PB Capital Protected Dragon Fund

What does capital protected fund means? You can read more from my main website:-

Capital Protected Fund - Secret To Structure Your Own Capital Guaranteed Portfolio

Here we'll focus our discussion particularly on PB Capital Protected Dragon Fund. FYI this is the first capital protected fund launched by Public Mutual/Bank. I am not surpise you will see more in the market soon. In fact I do seriously think its a good time to invest into capital protected funds at this time. There are investors whom are still bullish but we never know the possible downside of the market. Thus its always good to be cap at the down side.

Not much publicity I heard from the Public Bank staff about PB Capital Protected Dragon Fund. To be frank.... its a bit of conflict of interest because selling a capital protected fund contributes very little to their quota/commision thus bankers (all banks are the same!) will have less motivation to sell this product. ANYWAY, we assume all bankers are fair and honest, ok! :)

PB Capital Protected Dragon Fund is a close ended fund, therefore there is only 45 days to sale this fund. If the fund size is too small and deemed to be not feasible to continue launching the fund, the fund manager will apply to close the fund and return all the money to the investors. Anyway I don't think this will happen. FYI the minimum size is about RM30-50million depending on the expenses incured by the fund.

The tenure for PB Capital Protected Dragon Fund is 3 years, its considered the longest tenure in the industry now. No investors would buy into any close ended fund which has more than 3 years to maturity.

Repurchase charge is common in capital protected fund but industry practice is on the step down basis, meaning that the repurchase charge is higher in the early years and reducing towards the maturity of the fund. But PB Capital Protected Dragon Fund do not offer this privillege. Repurchase fees of 1.5% is consider at the higher end of the market.

I like the minimum investment of PB Capital Protected Dragon Fund, its only RM1000 which is rather uncommon in the market. Initially capital protected funds are meant for high net worth client with the expected minimum investment of few hundred thousands. Eventually this product evolved to meet the lower end market ... usually the peer market players would easily launch this product with the minimum invesment of RM3K or RM5K. Therefore I have to merit PB in this aspect.

Btw before I forget, capital protected only protect the invested amount. Since we are paying for investment amount + sales charge. Assume the sales charge is 1%, therefore if the product failed, you will only be protected on the 99% of the money you first brought into PB.

About 95% of the fund will be invested into debt instruments while about 5% in the equity related securities. The life and soul of this whole PB Capital Protected Dragon Fund is in the 5%. From my experience with capital protected funds, I believe they will put this money into a structured option. It will be a option on the performance of a basket of stocks related to the growth of China. Anyway I am a bit disagree with the disclosure of "although the fund is actively managed"..... well depends how you define "actively managed". There is nothing much they can do with the 5% since the another 95% will be "locked" into debt instruments. Since this 5% is the life and soul of the fund, a little bit of adjustment will shift the performance of the fund by a lot and the cost of unwinding all the hedge positions will cost the fund a bomb. Therefore I believe the so called manage is only during turbulence, else since the fund is already capital protected, then just leave it alone.

Mmmmmmmm generally I would not be agreeable to use 12 months fixed deposit as the benchmark for PB Capital Protected Dragon Fund. This is because the 5% in structured option will provide 100% of equity exposure to the portfolio as a whole.... hahaha I am sure you are lost here. Its ok, anyway its very rare that capital protected fund will use 12 months fixed deposit as their benchmark. This will make them looks good on the "report card" ! Be prepared to expect seeing that the fund will never be more than 5% below the benchmark since they are investing 95% into debt instruments which are expected to perform similarly to fixed deposit.

Overall, the information that I can get from the prospectus is rather limited. Personally I believe in a capital protected fund to invest into high risk market such as China. I think its a good buy since the minimum is only RM1K but please bear in mind that the monies that you put in here shall not be expected to withdraw in the next 3 years. Therefore you shall limit the amount you put in so that you still have liquid cash to invest into other instruments. Good luck guys.... and happy investing :)

Public Mutual : The Edge-Lipper Malaysia Fund Awards 2008

Its again this month of the year when all fund managers put all the awards on the table and show of to the investors. Congratulation to all the winners. Its a recognition for the hardword and achievement for the pass years.

