Unit trusts are back in demand

Today Online. Oct 2, 2009.

Unit trusts are back in favour among investors and the recent stock market rally has just boosted confidence further in these funds. Experts said unit trust performance scaled higher in the last three months in line with the upbeat showing in the stock market.

The key Straits Times Index (STI), which is a barometer for the Singapore stock market, rose 14.5 per cent in the third quarter this year to 2,672.57 points. In turn, this encouraged investors to start picking up unit trusts again after these funds had fallen out of favour amid the recent global financial crisis.

Research manager of online distributor of unit trusts Fundsupermart, Mr Wong Wei Yi, said: "Our sales of unit trust increased by 29.8 per cent in the third quarter of 2009, compared with the second quarter. The sales was more than two times the first quarter figure."

The favourites among investors include funds focused on emerging markets and equities, especially those that are China-linked.

The top performing fund in the third quarter which ended Sept 30 is the Legg Mason South-east Asia Special Situations Trust, which rose 32.96 per cent over the three month period, according to investment research firm Morningstar.

Mr Ivan Ng, an Asean fund research analyst at Lipper, said: "Investors have bought back into mainly equities indicating some lack of diversification."

He also pointed out that although unit trusts are widely considered as long-term investments, there is "momentum chasing behaviour", suggesting that there is active switching of funds as well as redemptions, as investors track the active movements in the stock market.

Market players also said there had also been some interest in funds invested in precious metal-related stocks, especially in early September when gold prices rose temporarily beyond US$1,000 ($1,385) an ounce.

During the financial market meltdown since late last year, investor appetites for unit trusts have shrivelled.

Mr Victor Wong, director of wealth management at Financial Alliance, said: "Unit trusts offer diversification and market access to markets. You can get exposure to a broad variety of stocks on $10,000 invested in a unit trust, but you can only purchase a limited amount of shares."

Meanwhile, Fundsupermart's Mr Wong added: "We believe over the next two years, corporate earnings should be recovering alongside the economy and investors who can afford to hold for a longer time horizon would eventually benefit despite potential near term downside risks."