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iFAST Corporation: What Does $5.8b AUA Mean?
Corporate Digest | 18 June 2015
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By: Peter Ng
Articles (81) Profile

One of the main benefits of investing in unit trusts is that they allow investors to own a diversified portfolio of stocks and bonds or a combination of what is known as a balanced portfolio.

On top of the diversification benefits, investors are able to invest in unit trusts at a minimal investment outlay, as compared to purchasing individual securities, and not forgetting to mention that each of these trust funds are actively managed by a team of investment managers.

Traditionally, investors mainly turned to financial institutions to purchase unit trusts, where a spread of as much as 5 percent of the initial investment sum could be levied out-front as sales commission.

While 5 percent may seem negligible on hindsight, however, it should be noted that costs have a direct impact on an investor’s return.

Moreover, since unit trusts are actively managed, there are ongoing costs associated with unit trust investments which usually range between 1 and 3 percent.

As far as things are concerned, the four-year average annual return of the Straits Times Index (STI) between the period of 10 June 2011 and 2015 was around 1.6 percent and 4 percent with dividends.

To put this into context, a one-time sales commission of as high as 5 percent is enough to set back an investor who has invested in a unit trust that invests in the underlying stocks of the STI for the first year, and that is even before considering the effects of management fees.

Cost Leader By The Removal Of An Intermediary
Now that we have seen how investment costs could potentially impact an investor’s return, we are ready to look into iFAST Corporation (iFAST Corp), where Shares Investment was given the opportunity to attend an exclusive interview with.

iFAST Corp’s has two main business segments, business-to-consumer (B2C) and business-to-business (B2B), with the selling and managing of positions in unit trusts being the core product of the company.

iFAST Corp’s B2B business services entities such as, financial advisers and financial institutions, by handling their back-end and operational needs. These needs would commonly relate to settlement and transactions from the buying and selling of assets, but do not exclude custodian services.

The company’s B2C business is primarily conducted through the Fundsupermart platform, where the platform currently offers retail investors in four countries in Asia (including Singapore) with a cost effective option to invest in a wide selection of unit trusts.

For a unit trust position of $0.1 million, the one-time out front sales charges could go as low as 0.5 percent and even with ongoing fees in the form of platform fees would cost an investor another 0.1175 percent.

Totalling sales charges and platform fees, this amount is a fraction as compared to what is charged by other financial institutions.

The lower fees levied on investors would subsequently result in a positive impact on an investor’s net return.

When asked on how iFAST Corp is able to generate these cost advantages, Lim Chung Chun, chief executive officer and chairman of iFAST Corp, shared that the development of in-house information technology (IT) systems as opposed to outsourcing have generated multiple benefits for the company and one of such benefits is cost advantage.

With the implementation of an IT system that has the competencies to streamline operations relating to transactions, this has resulted in the removal of an intermediary, and in this case a sales agent.

Consequently, without the need to pay sales commission, these cost savings are then passed to the investor.

Although some may argue that the removal of a sales agent could lead investors to miss out on investment advisory services that sales agents can provide, however, for investors who are already familiar with unit trusts, the benefits of generating cost savings would outweigh the need for investment advisory.

Considering the sea of knowledge that is widely available on the internet, gone were the days when investments represent a body of arcane knowledge that was not accessible to everyone.

Win-Win Situation For Self-Help Investors And iFAST
As investors become savvier, they are able to invest and manage their investments with minimum assistance. This trend could be viewed positively as iFAST Corp’s assets under administration (AUA) for both its B2B and B2C business segments, has grown to $5.8 billion at a 10-year compounded annual growth rate of 24.3 percent.

Further to this, iFAST Corp’s revenue comes in the form of recurring and non-recurring. The non-recurring portion often relates to one-time components such as sales commission, while the recurring portion refers to revenue that is generated mainly in the form of platform fees as a derivative of the group’s AUA.

For the past four years between 2011 and 2014, the portion of recurring revenue for iFAST Corp represents in excess of 80 percent of the group’s revenue.

The recurring portion is the portion that garners the interest of any investor, given that recurring revenue is much more sustainable compared to non-recurring.

Furthermore, noting the growth in the company’s AUA has a positive correlation towards the top line generated from the company, will leave investors with much to cheer for especially with the historical strong growth of AUA.

Exceptional Business Model; Valuations To Be Considered
iFAST Corp is without doubt an innovator which has radically changed the unit trust scene since its inception, while being matched with a strong business model that focuses on earnings sustainability.

However, considering that its valuation of 35 times to the company’s price-to-earnings (P/E) ratio, investors have to consider whether this is a fair price to pay for the company.

Using the price-to-earnings growth methodology, a P/E ratio of 35 times would mean that a company would need to grow its earnings at 35 percent in order for it to be fairly valued.

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.

iFAST Corp  1.020 -0.010 -0.97%   
Business: Internet-based investment products distribution platform. [FY18 Geographical] Singapore (65.9%), Hong Kong (23.9%), Malaysia (8.9%), China (1.3%).

Insight: Apr-19, 1Q19, Co's assets under administration gre... Read More

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