakka ot arfl mno$ &A1no a1fi ototow lo trlsra^lun 'uollot stulltpvpuo sxlutouoxa lo &ttbot aq, o, ?auluqns bdod qrrD?sar vgw o uo pasaq s! apluD st1lJ *

'suaurnlsq lueuNs ul PeuRuled nqlo ro (gs.I)) e6ueq.xa llolsrndurn'I eIEn) aqr sB q.ns lellBur {rors aqr ut pe^re.er snql ,{ouotu aql }se^ff pu" srorsa^ur

snoraumu Jo se.mosar lepu?ug eqt slood q.rq,r PunJ l?runul pepua uedo u? sr lsnJl llun vNOII]II(IOIIINI

'esle^e {su arou ela.tr

re^a^{oq sPunJ laplo eqI flsu eroE 8ur.q SulPeq e^qrB esrr rd }"q1 spunJ prr? spunJ la8rel

eqt qtl,{|'eaueluloJled luauFa^ur qI^\ uoqqeloc e^Fg8eu e sPq oqer esuedxe 'rqsuep?fiq3

punJ 3q1 rsqr pepa^ei ostP qrneser eql ,{33}u4s ploq pus ,{nq e^Pu eql uroJradtno

ol pelleJ pue se.ud dlun.as lsereroJ lou pFoc sreSEusul PunJ eql e pue se^qcefqo p4els

rctl, ot la^t ,{le^ ereqps pu pIP spunJ eqt IrcraueD soltoJl.Iod pe!$le^rp IJe^{ ermb ptaq

osp ,{eql 'eu4 re^o elqeN ara^{ s{s[ FllSuI {aql puB lue$rsuoo atmb sp^t eaueurroFad naql'oIIoJUod ra{Bru aql u?ql esroa pauroJrad aloq^ e se spunJ eq} r?ql pslF^er sSuIPu.rJ eqr

'pel?6psa^ff oslE sBrl {su .oelue$ds pu€ atuBuuoFad

lueu4se^ul uo o0"r asusdxe pu? r3^ournt olloJl.rod'e4s 'e3? sB qrns sr4suepB qtpunJ Jo pEdr[I eqt sa.ud dunras plperd 01 sreSlu"ru punJ Jo ItIIlq" pus s6 lpelqo pelels

{eqt 01 spunJ Io $uaraqpe 'erup re^o lslr .geruelsds .sPunJ eq} Jo ,qrqets eql 'uoqsrgrsraNp

Isu Jo ael83p eqr 'elllq re^o spunJ eqr Jo aru"ruroJIed Jo f.ue$Fuor e$ olul uoll€8llse^m tr?

sePnl.n oqe tI €66I requered 01t86I Irsnuel pou3d eqr rcJ ?rMqet{ ur spmJ $n! llun

euo ,{lua,{t }o eldues u Jo SupJuer pue ecu?uuoled luallNa^trr eql sep8rlsa^ur radBd sqlrJvurs{v

+ uonqc uooH 'rrr

v$ wvn Nr saNnilTSNAT TINN TO gJNYWVOiAgd JNTTSTANI TIHI

rtslrloN tI sprrt ttuUtlrD lO alnunt.d tuaqt.^ur au 1Z

22 C.pitn!Motkes Rerie||Val 3 Na 2,1995

Investors buy units from the managers ot lhe fund at the offer price and can choose to sell

them back laler to ihe managers at the bid price These prices are published dailv in our local

newspapers and are calculated daily based on the current underlving value ot the portfolio

heLd by the managers

The unique feature of a unit lrust is lhat it establishes a tripariite relationship between thre€

parties nameiy the investors (unit holders), the inveshent manager and ihe tfuslee Thir'

unique relaiionship is governed by the trust deed which spelis oul the rights' duties anc

responsibilities of each party The investors mav be individuaLs, companies or institutions

which invest funds in the irust with the hope of generating returns in the form of dividends

and/or capital gains The investn ent nanager is suallv a public conpanv which is responsible

for the daiLy investment operation lt adninisters and manages the portfolio of investments

and maintains a market for the units The ttustee is afliliated to major banks or nsurance

companies and gran$ approval for the purchase of securities and hold the purchased sec'rrrtre!-

Thc trustee monilors the fund nanagers. naintains a register of unit holders and ens res

rhat aLl ihe terms ofthe trust deed are stnclly adnereo Io'

Thc advanlages of unit trusts are : the small capital outla]' reqrlired tor investment' benefits

of risk diversificaiion, securirv of capital. access to the serlices of professional investment

nanagers. liquid and readily marketable units as thc fund nanagers are obligated to r€'

pufchase the units.

The objecrives of this study are I

1. 'to evaluate the historical pedormance (January 1984 to Decembcr 1993) of a sanrple ot

twentv one unit trusr funds in Malavsia (See Appendix 1) and to rank theif petfolmance

2. To evaluate tle degree ofisk diversilication of the lunds

3. To evaluate the consislency ofihe investnrenl performance and the stabilLtl ofthe fund('

market risks over hme

4. To dcterminc ifthe funds adhere to their srated objectives

5. To delermine ifthe lund danagers havc ihe ability to predict security pnces

6. To detcrine the impaci of lund characteristics such as age, size ol fund expense ratio

an.l portfolio iunover on investment performance and the markci risks ol the funds

LITf

Ehpi

suoDrpuo3l.+cu IIp roj p.srrErauaS aq lou plnor srrtl rr^e.roH ,{tqlrj3prsuor p:i-uBql

suoDrpuor 13)r€Lu ssetun punol ost€ s€^\ sr€a{ a^rs!o..ns iqr ur SurriuEr aruuurroJrrd

usealaq uorlpl:rror srqrlod v iruEuuoJr.d rraql pup spouad .qt lo E ruur;aq iqt rp spun!

iql,{q p;1onb sn? :ql rraadtaq patou sra uorlnl.rrotr rurrrtrun-rs € !.^3,!\oH .arr"uro]lid

r'3rll pu'r spunJ aql Jo ezr! oqt u?il\rrq uollptallo.IEre E slM rrsqr lEql punol (91.6t) reurn,)

'sro!'nurlu :qt ,lo sar.rrod tuaursi^Lrr 3q1uo trtr;rpt spuad.p srsnll lEnprNpnJo inp^ Er.q

