Unit trust (UT) funds and investment-linked (IL) funds are two type of funds that are similar to each other. Unit trust funds are managed by, well, unit trust companies. Investment-linked funds are managed by insurance companies. Of course, there are some structure difference between them but we won't go into them in this article.
We often see clients like to compare UT funds and IL funds. Their common observation was IL fund price kept on climbing while UT fund price seems like not moving or even falling. We always like to explain UT fund prices will be adjusted accordingly when they declare a distribution (or dividend in layman understanding). And to make up for the distribution paid, total units will be added. So although the price "falls", the units actually "increased".
However, the anchoring bias is so strong that what clients remember is only the price. And they are so sensitive to the movement of price and not the the whole value of investment. Indeed, without a proper comparing tools, it is very hard to judged which type of funds is better.
In a recent training, I learnt a tool to compare both type of funds. And it is Lipper Leaders. So, let's do some comparison and see how it goes.
Let's head to http://www.lipperleaders.com/index.aspx.
Let's try and screen using Malaysia Equity. Below "1. I’d like to search for Lipper rated funds:" let's select "Malaysia" under "Universe:", "Equity" under "Asset Type", "Equity Malaysia" under "Classification".
Under "2. Select a time period:", let's select "10 Year". Then click "Display Funds".
OK, we do see some names of insurance companies. Let's try to sort them by their 10 performance. Let's click on "10 Year Return" twice to sort them descendingly. The first two pages are filled with funds that has no 10 year performance, so let's click 'Next" until page with 10 year data.
What we observed from here is that the top ten spots are taken by UT funds that returned 177%-329% for their investors. Manulife takes the 11th spot with 176%. This shows in terms of performance wise, UT funds are ahead of IL funds.
Now, let's be a bit more stringent and try to screen for the best-of-the-best funds. What do we mean by that. You notice there are some number under the columns of "Total Return", "Consistent Return", and "Preservation". The numbers shows their rating, with 5 being the highest and 1 the lowest.
To do a fresh screening, we have to go back to http://www.lipperleaders.com/index.aspx.
Below "1. I’d like to search for Lipper rated funds:" let's select "Malaysia" under "Universe:", "Equity" under "Asset Type", "Equity Malaysia" under "Classification".
Under "2. Select a time period:", let's select "10 Year". Then click "Display Funds".
Below "3. Choose Lipper Leaders that match your goals:", we will select "5 - Lipper Leader" for "Total Return", "Consistent Return", and "Preservation".
Then we click "Display Funds". Only 6 funds make the list, and all of them are UT funds.
Well, maybe the screen was too stringent. Let's try to loosen one of the criteria. We choose "4 or better" for "Preservation".
This is what we see. 11 make the list, with top 8 spots taken by UT funds (177%-329%). The subsequent 2 spots are taken by IL funds (153%-176%).
This goes to see UT funds are better in terms of performance, and the outperformance can be as much as 87%.
So, why not start comparing your investment-linked funds if you do have one. Maybe you will want to go for the best funds. Well, if you can afford to send your kids to the best school, will you settle for something lesser?
