KUALA LUMPUR: Foreign market funds, once popular among investment houses, appear to be making a comeback on the back of a weakening ringgit and low crude oil prices. Advertisements promoting these funds, usually denominated in Singapore (SGD) and Australian (AUD) dollars, have been appearing frequently of late.  In January, RHB Asset Management Sdn Bhd launched its RHB-OSK Global Equity Stabiliser Fund, a wholesale fund investing in global equities. 

Public Mutual Bhd chief executive officer (CEO) Yeoh Kim Hong acknowledged that these funds, focusing on foreign markets, have gained interest among investors following the retracement of the ringgit against the US dollar and selected regional currencies. She said selected regional markets offer long-term investment opportunities for local investors to diversify their portfolio of unit trust investments. “In general, investors who invest in foreign funds should have a higher risk profile than investors who invest in the domestic market as foreign funds are subject to fluctuations in foreign currencies in addition to movements of foreign equity markets,” Yeoh said in an email response to The Edge Financial Daily.

This was echoed by Affin Hwang Asset Management Bhd’s fixed-income head Esther Teo, who said there has been a steadily increasing demand for foreign market funds from investors over the years. Affin Hwang introduced its Select AUD Income Fund in March 2011 and Select SGD Income Fund in August 2012 for clients to tap into the strength of the Australian and Singapore economies and the long-term appreciation of their currencies.

Teo said so far, investors have taken a liking to these funds because they have been enjoying lower volatility, saving in those currencies and getting higher returns compared to fixed deposit returns while gaining access to appreciating currencies. “Both funds are available in dual currency — RM/AUD and RM/SGD. To date, both funds have been performing above the benchmark,” she said.  According to data from research firm Lipper, as at Dec 31, 2014, Affin Hwang’s SGD Income Fund delivered 4.3% per year in returns compared with the benchmark of 1.5%, while the AUD Income Fund has returned 7.9% per year compared with the benchmark of 4.8% since these funds were launched. 

 Teo said demand for these funds is expected to rise as investors seek to diversify their currency and investment exposure away from Malaysia.

“It is important to have a diversified portfolio in terms of asset class, currencies and markets to weather different economic and investment cycles,” she said.

Teo said one of the key reasons investors seek foreign funds is to ensure sufficient funds for their children’s education or for retirement. Notably, the Singapore and Australian dollars and the British pound are favourites among investors. “Other reasons include the ability to access greater investment opportunities and product offerings as ringgit investments are more limited,” Teo said. But she said as with all investments, there are risks involved depending on the type of funds investors choose and the stability of the country’s economy.

“For example, a typical emerging market fund that invests in highly volatile currencies such as the Brazilian real, the Indian rupee and the Russian ruble would see much higher volatility than a fund investing in more stable SGD or AUD markets,” she said. Teo said although there are many currencies to choose from, Affin Hwang still prefers the SGD and AUD funds due to their AAA-rated status, well-managed economies and financial discipline. “We have seen how the long-term trend of the SGD has appreciated steadily against the ringgit over the years. Over the long term, these countries will continue to do better and attract foreign capital into their capital markets,” she said.

Teo said Affin Hwang advocates income funds where risks or volatility are much lower than a pure equity portfolio. “These income funds invest about 60% to 70% in fixed-income securities and the remaining in dividend stocks to generate consistent income for investors,” she said, adding that aside from currency risks, investors putting their money into these funds are exposed to market, regulatory and political risks.

Aberdeen Islamic Asset Management Sdn Bhd CEO Gerald Ambrose said investors would probably view these funds as a type of hedge, pointing to the rule of investment in putting one’s eggs in different baskets. Although he remains sceptical about what he sees as a “marketing ploy” to attract interest in foreign markets, Ambrose said investors should check the fundamentals of stocks the funds invest in. “There is no guarantee that an absolute return of 8% is possible, unless you’re Amanah Saham Bumiputera. So ... if you do it with a basket of other currencies, it may work out.” 

This article first appeared in The Edge Financial Daily, on March 23, 2015.