:rqr t€ql p.lsa88ns rI s.IqEu€^ aqt iq prurEld\e iq ostr t{)uwr enl€^ cl.q rqf pqdtv s,u.su.f

uo trajjn ruErrlrub-rs ou a^rq ssntE^ rr3q aqr pu? iltprnbrt .s3Fr€q. Naua!.pupru I€nuufpuE IEDlrr

ipunl6qt Jo a:p'sreptoq rnrn lo raqunu !^rret.r rqr is8rrpt(trI

tu.Lulssrur:]o r.qon;!^n€lar .qr'lsn! lrun .qr Jo azrs .qr lEqr p.{oqs ostE qurl tntl'rur 3ql lo lEqr u'?ql r.$..q ol punoj a.rrN splni aql Jo $tsr.I rD!ur3ls,{s iqI .spunt .ql lo s.d,q snou!^ !r{t u33.s1..

esuEullojrsd ur..uarellp ou punoJ ostE puE rpou.dl]!uD snotr€r.ql IrAo spunt rquo Surtur:

3.!el!uoJr3d eql ur {iulsrsuor,{uE purJ 1ou ptno3 qrrc aruErxrorr.d.rcuqur luErqru;r:IllErrtsrlEtsJo a:rurpr^3 sE{ ersqt 1n.l .rleru rol.r.d rcurdns:ur^€q $rrr lrun ju€ lo eJUapr\.

1u€.'liu8rs iltErrrsD€ts ou sr?N Jl.ql r(3.lEr1s ptor{ prr9,{nq airpu.ql u ojr;drno or i)trt!u-

.r3^\ srrBDU€u punJ rEql p./(oqs ost! lpnts srq to stlnsar iq.L !1rrl ot S96I poua.l aqr r:\.spunJ lsnrt trun qsDirg a/ ]o aruEuroJrad cqr p pnts (//6I) qrrrl ,ulopFury p.rrun rqr ii:

'it.tErrs ptoq puR ir:a^t€! .ql LuroJredlno ot it:nou. II.a sJ.ud Ilun.as Frperd ol 3tqpun era{ spunJ iqt .iirr: :

.qt uo tEql patE.rpur sllnsr {pnts srH s!.rrd ilunras 1o irrrrqE.^n.rpa.rd s.rriEuEur ortLrtu.l

e:du!?nt€^.roJEqdtvsu.suelaqtp.lt€rarns"aua.ur:luroFad€padot.^ipaH.i96lor!.-

|i)uad rpai uet :ql roJ lpunJ I?ntnrll pu. uedo SII Jo i3upLuro]rid eq1 parpnrs (396t) ur!!:-

'a.utLuroJred arnlnl tuurrt)i :or ror:rPl luPuodorun uE sr rs r.d punJ eqt Jo rzrs lertl puE outl asuadr! aot qrra p:)rrrr!!!:sPi\\ etti!ruroJiid poo8 lPql p.aoqs edrsqS (atsrir^V lel]lsnpuI sruol /t\o(]) orrorri. jle)rP ( rqt Lurorrsd tno tor ptnor spunJ iql a?'xr^€aqruo (!.|ut adrpqs) otl"r irrl rqurr :

p.Ir^\.r 3ql uo p.s"q ,iupluroJl3dlo 3nse.ul p.lsnlp€ Isr e prdota^lp 6H r4€rs palru-1 :::u! t96L ol i!6I pouad eqr ra^o spun] Inntnru lt lo iruErruorrsd 3qt parpnls (gq6t) .L|:ri

ar ol p3le;rt(

spuapr,{rp Jo ir

sr'll ietsrur .

tz

rsa,u aqr q s.Qnrs Imrirdul

,I{SIASU SUOJYUSIIt

ortoltrod 3qr J(

Da \DPN ut sPt n! tt"4 )nto Jo 3)u"1u,l 1.,.t rDtun l

24 ('tptntl rlntk.^ R. trtr 1,, I \o. -r, /ooJ

Empiricrl Studies in Singapore and MalaJsia

KohandKoh(l98Tlanalysed19uDittrust!inSingaporeorerafivevearperiodfroml980io

1984. They found that growth funds that were expccred to yield thc highesr rerums and to

have the highesr dsk relalivc 1cl lhc olhcr typc ol itrnds do no1 have the high€si rclLrrns Dor do

they possess the highest risk. Ihjs means that ihe rclurns ard risk characleristics of these

unit trusts are noi full) consistenl whh their sralcd objecriles. Tlre tunds did or achicvc a

h'gh degree oi divenilicaLnnr and we.e unable to outpcrform rhe mark€i wilh some furds

hal,ing ncgative Adjusted Shalpe lndex (ASl). This mcans ihat rhey carncd returns rhat are

less rhan ihe avcragc risk trcc rale. Thc incone luDds outpcrlormed the balanccd aDd grolvth

funds bul noDe oi the groupings could out pedbrm th. marker. Ihe sanplc of fu.ds was no.

able to report consisteni pe brmance over time as rbe Speannan Rank Cofrelation (Rs) for

the diftereni pairs of years was nol signiticanl.

Lcc (1993) did a siudy on 21 unit trusts in Singapore over a file lrcar period fron 1986 to

1990. Her rcsuhs arc sinilar to those ol Koh and Koh (1987). She showed thal the tunds'

slslcmalic risk levels wefe quite stable over time alLhorgh rhey wcrc nol coDsislent wirh thc

lands. s!a1ed objectives.

Chua (1985) did ar empirical ltudv that covefed a LcD year period tuom 1974 to 198.1of ltM alaysian unil lrusl lunds. On I hc avcragc. thc tun ds outperformcd th e Jnarkei. Thc Rsvaluei

tor ihe Sharpe lndex and lle lieynof trdex for thc two sub periods 1914 ro 1979 and 1919

ro 1984 lvere signilicanl inclicaling fairll consisLcnt perlornancc over time. Thc uDit rrusri

appeared ro adhere kr their slaled objectives and had also peribrmcd thc; ri!k conrrol and

divclsification tasks reasonably \rell. Fund characLeristics such as size, expense rario and

pofttblio turnover werc all Degativelv corr.lated 1lr perlormance. Sjmple regrossion aralysis

showcd thar alllund chafacteristics studied were reason.tLrl) good predlcrors ofthe pertbrnancc

'neasure. Anong thc lund characlerislics studied. the average porttblio lurDover had rhe

highcsl cxplanatorl power for the pertbrmance rncasure. This mean\ rhar high perfornancc

funds tend io rclaLc to thosc $ith low crpense ratios, low asset size (net asscr value) low

porllolio turnover Hence, invesllileni managers can inprove perfbrnance by reducing crpcnscs.

managirg smallcr funds as \1cll as atoicling actile rrading which orly resulls in excessile

expense on brokerage. On average. Jensen's Alpha showed thaiihe unil rrust fundswere abte

b predict securit! prlces well enough to outperforn the nallc buy and lold sirarcgy.