How much does an awards means to investors? Do you understand what they mean? Step back and think what does a fund that gained 127% in 10 years means to you? For example is the Public Bond Fund. This is definately one of my favourite fund... to be included into the profile of conservative investors.

Before I proceed, lets see what does total return means to the investors. Lets take example of the highest return which we see in the above chart - Public Ittikal Fund. This fund has gained 313.34% return for the past 10 years. Meaning that if you would have invested RM100K on 31 December 1997, by 31 December 2007 your RM100K is now = RM100 X (1 + total return % ) = RM100 X (1 + 3.1334) = RM413.34K.

Annualised return means the return per annum. This especially important to compare to an alternative investment instrument which return are normallly quoted in annual basis, a good example of this is fixed deposit which offers 3.8% per annum. Now we wish to convert the total return of the funds to annualised return. A simple annual return is just = total return (%) divide by the total years of investment. But a compounding return is slightly different where we take into the compounding effect of the investment.

(1+simple annual return%)^total years=(1+total return%)

This table summarizes all the compounding annualised return for the awards funds. Example PB Growth Fund's compounding annualised return is 8.53% per annum (not 126.66% divide 10 years to be 12.66% per annum)

The critical question is, yah so what now? What does this mean? Thus after we calculate the compounded annualised return for all funds, we will wish to compare it with our base line benchmark. Which for most conservative investors are fixed deposit :)

The above two tables shows that the annualised return for all the award winning funds outperform the fixed deposit return.

Product Review Public Islamic Optimal Growth Fund

Key Product Feature
This fund invests into Malaysia stocks which are Shariah approved. The fund also has the flexibility to invest into Shariah approved’s debt instruments.

Investment Strategy
The Fund invests 50% into dividend paying stocks while another 50% into growth stocks.

Dividend paying stocks mean stocks that usually has very consistent and clear dividend paying policy. When a company pays dividend, there are 2 possible indication. One is that the company wishes to maximize the wealth of its share holder thus payout dividend to the investors secondly is that the company do not have any profit project to reinvest the monies, thus are pressured to pay out the excess earnings.

Growth stocks mean stocks that that retain the profit made in the previous years so that it can reinvest the monies in a high profit projects in order to maximize the investors in the long term. Please be careful that there are companies that retain earnings because they expect turbulence in the future economy thus wish to retain more cash in the account.

Therefore its extremely important for an analyst of fund manager to analyse the reason for a company paying dividend or not paying dividend. Its not the action but the intension that matters. No matter how thin you slice, there is always two side.


Target Investors
Aggressive investors because this fund has high equity exposure. Please take note also that Islamic fund doesn’t mean for Muslimin and Musliman only. Infact Public Mutual has launched few very successful Islamic products which the Investors are majority Chinese. One of the very good example is Public Ittikal.


Cost and Expenses
This is very similar to other Shariah local funds. But I foreseen this fund will have higher management expenses ratio (MER) meaning that the fund will spend more to manage the investor’s monies. This is because comparing to the older funds (before 2006), this fund will incurred a higher trustee fees (0.08%). If you refer to the older funds, the trustee fees are only (0.07%). Anyway if the fund manager intends to hold higher weightage in Islamic bonds for long term, thus the MER for the fund can be reduced but investor’s performance will be lesser too. Therefore I don’t think the fund manager will reduce the bond exposure for the sake of reducing MER. It will be more for the strategic view about the outlook on equity vs bond market.


Product Differentiation
The fund focuses its portfolio construction by looking into 2 main categories of stocks which are dividend and capital growth stocks.


Similar Products
Public Ittikal Fund

What We Like About It
At most time we can ensure there will be dividend stocks in the portfolio which are expected to be more resilience during choppy market. This fund is expected to pay very consistent distribution (used to be called dividend) to the fund’s investors.

What We Don’t Like About It
It is very similar to the other local Islamic funds and there are too many local funds in the market. We need foreign funds to achieve further diversification in our portfolio.