Temasek Holdings is to set up a wholly owned subsidiary called Seatown with a war chest of up to $5bn when fully-established.

The unit will be led by Charles Ong, its chief strategist, and be based at The Atrium at Orchard. Mr Ong is a former investment banker who joined Temasek in 2002.

Temasek will provide seed finance to Seatown, which is also expected to also attract backing from institutional investors.

Seatown’s investment mandate is expected to include not only stocks and bonds, but might also include alternative assets.

Seatown could turn out to be an avenue whereby local Singaporeans can co-invest alongside Temasek. Last July, the CEO of Temasek Ho Ching, it might ultimately allow the public to invest with it in projects.

Actually, Temasek Holdings all along had another wholly owned subsidiary called Fullerton Fund Management which operates as a fund management company catering to institutional and high net-worth individuals. In recent times, it has opened up some of its funds to retail investors.

At this point, it is still unclear how Seatown would be set up to allow retail investors to be part of it. As Ho Ching mentioned, they are still thinking through and things might only be clearer in 6 to 12 months time.

Due to recent strong growth in the Schroder Alternative Solutions (AS) Commodity Fund, with its assets more than tripling since the start of 2009, it is of the Manager’s view that the fund has reached the limit at which it may not be effectively managed given the current capacity of commodity futures markets.

Hence, to better manage the fund, Schroder Investment Management has decided to cease accepting subscriptions and switches-in of the Schroder Alternative Solutions (AS) Commodity Fund with effect from 27th February 2010.

This will affect all share classes of the Fund (the “Share Classes”).

The reason for the above closure is that the fund is now managing in excess of 10 billion US dollars across the range of products managed by the team (Commodities, Agriculture and Gold and Metals). This action is necessary to ensure that the Fund’s ability to achieve its performance objectives is not compromised by its size.

I view this move by the fund manager as positive. It is always tempting to allow a fund to grow as big as possible. After all, the manager will earn more in management fees.

However, a fund (depends on fund type also) that is too big might have problems in achieving good returns. Putting a cap on the fund size in order not to compromise the returns for investors speaks well of the manager.

UOB has made a buyback offer to the 4000 customers who purchased Pru Yield 15 or Yield 20 through them.

Investors will be able to redeem back their principal less any interest they have already received if they opt for UOB’s offer by 6 Nov 2009.

This works out to be $0.88 for Pru Yield 15 and US$0.82 for Pru Yield 20.

These 2 funds were mostly sold as capital protected products but had seen their price drop to as low as $0.375 in March 2009 at the height of the credit crisis. The price has since rebounded to $0.815 and US$0.842 respectively.

Investors who do not opt for the buyback offer will have to wait until June 2010 to get a full repayment of their capital. They will have tol continue to bear default risk of the Yield 15 and 20 product.

As of 16th June 2009, there were 14 defaults out of a total of 100 entities making up the notes. The notes can take around 9 more defaults before the capital is adversely affected.

Actually, the buyback offer for the Yield 20 is a purely token one as the price of the notes is currently trading at above the buyback offer price.

Note that the buyback offer only applies to UOB customers who bought the Yield 15 or 20 through them.

CPF has released a  report by Lipper on the performance of unit trusts under the CPF Investment Scheme (CPFIS) for the half year ending June 2009.

This simplified report talks about the benefits of long term investing and the power of compounding, as well as provides tables comparing the returns, risk and expense ratio of the various funds.

Read report here: CPFIS 2Q2009

There’s also a scatter plot measuring the risk against return ratio of the funds, segregating funds based on whether their returns outperform or underperform the industry average given their volatility (risk).

Given that most equity markets have performed badly in the past year, you can see that most of the funds in the best quadrant (highlighted as giving an above-average return and lower-average risk) are fixed income funds.

Selecting funds based on this criteria would be a mistake as you might end up with an asset allocation that does not fit you. In fact, if you select funds solely from the best quadrant, you will end up with a 100% fixed income portfolio.

Instead, an asset allocation plan should be drawn up based on your risk profile and investment horizon. The tables can then be used as an aid to help you select funds from the respective asset class.

DBS has recently started taking drastic steps to gain market share in the sale of unit trusts.

They have implemented a 1% sales charge policy on the sale of any unit trusts under their platform. This rate is even more competitive than the 2% or 1.5%  found in other online unit trusts platform providers.

In fact, you can easily transact via DBS internet banking (edited: Online still shows the usual charges of 3 and 5%). A check after login to DBS internet banking shows that funds from the following fund managers can be purchased online:

• DBS Asset Management
• Deutsche Asset Management
• AllianceBernstein
• Henderson Investors Singapore
• Legg Mason Asset Management
• Schroders Investment Management

In addition, DBS has added 7 more days to the cooling period for anyone who buys from them. This means a total number of 14 days for the cooling off period.

I suspect that their sales have been hit pretty badly since the ban by MAS on selling of investment products through bank tellers. So now they have resorted to competing on price.

Will other financial institutions follow suit?

We have indeed come a long way since the old days where banks used to charge 5% for the sale of unit trusts. All these are positive changes for the consumers.