Investment into Unit Trust funds that have exposure to foreign investments may be exposed to currency risk. Currency risk is a form of risk that arises from the change in price of one currency against another.
Whilst a fund will constantly seek to maximize returns and exceed the inflation rate, at times it may experience losses, which result in investment returns that are below the inflation rate in the short run.
Fixed income securities and bonds yields are sensitive to movements in interest rates. When interest rates rise, the value of fixed income securities and bonds fall and vice versa, thus affecting the investment returns of the fund. The general interest rate of the country may also affect the value of the investment even if the fund (e.g Shariah Fund) does not invest in interest bearing instruments.
The various asset classes that the fund manager has invested into may encounter liquidity risk. Liquidity risk can be related to the fundâ€™s ability to easily and quickly trade at a reasonable price, e.g. to sell or buy securities. Should a fund comprise a security that has become temporarily or permanently illiquid or difficult to sell, the fund manager may need to sell the security at a deep discount to its fair value, which will negatively affects the fundâ€™s value.
As unit trust funds principally invest in public listed companies they are exposed to changing market conditions as a result of global, regional and national economic conditions, governmental policies or political developments. Market uncertainties and fluctuations caused by these uncertainties will affect the net asset value (NAV) of unit trusts which may fall or rise, thus causing the returns generated by the fund to fluctuate.
Performance of the fund depends on the investment acumen of the fund manager. Inferior management of a fund can cause considerable losses to the fund which will negatively affect the returns of the investment.
|Risk||The calculation of risk follows that of standard deviation. For analysis period that is less than a year daily price/return data is used and for a year and above, weekly price/return data is used. The analysis period for risk will start from weekly onwards.|
|Reward-to-Variability Ratio (RVAR)||Reward-to-Variability Ratio (RVAR) as the name implies is a measurement of the fund's average return (less risk-free rate, in this case it is set as default 1% per annum) over a specific analysis period divided by the fund's risk (also known as variability). The numerator of RVAR measures a fund's excess return, that is the return for bearing risk or commonly referred to as risk premium and the denominator is the standard deviation. RVAR shows the excess return per unit of total risk. The higher the ratio, the better the fund performance is as compared to its peers. Weekly price/return data is used for the calculation of RVAR. The analysis period for RVAR will start from 3 months onwards. Background: William F. Sharpe, winner of the 1990 Nobel Prize in Economics, is a Professor of Finance, Emeritus at Stanford University's Graduate School of Business. In addition, he is also a trustee of the AXA Rosenberg Mutual funds and serves as Chairman of the Board of Financial Engines, Incorporated. Years back, Dr Sharpe introduced RVAR as a measurement for the performance of mutual funds (unit trust) which is also commonly known as Sharpe Ratio, Sharpe Index or Sharpe Measure.|
The funds are ranked based on their returns/risk/reward-to-variability. The numbers (after each grade) are
the position of the funds within the scope.
Example: There are 12 funds in a chosen scope, the ranks are as follow:
If a fund is ranked B5, it means that within the 12 funds, it is in the 5th position under Grade B category.
|Absolute Returns||The percentage movement in the value of fund units from one period to the next.|
|Annualised Returns||The percentage movement in the value of fund units from one period to the next, adjusted to a compounded basis.|
|Bond||A security issued by a company or a government which promises to give you a fixed sum at a future date in return for a regular, specified level of income until that maturity date.|
|Benchmark||The performance of a basket of stocks or securities over a time horizon, against which the performance of an investment fund is compared against.|
|Capital Appreciation||Increase in the value of capital - the objective of most equity - invested unit trusts|
|EPF||Employee Provident Fund|
|Distribution||The cash payment that a company or a unit trust pays out annually or half-yearly, if any.|
|Dollar - cost - averaging||The mathematical concept of regular investment of a fixed cash amount in a volatile asset (such as a unit trust), by which the average cost of acquisition is lower than the average value of the asset over a period of time.|
|Diversification||The concept of investing various securities to reduce the risk of investing in one security.|
|Equity||The part of a companyâ€™s capital which is owned by its shareholders; shares.|
|Fact Sheet||A short document produced by the fund managers containing useful information about a unit trust, such as recent performance, asset allocation etc. for the benefits of the investors.|
|Front-end Load||The initial service charge paid by the investors when purchasing the funds.|
|Fund Manager||The group of people or organisation managing the unit trust.|
|Fund Size||The total net asset value (NAV) of the fund.|
|Income Distribution||The portion of dividends, interest and capital gains earned by the unit trust and paid out to unit holders.|
|Investment Objectives||What a financial instrument, such as unit trust, is trying to achieve, for example, to achieve a return of at least 3% within a time period of 6 months.|
|Lump Sum||This is where an investor has a single amount of funds which he wants to invest in a unit trust. This may be the only investment the investor wishes to make.|
|Management Fee||The Investment Managerâ€™s remuneration, which is calculated as a percentage of the total net asset value of the portfolio and is usually accrued at each dealing day.|
|N.A.||Not Applicable, unless otherwise stated.|
|Net Asset Value (NAV)||The market value of the fundâ€™s total assets plus income less expenses.|
|Performance||This is usually quoted as the percentage movement in the value of units from one period to the next. This is usually presented in a percentage format on an Absolute Return basis or an Annualised Return basis. Performance may also be judged on a relative basis against a benchmark.|
|Portfolio||A collection of different types of investments.|
|Prospectus||The legal document that contains all the information about a unit trust. The purchaser indicates that he has read this document when he signs the application form.|
|Reinvestment||Unit holders who opt for reinvestment instruct the Manager to use their income to buy additional units at the net asset value per unit of the fund.|
|Trustee||A legal entity runs by a group of people or an organization to protect the interests of a person or a group of people.|
|Unit Holders||The owners of a unit trust.|
|Unit Trust||A pool of financial instruments that is sub-divided into smaller units, and managed by a fund manager.|