Rfrt

.I

I qluoru rol ru olroJuod

lol.l?ur 3qt uo Enler Jo arEr papunoduro. fFnonlrltuo. ftqluou parEullsa eql = rE)i

= rly\

I qluou 3ql

Suunp lsnrr rrun qt! eqt Jo ujnler Jo atEl Fpunodluor ,{Fnonurruor trlqluou 3qJ- .u

(€)

\z)

(r)

( lrr + I) aSor = r'rd

'133ot - lux

,IC +'I

ssot = 'tU

l qruou.r Jo pu. .ql r" (IJr) x3pul errsooruol as.I) aqlJo I€^a'IfFr

6t6I pu" 61t

santE^sX.q

ZI JO

'86I O

I qtuolu 8ul.Inp llsn!llrn fq pred llun rad puspr^rc

(a.ud aseqmdar) 3.ird prq

sraBEuru 3r{1 ,(q psmsEeu qluoru Jo pua eql tE I lsnrl }Iun roJ anl€^ t.ss€ leu aql

aql qllr\ 1u.l

.spunJ aqt tE

ol 9861 ulor:

r.tC + ,tVN

(896I) uasuef Iq paldopE se^\ tEql poqrau pepunoduor .{Fnonlnru&-

slqt uo pasEq 3l" unlar Jo satEl eqt SuqeF.t?r roJ ^\olaq

uaoqs € puE z'I suollenba :qL

dlrteailo uorrsurHordde poo8 dra^ € sapr^ord sumlor aqr Jo uuoJ uqlIrESoI lprnlBu:qreql pu? ltErus ,{flErulsa]FrJur sr IE^ra]ur rql ar snoau?ruelsu sr lp^larur uozuoq srqJ leu:rrSurpunodrxor redord aql Jo sturel uI pass3rdxe erE surnl.r oq1 s? Suot sE rlurt Jo ql;urIrerlrqE {u" roJ sptoq (I [dV]) Iapol,,{ SuoLId rossv Flrd?J aqr l?qr pa^ oqs (696I) uasu:f

roJ (sH) uou

ql'ltor8 pu€ F

aseqt ro srrl!

01086I ruoq

EZ

urnrau Jo atBU papunoduoJ ,{tsnonuq@:l

450'IoooHIal^l HSUVSSTt

aisiojuN ut !Pu,! tetu rlun lo rrtbtuotad iu)tu{' \ur ,a

26

R,,,

Cdpital Ma*ets Reri.t vol.3 No 2,1995

DIt - Estimate of dividends received by rhe markel portfolio m in month t (obrained

from gross dividend yield records of the KLSE CI and markel capitalisalion

figures) expressed in the same scale as the lcvelofthe KLSE CI

= The monthly contiruously compounded risk free rate ofinterest for month t

= The trield lo maturity rate ofthe 90 day Treasury Blll for monih I as the prcxy for the

dskless rale of interest

Measurenenr of Risk

Two measures of risk are used for thc analysis in lbis studv. Tfie first measure ls the srandarc

deviarion ofhisrorical returns as shown in equahon 4.

(4)

\'

4N

Rri =0r+BrR, + e,' (5)

f -J".N rR,-R,)- "

,=, N1 l

Thc sccond measure of risk ls the beta coefficient (Py' of lhc unil lrust- This is the slope or

the characreristic line (equalion 5) obtained by regrcssing the monihly returns of the unlt trust

with respect 1(r the monthly rerurns ofthe market portfolio m.

Rate ofrerurn ofthejtlr uni! trust at time r

Mean ofthe rate of rerurn for thejth unit irust

Nunber of obse ations

Regression intercepl

Slope of characteristic line

Retu on uoit trust in month t

0i

(L)

(e)

(El. 0 + ))

) xls

Jo adots aql sr

G)

= ISV

'/ uo4Ent':

uI ue^'8 (tSV) xrpur adrpqs pelsnipv aqr 8u$n (186I) ar] oj puE uosqof lq p6lraxo:

s?,t\ sqr pue polrsd uorl?nte^o aql ur () q?^ralur urnlu Jo raqunu aqt Jo uorlrunJ E ::ot puno} sea sErq aql (8/6I) lrlac puP ratD{,iq pssBrq eq ol punoJ sE^r xsput adr€qs a[I

llsnll rrunlo unlarJo uorrEl^ap prepuEls = !o

umlar Jo 31Er ssallsu a:era^Y

I Nn4 trrnJo urnlar eBEra^V

fo

tE

Istd I?loJ

ru !dunruaq lsry

'9 uoDenba Ul paurJsp sr (rS) xeput 6dr€qs :qfxepul

"drsqs pa|sntpl'l puB xapul adJqs

'eqdtv quasuel paFnfpv aql pu€ ertlirs.uasuel'x3pul rou,{.jl'xapul adreqs p€rsntpv aqt alx .{pn$ srqt ur spunJ lsrul llun .qt .aruEturoFad aql SurluEr pu€ SurtEnI€^3 roJ p3sn eq ol s3ms€.u aruEuroFed rusru$a^ur >-\_t

ruauarnseatN aru€ruroJtad lneErsa.!

LZ

o = ('ra)a'r qruour q u:nler lEnplsar pouletdx.un quorss.fsx = ' ta

pautetqo) l qrua r qiuour uj ru oltotuod l3tr"ru uo urnlax = r'ud

,!s^rt"N ,t rpuk! )sn1J tlun {o r)unatotad Mu6. \rt 4

28

Tr€ynor Index

The Treynor Index (TI) is siven in equarion 8.

