One of the most common ways that people arrive on this blog is apparently by searching for Malaysian index funds to invest in. Many more visitors than usual have arrived in recent weeks, no doubt due to the current volatility in the market. Apparently my two posts on the subject, this one and this one, rank quite highly on Google when these keywords are used. It is also evident many of these people, no doubt having read research about how index funds due to their low costs are better over the long run, are interested in finding more information about Malaysian index funds.
My own conclusion is not to bother and in fact empirical data indicates that the top equity funds in Malaysia really can beat the KLCI over the long term, even after costs. For example, working with the database available at Fundsupermart.com.my, I extracted the following for its recommended Malaysian equity funds. Note that all of these are annualized returns:
Recommended Malaysian Equity Funds at FSM
| Fund Name | 1 Year | 2 Years | 3 Years | 5 Years | 10 Years |
|---|---|---|---|---|---|
| FBM KLCI | -4.25% | 6.63% | 6.11% | 6.724% | 6.911% |
| Kenanga Growth Fund | 12.36% | 9.52% | 17.748% | 20.404% | 15.843% |
| Eastspring Investments Equity Income Fund | 4.47% | 7.15% | 15.109% | 14.835% | 10.837% |
| Kenanga Syariah Growth Fund | 0.01% | 7.73% | 10.921% | 15.395% | 13.372% |
| Affin Hwang AIIMAN Growth Fund | 0.01% | 10.10% | 14.061% | 12.828% | 10.038% |
As a rationalist, it does frustrate me that such seeming anomalies exist. Not every equity fund outperforms the index, but as far as I can tell, most actually do over the long term, which is surprising according to the literature. I don’t pretend to know how this can be possible and I’ve already discussed some of the possible reasons in those old posts. But it’s hard to escape the conclusion that the Malaysian stock market must be very inefficient at uncovering market information.
A disclaimer: currently I am not personally an investor in any of the funds listed above. I do invest with FSM but only in their international funds. I instead have Malaysian equity funds in Public Mutual for legacy reasons and invest in the local stock market on my personal account. My data for my personal investing record is limited but a preliminary indication is that I outperform the KLCI as well but underperform the best equity funds.
