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Equity Funds Investing – Morningstar Singapore Fund Awards 2013
In the Spotlight | 05 April 2013
By: Nicholas Tan
Articles (71) Profile

Glancing back at 2012, we see that the year was affected by sporadic negative news emerging from the Eurozone along with fears that China – the world’s second largest economy was slowing down. However, despite these factors, global equity markets posted a surprisingly decent performance for the year. Part of the reason was due to accommodative monetary policy practiced by Central Banks around the world as they attempted to reduce tail-risks by flooding the market with easy-money.

Resultantly, global equity markets were flushed with liquidity and coupled with better economic growth data coming from the US in 4Q12, Asian equity markets rose over the fourth quarter of 2012. Wrapping up the year, further good news emerged from the US when its politicians finally came to a compromise and agreed to a deal to avoid the “Fiscal Cliff” which would undoubtedly send the US economy into recession.

Among the top performers in the Asia-Pacific region for the year, Thailand’s equity market came in tops with 32.2 percent return. Driven by a strong domestic consumption story, a full recovery from the floods which plagued its economy in 2011, steady corporate earnings and a fairly high 4.1 percent dividend yield which investors found favour for in the context of relatively weak global economic growth conditions.

Singapore’s Straits Times Index was the second-best performing market with a 19.7 percent return, representing the strongest annual performance for the local bourse since 2009. Performance was driven primarily by property developers and property-related companies, as residential property prices continued on an uptrend in spite of various cooling measures implemented. Financial institutions also benefited as credit growth remain strong offsetting a squeeze in net interest margin.

Alternative Investment
While you stare in awe at the exceptional performances from the Asia-Pacific equity markets, there is an alternative method to invest in them besides doing it on yourself. Let us delve into equity fund investing from an elementary perspective. For those interested in this form of investment, instead of deciding on the type of stock or industry to invest in, you decide on the size of your investment and hand over the money to a fund manager to make the investment decision on your behalf.

But before you embark on investing in this type of investment instrument, it is important that you iron out an investment policy statement with a fund manager to determine your investment objectives. This is to ensure that the fund’s investment objectives and yours are aligned and you choose a fund that matches closely with your investment goals while also weighing the advantages of joining one against those of investing alone.

Diversification Benefit
Despite the lack of control over the portfolio and additional fee outlay, equity funds does provide numerous benefits to investors, most of which revolves around the concept of spreading risk across different countries, stock market sub-sectors and stocks of variant market capitalisations.

Diversification hinges on the folklore investment concept that holding more than one stock in the portfolio reduces your risk when an unexpected economic downfall occurs. As structurally companies are markedly different, they react in a different way to adverse changes in the economic climate.

By pooling investors’ money together, fund managers have a greater variety of choices and are able to invest in a larger universe of stocks than an individual investor would otherwise be able to, hence fund managers are possibly able to achieve greater diversification across growth and value stocks.

Equity Fund Types
For those unfamiliar with alternative investments, equity funds are traditionally classified by their investment style emphasis on capital appreciation versus current income. Income funds tend to hold stocks of firms with consistently high dividend yields, while growth funds are willing to forego current income, focusing instead on prospects for capital gains.

In a sub-category, there are some equity funds that concentrate on a single country or geographic region. Funds in such sub-category invest in equity securities focused on a specific country or geographic area seeking to ride on the ebullience of the equity market in the country or region.

Morningstar Singapore Fund Awards 2013
On 19 March 2013, the Morningstar Singapore Fund Awards 2013 was held recognizing retail funds and fund groups that added the most value for investors within the context of their relevant peer group in 2012 and over the longer term. Winners were selected using both a quantitative methodology with a qualitative overlay that considers the one-, three- and five- year performance history of all eligible funds, and adjusting returns for risk using Morningstar Risk.

For the full-list of winners, please refer to the Morningstar Category Awards 2013 table. Interestingly this year, apart from the usual Category Awards, Morningstar added an additional fund group award – Morningstar Best Equity Fund House Award. The winner of the Fund House Award 2013 was Aberdeen Asset Management Asia Limited recognizing it as the fund group with the strongest risk adjusted performance across their fund line-ups. Let’s gives all the winners a round of applause!

Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

Please click here for more information about this author.

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