Risk Premiun

CaptolMatke\ Rerie\| Ul. J Na.2,1995

Ri Rr(E)

SystematrL Risk Pj

pj = Bera coefficient obtained from the slope ofthe characteristic line ofthe unit trust

Jensent Alpha and Adjust€d Jensen's Alpha

Jensen restated the original cbaracteristic line of eq arion 5 in risk premiurn form instead of

the return. Equation 9 defines the Jensent characteristic line in riskpremium form.

\,t - R1r = A; + Bj (R-.r ' Rr,J + Uj.r (e)

U:.,

Regression slope coeffrcient

Residual risk premiun for jth unil trust ai time i which is unexplained by tbe

regression, E(Uj,r) = 0.

Jensent Alpha cannot be used to rank the perfornance of differenl asseis unless it is risk

adjusted by dividing by Bi as defined in equation 10

= Jensent Alpha ofunit trustjobtained ftom the regression inrercepr

cAdjusted Jensent Alpha (A,\) =

-Bj

(r0)

i.i-f

ry'

D€gree of Risk Diversific{tion of Unit Trusts

The degree of risk diversification of a fund may be measured b"\, ihe Coefficient ol

Deternination, R'z of the regression equation 5. The closer the R2 value io 1 .0 the highcr the

degree of diversification. The Rr is theoretically the proportion of the total variance of tb€

retums of a portfolio which is explained by lhe narket portfolio.

eql Jo ecul

3ql r3q8rq

Jo luelrgl 'sesnpedord pu? semqioJq'EuerEe$Ua,\pe uI rqqnd 8m$a^m

pele3runEEor e!? pEe pmu ? luo.g pep3&e eq uBr leql unler pue lsrJ aql el€qptrt

se4palqo eseqt psnJ ! Suqreles uI ^{olloJ

ot s$od epm8 e ll?{pnb tnl,{..rots.^q eql

spunj lsn4 llsn Jo se^rpelqo pelels atLL Ie eI ecuerelol {qr tuerelJrp qlIA

.IoJ retB. l?ql seuoSelEc {su luereglp eqt ol 8upro..B pelF.sselc eq uBc spunl Nn!rpuq{ rsqf, |!on Jo

'pesn ureS€ els ZI puB II suoqpnbg .€66I ott86t pouedeqt

srs3r{ Jo rred qcB3 roJ pelllmlP. ere rpsg?$ I aql qI^{ reqFSol sluablleo3rJu?u ueuu?ads aql leEp re^o senle^ elaq Jo 3qr{usr elq?$ a^eq spuql eql p eutur3l4l

(8raf, ) s{.tu rg8waro,{Sto

seFes ?lep eqlq Z pse I slB3]{Jo sBurxiEr perBal Jo raqEnN =

Z r"e{ puB I reefJo s8ur'usl oee^qeq ecorr:gtc =

\zt)tuopee.g Io sear8ep (Z-u) qrr

(0r)

{qu sl lr sx

eqr fq Par

(6,)

eo(z - u) su

u_?u)u

Jo pseNu! [

lso.Il llUn(I1)-1=\

zp7 9

'ZI uo[Bnba dq ue 6 r4srlBN I eql

no peuBc ueql $ sX Jo acuBc$drs Jo $et eqI, alltlt Ie^o acueuuoFed Jo

;srurErelep roJ s$ar( Jo rFd qcee roJ TI uoBenbe Eusn pe]gln IRc sI (\) uopeleloC

rlBuue3ds eqt :aljpaieql €66I ot t86I poued eql roJ pqdlv uesuef palmfpv aqt pwrcu.{a{ 'xepq e&eqs paNnlpv eqt 3Er.sn dltsnuue pe)luBl e.re s$tu1 1Fn eqt .,{prqs

3E!l r lrd a'us[IoJlred,to

4sInIaN ur sVtnd M4r rtn lO Mt ir

(8)

6Z

30 CapnalMaltets Rerier val J Na.2,1995

qualitatively by Coates (1978) asThere are basically six types ol fund objectives stated

shown in Table 1 below :

Table 1 : Obi€ctives of Unit Trust Funds

Fund Obj€ctive Dennition

1. Income Funds

2. Balanced Funds

3. lncome Growth Funds

4. Growrh lncome Funds

5. Growth Funds

6. Maninum Capital Gains

Funds thar prolide as liberal a current income trom

investncnt as possible

Funds that minimise risk and at the same time

retain sone possibilitics forlong lerrn growth and

Funds thal placc slightly nore emphasis on currenl

income than on growth

Funds thal emphasise growlh more than curreDt

Funds that view incone as only a secondary or

Funds that palr low or no dlvidends and invesr ln

(rr)

0 = C h)A 6^sq ra r'h urai rorr, ^{au

oqr ar3q.s

r'!n + cld - r,uu) rg + Iv = rld - rh

uollenba Suqeuqsa eqt se iI uorrsnba 8u$n {q €I uortEnb. ur tu?tsuor orlzuou E Jo erualsrxs otqrssod 3q1 roJ ao[? a^\ suEaru srqJ ur8uo :rql qSnorql ss€d ot uorsserF.r

?urr?rurtsa atit Suruplsuor 1ou dldurrs,{q 3pEllt .q u?.,{rilrqE iuqs€.oroJ qrns roJ a.uEAo T

Isu Io laaa'slr roJ tunrlrlard Isu liJErurouj, aqt uEqt erou ur?3 IIr,{ orroJuod srq 3ruaH 0 < r.l: esq!€r llr!q.lq^\ sarlunras lrelss lllprpeujels,{s ol pual IF!\ aq r.ls€.a.roJ rofiodns E sr r.8"u"ur 3ql rl

(rr)r'la 1 Cld - fud) Ig = 1r.X - r'lu

.€I uoq?nb3 ;ursn lunnrl.ljr{su qolroJuod tariftlrl aql rsul!€p iunltuard Isu qpunJ eql Surs$r8:u tq pour"rqo aq uE--

punJ eql Jo 1g Isu .rtEurats,{s aqr Jo sol"ujrtsa .(896I) trasuaf Iq pasn poqralu aql Buraollol

sra8suBn ruauqsa^ul Jo IIUqV tuu*rarol

a^oqE z atqEl ur p.uqap asoqt qlh\ punJ aql lo ant!^ Blaq Imuorsq aqt Suuedruo:

