Den of The Lion Investor

With regards to unit trusts, CPF monies can only be used to buy funds which are included under the CPF Investment Scheme (CPFIS). The number of funds that can be purchased with money in the Special Account (SA) is much fewer than the number of funds that can be bought using money from the Ordinary Account (OA).

These funds have to meet strict criteria set by the CPF Board to continue remaining in the CPFIS. One of these criteria is that their total expense ratio (TER) has to be lower than a certain stipulated amount.

The following funds have not met this criteria and will no longer be able to accept new CPF monies into the fund:

• LionGlobal Southeast Asia Fund
• Fidelity Asian Special Situations Fund (USD)
• Fidelity European Aggressive Fund (EUR)
• Fidelity South East Asia Fund (USD)
• Fidelity Taiwan Fund (USD)
• Fidelity FPS Global Growth Fund (USD)
• Fidelity Target 2020 Fund (SGD)
• Henderson Global Technology Fund
• Henderson Global Balanced Fund
• Henderson Pacific Dragon Fund
• Henderson European Fund
• Henderson European Property Securities Fund
• Henderson Japanese Equity Fund
• Henderson Global Property Equities Fund
• Henderson Asia-Pacific Property Equities Fund

If you are currently holding any of them with your CPF money, you can still continue to hold them. Just note that you won’t be able to buy more of them very soon.

If you have existing CPF-OA Regular Savings Plan (RSP) arrangements for the above mentioned funds, you might want to make sure they are terminated and select other funds which are still in the CPFIS instead.

The United Managed Cash Fund was supposed to be a new money market fund launched by UOB Asset Management Ltd (”UOBAM”).

As it invests in high quality short-term bank deposits, it provides a channel for you to get better returns from your savings without the need to lock your money in. With economies of scale, unit holders can enjoy higher interest rates compare to Singapore-dollar fixed deposit rates.

Just received news yesterday that UOB Asset Management Ltd (”UOBAM”) has decided not to proceed with the launch of United Managed Cash Fund.

Investors who have invested in the fund would have their proceeds refunded to them. More information will be sent from UOBAM will to unit holders accordingly.

Until there is further information from UOBAM, it remains unclear whether this fund will be relaunched in the future.

SGAM has decided to postpone the launch of SGAM AsiaPAC Income Plus Fund due to soft market and investor sentiments. The product will be launched at a later date when the market sentiment improves.

Investors who have already invested monies into the fund will have their funds returned. Details on the refund will be announced upon finalisation.

Looks like the current market sentiment is so bad that this fund has failed to attract sufficient interest for the launch to go ahead.

Lion Global has recently launched a new fund, the Lion Global AUD Short Duration Fund. This fund invests in high quality short-term AUD money market instruments and debt securities and aims to provide a return which is comparable to that or better than AUD deposit rates.

As we all know, the interest rates in Australia are at 12-year high and a large sum fixed deposit can easily get a yield in excess of 7% or sometimes even 8%.

The Lion Global AUD Short Duration Fund aims to generate excess returns by active management of the yield curve/duration, credit and currencies.

Risk Factors

• Since the duration of the holdings are 5 years and below (mainly 3 years), the risk from rising interest rates will be slightly reduced.
• There will be currency risk from a weakening Australian dollar and pullback in commodity prices.
• Credit risk of corporate bonds.

The Lion Global AUD Short Duration Fund seems to be one of the first few money market/bond funds with a focus on Australia available to retail investors here.

This fund is a good proxy to a direct fixed deposit investment. With the pooling of funds, you are likely to get a better interest rate than if you were to invest in a fixed deposit directly. Investing via this fund also comes with the advantage of no locked-in period and daily liquidity.

A minimum of just A$5000 is needed to invest in this fund. The fund has a maximum sales charge of 0.2%. There is a redemption charge of 0.1%. The annual management fee of this fund is 0.5%.

Societe Generale Asset Management will be launching a new fund this month - the SGAM AsiaPAC Income Plus Fund.

This fund invests in the Asia Pacific developed markets, namely - Singapore, Japan, Hong Kong, Taiwan, Australia and Korea.

Stock selection will be based on dividend yield, valuation and momentum. There will also be a liquidity criteria of market capitalisation over US$2 billion and a daily volume of minimum US$20 million. A final selection of 40 stocks will be purchased. This means that each stock will constitute 2.5% of the fund’s holdings.

Depending on the market conditions, the fund will apply either a “long only” or “covered call” strategy. A cover call means underwriting call options on the underlying assets. The premiums collected will enhance the returns of the fund.

As the name implies, there will be a regular payout of cash to unitholders of this fund. The payout is a guaranteed 8% p.a. coupon based on the fund’s NAV on the anniversary date. This payout will be done quarterly.

For example, the fund has a starting NAV of $1. So for the first year, $0.02 will be paid every quarter.

For the next year, the NAV at the anniversary date will be used to determine the coupon payout. If the NAV is $1.10, $0.022 will be paid out every quarter. Conversely, if the NAV is $0.90, each payout will be $0.018. And so on for subsequent years.

Do not be mistaken that the SGAM AsiaPAC Income Plus fund can give you a guaranteed yield of 8% p.a.

Whenever unit trusts are concerned, any dividend payout is always taken from the NAV.

For example, if a fund has a NAV of $1.20 and pays out a dividend of $0.05, you collect $0.05 and the fund NAV will drop to $1.15. In terms of how much the asset is worth to you, it is pretty much the same whether the dividend is paid out or not. Add in the costs incurred for paying out the dividends and you might actually be worse off.

What is more important is how much the fund can grow on an annual basis. If it can grow more than 8%, you can collect the dividend and still enjoy capital growth of the fund. If it is less than 8%, part of the 8% you collect will simply be a return of some of your capital.

The underlying assets of this fund has an estimated yield of about 4%. Thus, there will need to be a capital growth of at least 4% for your coupons to not come from your capital.

As for the management fee, it is 1.75% p.a. (max 2.0%) for this fund.

A dividend paying fund might be suitable for someone who relies on dividend payouts for living expenses. Even then, that person can simply redeem units for cash even if the fund he invests in does not pay any dividends.

For someone who wants to stay fully invested in the markets, he or she will have an unwelcome problem of reinvesting the dividends. This also means incurring extra costs again. Update: This reinvestment problem might not exist if automatic reinvestment of dividends at no cost is available.