JUDGING from the improvement in the equity market, coupled with the rise in the volume of shares traded, investors can expect to reap more distribution income (dividends) for unit trust funds this year.
Many private unit trust management companies are upbeat that the current economic and equity market scenarios are much better than last year for the declaration of distribution income.
HLG Unit Trust Bhd chief executive officer and general manager Tye Su Leng said that with the uptrend in the equity market this year, there are two positives that can contribute to more distributions.
Firstly, the improved equity market performance in 2003 in general should translate to increased realised profits for unit trust funds.
Secondly, the active equity market and increased volume of trading this year provide an opportunity for fund managers to sell their holdings and take profit, hence leading to more realised reserves for distribution, she said during an interview with StarBiz.
According to her, cash distributions are issued when a fund has realised profits as stated in the latest Securities Commission's Guidelines on Unit Trust Funds.
The guidelines state that any distribution of returns should only be made from realised gains or income available. Similarly, the SC's guidelines restrict any unit split exercise if the fund has not shown sustainable appreciation in the preceding six-month period.
SBB Mutual Fund Bhd chief executive officer Paul Low and Pacific Mutual Fund Bhd senior manager (investment) Geoffrey Ng support this contention.
Low said that compared to 2002, the company now expected to declare more dividends for SBB Mutual's funds, partly because more funds had realised capital gains under the SC guidelines. Besides this, the KLSE Composite Index (CI) last year had experienced a negative return compared with a strong year-to-date performance of around 21% for the CI, Low added.
Public Mutual Bhd general manager (investment) Chong Chang Choong said that with improving market outlook, he believed that the distribution rates of unit trust funds would improve next year.
For the year to-date, Public Mutual has declared distribution income for its seven funds (see table). For the financial year ended July 31, 2003, the company declared distribution of 7 sen per unit for its Public Bond Fund and for the financial year ended June 30, 2003, announced 4 sen per unit for the PB Fixed Income Fund. It also declared 3.5 sen per unit for its Public SmallCap Fund and PB Balanced Fund, among others, in 2003.
Ng said that the quantum of cash distribution for Pacific Mutual's funds, namely Pacific Dana Aman, Pacific Millennium Fund, Pacific Recovery Fund and Pacific Income Fund, on a year-to-date basis had already exceeded the amount which it distributed last year for these funds.
For 2003, four of Pacific Mutual's funds declared distributions, unlike only two in 2002.
For example Pacific Dana Aman declared a total dividend of 9 sen per unit in the financial year ended March 31, 2003, compared with 4 sen per unit in the previous corresponding period, and Pacific Recovery Fund, 5 sen per unit for financial year ended June 30, 2003.
The primary reasons behind the ability to generate distribution income include favourable dividend income streams, interest income and realised gains arising from the funds' profit-taking activities throughout the year in a rising equity market, Ng explained.
For the financial year ended June 30, 2003, HLG Unit Trust declared a gross dividend of 2.8 sen per unit for its HLG Bond Fund (formerly HLG Money Market Fund). The company also issued additional units for HLG Penny Stock Fund (12%) and HLG Blue Chip Fund (6%) for financial year ended Aug 31, 2003.
SBB Mutual, on the other hand, declared dividends twice this year, firstly a gross distribution of 10 sen per unit for its SBB Savings Fund (for financial year ended June 27, 2003), and 7 sen per unit for its SBB Bond Fund (financial year ended July 31, 2003).
According to Tye, fund performance is not the only factor that influences the distribution or dividends pattern of unit trust funds.
Distributions should be tied to and reflect the objectives of a fund. For example, an income fund would make distributions more regularly compared to an equity fund, she said.
For equity funds where capital appreciation is the main goal, then cash distributions would be incidental to the overall capital growth objective, and a substantial portion of the income returns from investments would be reinvested.
Tye said that for income funds, where investors would expect regular cash distributions, the unit trust funds would opt to pay out more cash distributions.
As for the investment strategy used in managing the above funds, Low said SBB Mutual employed active fund management to realise profits as the market surged ahead of the economic fundamental of profit taking.
Tye said for HLG Bond Fund, the strategy was to maintain active prudent management of the fund and investment decisions were made in accordance to the future projections of interest rates, while adhering to stringent investment guidelines to limit credit risks.
According to Ng, for Pacific Income Fund, the company arrived at its distribution income via investment in high dividend equity securities and fixed income instruments.
For the Pacific Millennium and Pacific Recovery Funds, distribution income was sourced through the realisation of capital gains from price appreciation and trading activities.
As for the Pacific Dana Aman, which is a balanced Islamic fund, the investment strategy employed was of a mixed investment in high dividend equity securities and fixed income instruments as well as high yielding securities.
SBB Mutual currently manages 17 funds with a total fund size of RM4.1bil. HLG Unit Trust has 13 funds under its wings with a total size of RM1.26bil. Pacific Mutual manages 11 funds and has a total size of RM1.3bil.