,lq sa^qlatqo p.tels qpunJ 3qt ot oraqpE sre;Eu?ru tueurlsa^ur reqtaqa ruruuelap uEr iuo

zzIt0'l060

980

890

su'P9IErrde) lrlnurx"I Iqu\orc

euorul"qu{orc

qu{orc-euo.ul

pa.uEIPa

ants^ Erafla^lrralqo parErs Epuntr

sa^lpalqo punl lDuollparlpu€ antsa Brag uaanqaq dlqsuolElau: z aIqEI

{otaq z 3lqels8urpur] IB.rrdrua aql uo pas?q uoDrurJop e^ltEtnuEnb ysE (8r.6t) ur ua^I8 sr (r/6r) pFuocrr\r Jo

I€tusiDtDN ur sthu trhlJ tlan lo ntotulo!.d tbasatu ! ,):

32 aofr.l Uotl.r RdEw Vol I rn 2 laa5

H0 : The lnvestment perfornrance of the unit trust equals that ol the marker portfolio

Thus if ihe unii irust manager has an ability to forecast securily prices. the intercept Aj in

equation 14 will be positive (Aj > 0). This rcpresents the avcrage lncremental rate of return

on rhe portfolio per unit ol time which is due solely !o lhe managert abilily to forecasl

fut re securities prices. ln contras!. a naive buy and hold strategy can be expected to yieLd a

zero intercept (Aj = 0). in addition, lf rhe ,nanager is not doing as well as the naive bl11, and

hold stralegy. Ajwill be negative (Aj < 0).

The leasi square regression of monthly returns for each year provides the dispersion of the

sampling distribution of the intercep!. Aj. Futhefmore lhe sanpling distibution of the

estimaie. Ar is a Student t disrriburion with 0r 2) dcgrecs of lreedon1. The iesl of significance

oi the forecasting ability of iDvestment rnanagers involled the testing of ihe followine RI!E.{]

T:F

Hr : The investment perfornrancc ol ih€ unit trust is better or worse than that of the

market porttolio ie. 4 > 0 or Aj < 0 respectivcly.

Impacl of Fund Chrrucleristic on Investment Perfornance and Sysl€matic Risks

It ls ol interest to determinc \{heiher rhe various tund characteristics are as$cirted with

invcshlcnt pe.formance. Some of the frnd characieristics to be lnvestigated in this study are :

(it

0)

(iii)

In this srudy. the above independcnt variables are individually regressed agains! the

investment performance measures such as thc Adjusled Sharpc Indcx (ASI). Trcynor Indcx

(TI) and the Jensen's Alpha (o). Thrs is achieved by simple linear regression to see if any

Age of lhe funds which is neasured by thc numbcr ol)e.rrs sincc connncnccnent (X1)

Size of the funds as neasured by ihe net asset value ofthe fund (xr)

Portfolio turnover which is neasured as t|e sum of the proceeds lrom invesrment

sold and cor! ofinvesiment purchased (X3)

Expense ratio \ihich is the ratio of the managetnent expenses/tees to the ne! asset

value of the rund (X4)

spunl aqt IIe 'p.^rasqo eq uE3 sv '9I pun{ sI raurolrad lsro,{ aql sllq^\ E! pun{ sI rauuogrd

rsaq 3q1 '?qdIV s,uasu.f pelsntpv eql lo asE. €ql uI 9I pun{ sr reruroJrad ls'roa 'qt

3IIqa

tz pund sr raru.IoF.d lsaq aql xtpul rou,{a{.ql8ulsn palu€r uaqlA 6l pung $ rsturoJrad

lsro^\ aqt .Iq^\ tI punJ $ raurroJrsd tsaq 3q1 'xepq adrEqs pelsnlpv aql ot Sulpro're

paluer erE spun} aql u"qrt spunl lsn! l(un IEnpI^rpuI aql lo sllns3r aql aql s^\oqs I 6lqEf

'oltoJIod lslr?lu.qrJo leql uEql ssal q spunJ aqlJo un13r '{lqluour uE3u aql ua^g

'ononrod l.IrELu eql Jo esoql u?ql ra/$ol el? sarnsE.ui aruEluroJ.rod aql IIY ollo]trocl l3lrEur

aq1 uEql asrod{ peuroJ.rad alor{a\ e s? spunJ lsnD llun aq1 l?ql '€ .lq{ oro4 usas aq u€' lI

sllnsaulls.ri^o :f rlqEl

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sl'rnssu H:)uvss

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aqr Jo qrpe Jo .r?0.{ I?t3uEug eql Jo pua .qr te "lEp

Sursn pauroFod $ sls,{lEue uolssa€ar aql

'satqEuB^ tuapuadapul a^oq? aqr 8u$n'alq?uE^ luapued:t

3ql sE punl eql Jo (d) amsBau IsF Jl?or3lstrs aq1 qtl'lt paEad"r osP sI alnp?rord a^oqE :ql

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e.u?uroJr.d lualrllsa^ut 3ql JI 3.s o1 p.uroJr"d oq" sI uolssal8ar aldqlnu Y para^otun ec

uer saIqEuE^ luapuadep aql PuE solqEuE^ luspu3dapui aql r...'{eq drqsuollElar lu?rgrLi--

^UE JI A

eql rsun

(Ix) ru:r

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Suraollo

pue ,{nq

E plard ol

€€DisIbtnN ul spunt )snq lltn JO aruDutuJl2a tu.a6a\ut ,.-

6Iti000

l.,a:):: I il" ;.- .-- ).-:: i.; -,: . - =. . =: t 1t = =,-; ; l ; i. - ! ; i ; ; ti : ..= --' : i i

?-o

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;;-;i '- :;.; --:--l-.'. ;;a i;;.i,r.: -! !'i-:r i:!::::- := :

= : - : f, :c : : : :

c

Qqittl Mutke^ Re\iltr V.l j No.2 199531

?

Fc

r ai ! -'

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0I uPql sset sre 1€'{r sentE^ Elaq a^"q spunl oqt IIE rsql p3^rasqo:q uEr 1I € punj sr antEl

€raq rlaNol 3qr ql punJ aql a|qa /I punl sI anIE^ 4aq tsaqSlq eql seq q qa punl aql

lEqt s/(oqs t alq"J 'ortoJlod 13lreu .ql u?qt ,{rjsu ssat ,r? spunJ Nrul tlun lErtr suEerr srql

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sanle Erag

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E !!

