Unit trust funds blossom despite Asian crisis

Unit trust funds blossom despite Asian crisis

By Josephine Ng

SINGAPORE (Reuters): The unit trust industry is blossoming in Singapore despite Asia's financial crisis and negative returns from 81 percent of locally-authorized funds in 1997.

Last year, out of 69 Singapore-registered unit trusts, only 13 managed to grow in value, according to British fund monitor Standard & Poor's (S&P's) Micropal.

By early February this year, the number of funds had grown to 93, not counting several new ones launched this month.

"The number of funds here are still small compared to elsewhere. Hong Kong has some 1,000 funds," said Ronnie Teo, DBS Asset Management's executive director.

He said the Singapore $3.0 billion to S$4.0 billion (US$1.8 billion to US$2.4 billion) invested in unit trusts so far were a drop in the ocean considering the amount available from the city state's employee savings scheme, called the Central Provident Fund (CPF), and cash deposits.

"We are going to see growth in the next five years at 20 to 25 percent per annum," Teo said.

The growth could be boosted further as Singapore moves to reform its financial sector, fund managers said.

A committee looking into the reforms has recommended that 20 percent of public sector funds, including foreign reserves, be allocated to the private sector, with 20 percent for management by fund managers in three years.

The Singapore government in response said last week that it would place out more funds for private sector management and was studying the details.

More savings in the CPF, now about S$78 billion, could also be placed with fund managers in the years ahead.

The government also said it was looking into allowing other funds to be invested into unit trusts approved by the CPF.

But fund managers admit the target size of new unit trusts has shrunk to more realistic levels of as low as S$20 million from earlier expectations of S$100 million.

And a sign of how the rout in Asian markets has taken a toll on investments -- three of the top 10 performing Singapore- authorized unit trusts in 1997 were bond funds.

They were Citibank's Citi Global Bond Fund with a 16.2-percent return, OCBC Savers Global Bond Fund, which rose 11.52 percent and DBS Shenton Income Fund which recorded a 9.7-percent return, according to S&P's Micropal.

This did not mean equities would lose their appeal this year, fund managers said.

Instead, new equities-based funds have to be nimble and find new ways to offer diversification and value.

In the last six months, new unit trusts have been pegged to ideas like "buy small", "buy global", "buy battered", "buy special situations", "buy Europe" or "buy technology".

These concepts are not new, but avoided the herd instinct, as Peter Seah, chief executive officer of Overseas Union Bank said of his bank's Global Contrarian Fund launched in November. And partnerships between local and foreign fund managers might score extra selling points with investors.

DBS's Shenton Global Advantage Fund was launched on Feb. 10 in partnership with U.S.-based small stock specialist Cowen Asset Management, to invest in companies with market capitalisation of not more than US$500 million.

Late last year, Singapore's United Overseas Bank Ltd. and U.S. fund manager Robertson Stephens jointly launched a global technology fund.

Teo of DBS said foreign partnerships were necessary to keep up with the fast changing pace of the industry.

"Some of us realize focusing investment in Asia is not sufficient. We need to globalise," Teo said.

For foreign fund managers, an Asian partner was one way to develop their client base, said Cowen Asset Management's chief executive officer Kenneth Dowd.

Others like Robertson Stephens join forces to get into Asian markets without spending huge resources.

While it is too soon to be conclusive, early signs this year show funds invested in markets that are among the worst hit during the financial crisis have raced ahead.

S&P's Micropal's data show that from January to the first week in February, the Templeton IF Thailand unit trust heads the pack with gains of 28.35 percent, followed by Templeton IF Korean with 21.2 percent and Aberdeen Malaysia with 19.91 percent.

And the worst three were DBS Shenton Greater China, down 14.04 percent, Nicholas-Applegate Regional India, falling 10.63 percent and Templeton IF China, down by 9.05 percent.

But fund managers said while they were pushing "contrarian" ideas to match changing situations, they did not foresee significant redemption from older unit trusts.

These older funds could still do well over the long term if properly managed, they said.