10 FUNDS DOWNSIDE RISKS OF THE KLCI

10 FUNDS DOWNSIDE RISKS OF THE KLCI

Traditionally, the higher the gains, the higher the risks. So let's take a look at the downside risks of these ten funds and of the KLCI.

Table 2: Downside Risks
#	Funds	2011 Downside Risk*
1	Kenanga Syariah Growth Fund	7.4%
2	Prudential Equity Income Fund	7.6%
3	Alliance Optimal Income Fund	8.2%
4	Kenanga Growth Fund	8.6%
	FTSE Bursa Malaysia KLCI	9.8%
5	RHB Malaysia DIVA Fund	9.9%
6	OSK-UOB Malaysia Dividend Fund	10.1%
7	Prudential Dana Al-Ilham	10.4%
8	AmIttikal	10.4%
9	AmIslamic Growth	11.4%
10	OSK-UOB Emerging Opportunity Unit Trust	16.2%
Source: Bloomberg, iFAST *Downside risk is the annualised standard deviation of daily losses

Lower Risk, Higher Returns Than The Market

Table 2 shows how risky the funds were with respect to making losses. Just to be clear, downside risk is not a measure of risk-adjusted returns. A low downside risk indicates that the losses (if any) tend to be very consistent, whereas high downside risk indicates that the losses (if any) could be anywhere in between mild and extreme.

The results show that six better-performing funds had more erratic downward movements than the market (as represented by the broad-based KLCI). Although a fund might have higher gains, investors would also need to be able to ride out periods of losses when markets turn bad.

That said, investors who are risk-averse could consider those funds which have lower downside risks than the broad-based KLCI, yet achieved higher returns than the index. The top four funds in Table 2 certainly fit the bill.

Fancy Small Caps?

The definition of a small cap company within the context of Malaysia is not defined accurately as different fund houses apply different criteria. In the simplest terms, a small cap company is one that is listed on the Main Board, and is not part of the top 100 companies based on market capitalisation. Of the ten funds that outperformed the KLCI, one of which invests in small cap companies - the OSK-UOB Emerging Opportunity Unit Trust.

OSK-UOB Investment Management Berhad defines a small cap as a company with a market cap of less than RM750 million. In 2011, sentiments were weak and riskier assets were under immense selling pressure, which resulted in the benchmark FTSE Bursa Malaysia Small Cap Index recording a total return of -4.0%. The OSK-UOB Emerging Opportunity Unit Trust had an average cash holdings of 11.0% in 2011 which probably helped cushion stock market losses and enhanced the performance of the fund. Not surprisingly, this fund also has the highest downside risk as seen in Table 2.

IN CLOSING...... ten funds on our platform managed to beat the KLCI in terms of total returns, and only four funds did so in a less risky manner. Our analysis is based on 2011 total returns, and investors with longer-term investment time horizon should look into the longer-term performance and downside risk of the funds before making an investment decision. It's hard to say that would happen in 2012, suffice to say that there remain dark spots in the US, Europe, Arab nations and China at the time of writing.