Eia

3==

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'sol]uPd:.rr:rr

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s:urr{upr aruEruroFad rElrrurs IItuE.IruBrs linpord spoqtru Surtu€r eqt IIr trqr su"au sruJ

'(S atqsJ) Ie^at !00 aql l" ru€JrlruSn arE IIE puE 6 0 spcarx: ru3rrrJJeoJ uolpt3rroJ ]u:xuErurErds oqr'sasE. a^oqP eqr Il? ul x3pul sdrEqs p"lsnfpv pu€ Eqdtv qussuaf p sntfY

uaar\laq (€) puE xspur adrEqs p3rsrip\/ pue xepul rou{alJ uaaaraq (Z) Eqdrv !.u3sL:f

palsnlpv pu? xapul roufa{ uaa.rleq (I):,{tiurEu t66I ol t86T pouad aqr r3^o spoqr:E

Suquer luar3Jrp aqt roJ palElnrlrr! araa eullrlFeol uoIrEIaIo) lu"d ueureads s:uitL::

a3u?uro}ad luaraJlrp {l1q8qs parnpord spoqlau turtu?r lusrsJJrp 3ql'pe^r.sqo aq uE.:\

'rlBr iorJ )str:rqr lrE::

sulntar raaol paulEa spunj as3q1lEqt suE3ru sql xaput rouda{ puE xapuJ adrEqs parsntrv

.^483.u a^Bq IIP 6I puP 8I !/I !9I igl 'tL spund onoluod t6tl€u aql u?qr asroa pauoti>:

ustklkw ur spukr lNn4 rrn lO afubutatad lt.wt'a\ur,r sg

,,(/sgrE 9i)

82996 0

+(rsste 9l)

[2996 0

xapul adreqs parsntpY

tr e'{dtrr' quesuot prrsfllpvxapul adlsqs paDnlpY

s' xapq ron,{arJeqdlY s.uasrar paDnlpy

t xapq roufa.\t

36 Catjtdl Ma*ex Reri.w Val.3 No.2.1995

Risk Dive(ificstion

The Coefficient ofDeterminaiion (R') of the funds as a whole as shown in Table 4 is less than

L0. This means that rhe funds are less ihan perfectly diversified. Nevertheless. the unit trust

funds in the sample are quite well diversified po folios with an overall Rr value of 0.723203

(rable 3).

Fund t has rhe highest R'?value and is thus the rnost well diversified po folio in the sample

\"hile the least diversified portfollo is Fund 16.

Results when Funds are Grouped According to their Obj€ctives

If the funds are grouped according to their objectives as shown in Table 6, the average rnean

monthly return of tbe balanced, growth and income funds are 1.0063%, 0.28'/ /% ^r'd

0.2678% respectively. Among then,the inconefundspost the worst resulls while the balanced

funds are the best Pertormers.

When performance is risk adjusted using ihe Adjusted Sharpe Index, Treynor Index and the

Adjusred Jensen\ Alpha, all ihe three neasures produce similar results with the balanced

funds being the best performers and the growth funds being the worsl performers.

Tbebeta lalueshowsthat the balanced tunds have the lowesl risk while inconefundshave the

highest risk. Tbis contradicts the fact lhat lncome funds should have the lowest risk as they

invest mainly in government securities and bonds while growth funds have the highest tsk as

they invest in risky stocks which have high capital gains potential. The balanced funds have a

beta value (0.698132) which is close to the vahc of 0-68 listed in Table 2 indicating thar

balanced funds scen to adhere 1o lheir stated objectives. The growth and incone funds

have values that are different from the values in Table 2 implying that they do not adhere

very well ro their objeciives.

The R'? value shows thar the balanced funds are rhe nost well diversiiied whereas growth

funds are the least diversified.

Consislency ofPe omrnce of Funds

Table 7 shows that when periormance is ranked by the Adjusted Sharpc lndex, the Spearman

Rank Corelation Coefficient (Rs) for the perlods 1987 & 1988 and 1988 & 1989 are positive

a^rtrsod

qu{of !

l?qt 3ur:

LI

tlzazL 0

uEql ss.l

nttt|trfu ut spunr $nqtlrnlO a.uDtula!,a tlortsa 1ut ?.

q!ii t{

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=

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:5a.

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aF 3aF gaJ,aa

38 ColnolUnrke6 Rerier r,l I N, .? /o.5

and sjgnificant al the 0.05 level. This neans that funds that perfon'nd well in the filsl year

also perforned well in tbe second year ie. the funds are ranked similarly in both years

However for lhe period 1989 & 1 990. the Rs value was significantiy negative. This means

that the funds' performancc rankings bave reversed.

Sinilar results were obtain€d using rbe Treynor Index and the Adjusled Jensens Alpha. as

shown in Table 8 & 9. This provides conclusive evidence that tbr ihe period 1987 to 1989.

funds that performed well or poorly in one year repeatcd their peiformance in later years.

Howcver the irend was relerscd for the period 1989 & i990.

Slability of Systematic Risks (Beta)

Table 10 shows the Rs values of the funds systematic risks. It shows rhat for the periods 1987

& 1988. 1988 & 1989, 1990 & 1991 and 1992 & 1993. the Rs values are significantly

posiiive. This mears thal the funds'beta values that are high in the tirsl ycar are also high in

rhe follo$ing years. This tneans ihat the relalive ranking of the risks does not change

considerably and is q ite siable.

Forecssfing Ability of Investment Managen

As can be seen from Tablc IL, all the Jensen's Alphas are negarive This neans thatnone ofthe

investment managers has forecasting ability of security prices and rhat t|ey did not perforn1

beuer than tbe naive buy and hold stralegy (market portfolio) which has a value of0 0

It can be observed tbal Funds 14, 15. 16, 17. 18. 19 and 20 have significanily negative Jensent

Alpha. This leads to the acceplance of llre Hr hypothesis that the inveshcnt ma.agers have

poor forecaning ability

As far as this sample of unit trust funds is conce.ned. the resuli seems to djspel lhe nolion thal

ni1 trust managers have superior forecasting ability.

