The first couple of decades in the history of the unit trust industry were characterised by slow growth and a lack of public interest in the new investment product. Besides, the year 2006 was a much remembered year for members of the unit trust industry in Malaysia as it was reported a loss of RM600 million from the KWSP saving invested in approved unit trust fund (Mohamad, 2006). Nonetheless, the industry is still growing rapidly.
Only 18 funds were introduced in 1979, and over the period, the year 2014 saw the emergence of more than 600 funds, witnessed a growth of 3300% over the last 36 years, or an average annual growth rate of 92%.
Despite the rapid growth of the funds, the empirical evidence from previous studies which examined the performance of the unit trust funds in Malaysia and foreign countries reported that the risk-adjusted return of unit trust funds were incompetent to cope with the risk-adjusted return of the market.
The gap between the rapid growth of the industry and the performance of the industry outstretched issues of whether the investors owned limited knowledge or imbalance information about the industry existed among investors, fund management companies, government agencies and regulators.
The issues pertaining to the Malaysian unit trust funds was elucidated by Prof Dr Nur Adiana Hiau Abdullah from the School of Economics, Finance and Banking (SEFB), College of Business (COB) during a series of an Inaugural Professorial Lecture entitled “Unit trust funds: What's there to trust?", held at the Seminar Hall A, Convention Complex of UUM, recently.
The objective of her lecture was to witness the development and performance trends of Malaysian unit trust industry.
The lecture was divided into six parts. Amongst them were development of unit trust funds since it was first introduced and basic theory of unit trust which influenced the performance of the funds by introducing the basic model in measuring the expected rate of return and investment risk.
Furthermore, Prof Adiana also mentioned about the empirical evidence on the unit trust funds performance and its development in emerging markets.
"Unit trust funds in developed countries show a mixed performance since 1960 until today. When the industry grows, the performance of the unit trust funds is recuperating and in some cases they outperform the market or benchmark set," she explained.
"Nevertheless, when other factors were taken into account, the risk-adjusted return in unit trust funds is below or on par with the markets. The study also found that there were no significant differences in risk-adjusted return in the social funds or ethical funds with conventional funds in the United States (US), United Kingdom (UK) and Germany in the 1990s.
"However in the 2000s, the real performance of ethical funds was not as good as the conventional funds in Australia, while in the Europe and the US, the performance of socially responsible investment funds outperformed the conventional funds."
She added that the performance of the funds invested at the international level outdid the funds invested domestically in the US but the situation was different in the UK or Australia.
"Compared to the results found in developed markets, most studies in the emerging markets, particularly Malaysia showed that the return on risk-adjusted performance of unit trust funds market was underperformed the prescribed benchmarks."
"While the emerging markets are considered less efficient albeit the opportunity for investors to earn profits and the fund manager is capable to demonstrate the market timing and selectivity, most of the evidence suggested otherwise," she said.
At the end of her lecture, she suggested some suggestions that can be made based on her study to relevant stakeholders such as investors, fund management companies, regulators and researchers.
The Inaugural Professorial Lecture is a platform for all professors in Universiti Utara Malaysia (UUM) to present lectures in their respective fields and these lectures will be compiled and published by the university.
Also present at the event were UUM Vice-Chancellor, Prof Dato’ Wira Dr Mohamed Mustafa Ishak, professors, UUM staff, representatives from the government and private agencies and students.
Translated by Nurul Nazifah Mat Noh
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