7A.6 Measuring UTS Performance: Returns, Performance Tables, Risk Measures and Qualitative Factors

Why Measurement Matters

Investors expect UTS to beat relevant benchmarks: deposit rates, the FBM KLCI, competitor funds. Returns can be calculated in several legitimate ways, so comparisons are only valid if the same method is used.

Raw Return vs Compounded Annual Return

Raw return is the total return over a holding period. An investment bought at RM1.00 and sold at RM2.00 has a raw return of 100%, whether it took five years or ten. That makes comparisons across periods hard.

Compounded annual return converts the total into a per-year rate:

$$\text{Compounded annual return} = \left(\frac{\text{Ending value}}{\text{Starting value}}\right)^{1/n} - 1$$

It adds a standard time dimension and matches how benchmarks such as fixed deposit rates and index returns are quoted, so it compares "apples with apples".

Worked example: Fund M turned RM10,000 into RM16,105 over five years; Fund N turned RM10,000 into RM21,589 over ten years. Which did better per year?

• Fund M: $(16{,}105 \div 10{,}000)^{1/5} - 1 \approx 10.0\%$ a year.
• Fund N: $(21{,}589 \div 10{,}000)^{1/10} - 1 \approx 8.0\%$ a year.

Fund N has the bigger raw return (115.9% vs 61.1%), but Fund M compounded faster. Whether M is "better" still depends on risk taken and consistency, discussed below.

How UTS Performance Is Measured in Malaysia

• Total return = the difference between what the investor puts in and gets back, plus income received during ownership.
• The initial service charge affects only the investor who pays it and matters most over short periods. Performance tables generally exclude the investor's entry cost but include management fees and other expenses.
• Refinitiv Lipper measures performance from NAV at the start and end of the period, adjusted for distributions and splits. Morningstar compares buying prices, also adjusted. Both exclude initial service charges, and the difference becomes insignificant over reasonable periods.
• Both assume distributions are reinvested, consistent with share-index conventions. An investor who takes cash distributions will see a different return.
• Both report total returns over periods, not annualised rates, which can make comparison with fixed income or EPF rates harder.

What Performance Tables Contain

Weaknesses of Performance Tables

1. They are historical; past performance is not a guide to the future.
2. Periods ending on the same date are dominated by recent returns: a great final three months can make a fund look strong over three years despite 33 poor months.
3. Returns may come from one or two big winners (high risk) or from large IPO allocations in a bull market.
4. The fund managers who built the record may have left.

Consistency and Qualitative Factors

Consistency matters more to long-term investors than one period's ranking. UTMCs may advertise their best period, so look for funds that beat benchmarks and peers across many periods and market conditions, especially in falling markets. Morningstar's star ratings reward consistent outperformance of peers.

Qualitative analysis looks at:

Performance tables from research houses endorsed by FIMM are useful, but they are only one factor in choosing a fund.