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t86I I986t986t I S86I

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/86I spouad

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r968S 0-

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t606t 0

919900

xapol tdrsqs parsntpv aqt Sqsn spmd aqr B

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40 Co?nal Matk.rs Reriet V.n. 3 Na.2,1995

Table 9 : Rank Correlalion of Performance Rankings forall lhe Funds using the Adjusled Jensen's Alpha

tu

Nole : * Significant at 0.05 level

Table l0; Rank Correlation of Syst€maiic Risks (Bela)for aU th€ Funds

Note: * Signiiicant at 0.05level

Period Sp€lrman RankCon€lslion Coefiicient

T Value

1984 & 198s

1985 & 1986

1986 & 1987

1987 & 1988

1988 & 1989

1989 & 1990

1990 & 1991

1991 & 1992

1992 & 1993

0.05,114

0.62',72',7

0.120'78

a.62208

0.51129

-0.49351

-0.35065

-0.02727

0.28701

0.23001

3.51081 +

2.42184

3.46326 '2.613E9 +

2.4',7331+

-7.63201

-0.11892

1.30601

Pe o't Speaman RsnkCorrelation Coeffcient

T Value

1984 & 1985

r98s & 1986

1986 & 1987

1987 & 1988

1988 & 1989

1989 & 1990

1990 & 1991

l99l & 1992

1992 & 1993

0-,12556

0.33r t7

0.30779

0.61299

0.56494

-0.02078

0.,15325

0.25065

0.4597,1

t.9952

1.52986

] 41009

3.381112 *

2.98435 *

-0.09059

2.21639 4

1.12858

2.25658 +

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LLILL9'1.

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Igtt98I-t9z9L9 L

L6t€9t r-

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6vLSLL l281086 0-

nzgIIOI-

406810 0

'16 [I0 0-

t6t0I0 0-

21.8600 0-

292600 0

t6r900 0-

6lES00 0

tII900 0'

Il ts00 0-

861t00 0'

961.t00 0-

r69t00 0

sltioo 0-

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a capitaLMa&.1\ Reie|| vol 3 No.2,1995

Inpact ofFund Charactc.istics on Investnent Performance and Systenatic Risks

When sinple and m ltiple linear rcgressions were performed the follosing signiticant

relationships shown in Table 12 arc obtarned

Table 12: Significsnt Regressiotr Equations

Note : * Significanl at the 0 05 level

As can be seen in equalion I in Table 12, the JeDsen's Alpha is negativelv related lo the

expense ratio. However, lhe relationslrip is weak with a R2 value of 0 27323 Hence a high

expense ratio tends to result in lower retums This is duc to the fact that high expenscs spent

on investnent aDalysis erode the returns that unft holders can earn'

I l '\

Equarion 2 in Table i2 suggests that the riskrness ot the

age of the funds although the relationslrip is we'k with

that lhe older funds are Less risky and more conservatrve

the newer funds are more aggressive and invesl in nore

result in higher retu s.

lunds are negaiivell, related to ihe

a Rr value of 0.19805. This means

in iheir fund management whereas

risky stocks $hich however did noi

Equation 3 in fable 12 suggesls that the riskiness of the funds are positivel)i related to the

size ofthe funds wirh a R'?value of 0 52098 indicaiing a fairll' sirong relationship Tlisequatior

implies lhat the largef funds ha\re highcr risks and vrce versa

Equation4 in Table 12 shows thaithe riskiness of the funds is positilcl) relatcd to the portfolio

turnover wilh a R'? value ot 0 54847 which indicatcs a fairllr strong relatiolrship This means

Equalion RZ F Yalu€

I

2

3

1.2,13325 Xr + 0.003148

-0.018606 X1 + 0.936996

7.408317 x 10 e x, + 0.546612

5.02305? x l0'xr +0.557829

o.2:7323

0.1980s

0.52098

0.54E17

10.52642 +

6.9149 *

30.45295 +

3,1.01151*

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NOlSn.Il\{ )-

nlsu sroLu uE.aq tnq surnt.r rsrt;rq Sururur ur InJsscrrns lou Jr3r\,i.qr r.\: :'uozuoq rrurl]atroqs E r.^o surnlrr ralliq alpratri; ol ldr!.lrE ur ur ,slsu raqiirq qrr$ :\ la^trrin..ds olu elt ur paisa^ur ritqrqord er.,{ SurpErt e^r}.s rrusra.tx. }Dqr spuri . _

su"cur srql !_(

q8rq E .ru.H

luErrIu.qrs 3urtr

SIS!I

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* Itl t0 tt

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Capittl Markets Reriew Vol. a No 2,1995

The study suggests that invesiment managers can improve their performance by reducrng

iheir expenses on securiiies analysis so that investors can enjoy better relurns h also shows

that rhe Larger funds and tbose that are involred in active trading are more riskv while rhc

older funds are less riskl Hence investors can use such variables as age' size and tradirg

practices in seleciing and investing in the funds thar suit thcir degrec of risk aversron

The major inplications raised by the research are that (1) unil trust f nds shouLd strive to

keep costs down in the lighl of the managers' inabilitv to benefit ftom rcsearch aciivities'

(2) investors should be wary of managels' claims of superior pertbrmance as nanv of their

claims are over optinistic and not based on salisfactorv mcasures. and (3) unii trust managers

should possibly spend nore lime on detining objectives with regard to risk and return'

explicitly srating their fundt objectivcs to the public and formulating porlfolios to nalch

atduEs aqt q spunrl rsnrl rlun Jo rs!.I: I xlpuadd\'i

lz

OZ

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8l

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u"trqtr].s3) 8r?d "rindrung IEpow u?tndum)

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Enpal 3u€,{ Elndrung lepot{ u€tndurn)

Pueucd.QuE,{ Erndruna lepot{ uElndun)

APPENDIX2

LIST OF UNIT TRUST FUNDS IN MALAYSIA

Capitol Markas Reriew vol 3 Na. 2,1995

\I

III

Funds managed by Anb-Malaysia Unit Trust Bhd

1. Arab Malaysian Gilis

2. Arab-Malaysian First Fund

3. The Malaysia GroMh Fund

4. Tabung Ittikal Arab-Malaysian

Funds managed by Arsb-Malaysian Property Trust Bhd

1. Arab-Malaysian First Properly Trust

Funds managed by Asia Unit ftust Bhd

1. Malaysian Investnent Fund

2. Malaysia Progress Fund

3. Tabung Ananah Bakti (Malaysia Security Fund)

4. Malaysia Be4aya Fund

5. Malaysia Equity Fund

6. Malaysia Commerce Fund

Funds managed by Palaburan Horta Tsn8h Nasional Bhd

1. Amanah Hana Tanah PNB

Fnnds mansged bt Amanrh Saham Bumiputra Bhd

1. Amanah Saham Bumiputra

Funds rnanaged by Ananah tuhsm Nssional Bhd

1. Ananah Saham Nasional

Funds msnaged by Amanah Saham Mar. Bhd

1. Kumpulan Modal Bumiputra yang Pertama

2. Krmpulan Modal Burniputra yang Kedua

3. Kumpulan Modal Burniputra yang Ketiga

Dste of launching

213n77a6

2311/88

28t1189

78t72t92

Date of lauching

2U2t66

!6t10

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2u!82

2411181

Date oflaunching

January 1991

Date of launching

1981

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IX

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"rnuad u"rnqEl3d Elndlurng u?lndun)

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qnFdase)l 8uE{ EIndIUng l€pohl u"Fdlun)

uetquaset 8us,{ El1ndrlng IEpoI{ uElndun)

uEd€la)I 8uP.{ E'ndiung lepol^l uElndrun)I

(uBr{Equleued) qnlnle) Bu"f erndIlIIng l"pot'{ uqndun)

(ueqarorad) qninta) 3uE{ "rlndruns IEpoI uetndtun)

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lEpor^l u"Fdlrn)

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Capital Ma*ets Reiew vol 3 No 2, 1995

48

x)(In

)o(Iv

xv

XIv Funds msnaged by Amanth Sth|m K€dah Bhd

1. Tabung Amanah Saham Kedah

Funds mamg€d bv BBMB Unir ltust Managenenl Bhd

1. BBMB Unit Trust Fund

2. BBMB Prime Fund

trunds manag€il by BHLB Pacilic Trust Manogem€nt Bhd

1. BHLB Pacific Double Growth Fund

2. BHLB Pacific Emerging Cornpanies Growth Fund

Funds mamg€d by BIMB Unit Trust M rsg€m€nt Bhd

1. Amanah Saham Baflk lslam Filst Fund

xv

XVIII Funds monsgetl by Comnerce Property Trust Managen Bhd

1. First Malaysia ProPerty Trust

xvI

xv

Dat€ o{ launching

212194

14l5l9r

Dat€ oflsunching

1515191

7015194

Date of launching

79n/94

Dst€ of lnunching

1519192

Date of launching

2913181

1llr2l84

213192

24177193

2514194

2514194

Dste of launching

2613192

19t9194

Dal€ of launching

August 1990

xIx funds manag€d by DCM'RIiB Unit Ttu3t Manag€ment Bhd

1. DCM-RHB Dynamic Fund

Funds msnaged by K ala LumPur MulMl F|rnd Bhd

1. Kuala Lumpur Savings Fund

2. Kuata LumPur Growth Fund

3. Kuala Lumpur lndex Fund

4. Kuala LumPur lndusiry Fund

5. Kuala Lumpur Aggressive Growth Fund

6. Kuala Lumpur Regular SaYings Fund

Funds managed bv Mavban Manag€ment Fund Bhd

1. Mayban Unit Trust Fund

2. Maybar Balanced Trust Fund

XXII Funds manag€d bv Mayban koperty Tnst Fund Bhd

1. Mavban Property Trust Fund One (unlisted)

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LLILIZI

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pqg pund roaulaisusntsnrt Iu | .)dI-J[\ (q pr8Busur.punt \t]x

6'

punllsriddgw ipqg punJ ruauaEBu€tr{ tsn.[ rlun gAn ,{q peBBu€'lr spund I XX

btrtrnthn q tPutJ tsn4 rlun Jo a)uDwrot.d )uaurevl.r-

50 Crpital \lar\er Rt\ie{ ral.I N. 2 toa\

lvliller, R.E. and Gehr A.K. (1978).'Sanple Size Bias and Sharpe's Performance

Measure :A Notc." "roendl of Financial and Q ntutdrtrs Aralrra, l3(5) (December).

Sharpe Willian F (1966). 'Mulual Fund Perfornance." Jotinat of Business,39

(January). i19 138.

REFERENCE

l. Chua, Chin Pen (1985). "The lnvestnent Performance ol Unir Trusts in Malaysia..

Unpublished MBA Disseftar,or. Univenity otMalaya, Kuala Lumpur.

TH..v.{501

6.

11.

t2.

3.

5.

Coates. C. Roben (1978). Iwestment Sttate,New York : McGraw Hill.

F;th. Michael A. (1977), "The Invesirnenl Performance of Unit Trusis in rhe Period

1965-7s," .toumal of Monet, Credit. a d Ba kins,9.s97 6A4.

Gurney, J.P (1976), 'Rank Corrclation of Unit Trusr Performance 19'71 19j5."The Inwstment Anohst.

Jensen. Michael C. (1968), 'The Performance of Muiual Funds in rhe period 1945'1961." Joulnat of Frri,w,23(2) (May), 389 ,116.

Jensen. Michael C. (1969), "Risk, the Pricing of Capjtal Asscls, and the Evatualion ofInlestment Po folios," Jo urnal of Busines, A ( Apr|]). L61 241.

Jobson. J.D. and Korkie B.M. (1981). "Performance Hyporhesis Testing wilh the

Sharye and Treynor Measutcs," .Iounotof Financ?,36(a) (Se|tember).

t. I\:. i- :,

lJ. Koh. Francis and Koh. Seng Kee (1987), "An Enrpirical Analysis of the perfornancc

ofUnitTrusrsinSinsapote,'Se&liti^In.Iusrr)rR€fle'y,13(2)(Ocrober).113.

Lee, Marina E"l. (1993), 'A Performance Analvsis of Unir Trusts in Singapore,.'

Securities Industr}" Review. 19(1) (April),29 36

McDonald. John G. (1974), "Objectives and Pefformance ot Mutual F[ltds..' toumdlof Financi anl Qudntitortye ,l,arysts. 9(3) (June), 3I I 333.

10.