Tuesday, 16 July 2013

Amanah Saham Bumiputera, Taking Loans to Pay Dividend?


I've heard many questions on how does Amanah Saham Nasional Berhad (ASNB) provide positive dividend returns plus bonuses to their investors consistently on a year to year basis. Even during the 2008 economy downturn where the KLSE crashed to a low of 876.75 points, ASNB were able to declare positive dividend  returns for all their funds!
The oldest fund from ASNB, which is Amanah Saham Bumiputera (ASB) has been declaring the highest dividend returns on a year to year basis among all ASNB funds. Furthermore, ASB is the only fund from ASNB that provides additional bonuses to their investors. That has raised quite a number of speculation with regards to the capability and sustainability of ASB. Is it even possible for any fund to provide returns even in the harshest of economy situation?

These speculations sparked my interested in trying to determine whether ASNB (specifically ASB) is really able to provide sustainable returns. Before I go into details, I wish to declare that all information are obtained from the internet, annual reports, websites, etc and opinions made are based on my understanding and perception.

Background About Amanah Saham Bumiputera (ASB)
Amanah Saham Bumiputera (ASB) holds the title of being the first fund launched by ASNB on January 2, 1990. ASB was first introduced to help Malaysian Bumiputera to build up an alternate savings nest for retirement instead of depending entirely on EPF.

Bumiputera investors can purchase ASB units for a RM1.00 per unit and can continue to do so until a maximum of 200,000 units for adults and 50,000 units for teenagers. The price per unit of ASB is fixed at RM1.00 per unit regardless of the Net Asset Value (NAV) of the fund. In addition, there are no sales charge fee and redemption of units is also free.

ASB Dividend and Bonus for the past 6 Years
ASB's investment nature is mainly into Equities. By investing into equities, ASB is able to provide higher returns upon investment. Investors over the years have benefited greatly from ASB dividend returns as shown below:

On the average, ASB has given average returns of 8.79 sen/unit over the span of 6 years!
In money terms, say I have invested RM100,000 into ASB on the 1st of January 2007, my value of investment at the end of 2012 is RM160,579.50. Basically I will be earning an additional RM60,579.50 in a matter of 6 years time.

So what is the speculation all about?
Many have questioned on how ASB, who is invested into the Equity market is able to provide positive dividend and bonus during the World Financial Crisis in 2008?
During that crisis, our Kuala Lumpur Composite Index (KLCI) fell from 1393.25 points on January 2, 2008 to 876.75 points on 31 Dec 2008.
Yet ASB who's invested into the KLCI declares a dividend distribution of 7.00 cents/unit plus a bonus of 1.75cents/unit. How is it possible when other equity based unit trust funds were recording massive losses on their NAVs?
Justification No. 1 : ASB's Unit Price is fixed
To explain this point, I first have to explain how the price per unit for your common equity based unit trust fund is calculated.

Unit price of an equity based unit trust is derived from the total asset value minus liability, divided by the number of units in circulation. The assets value in this case is likely from the value/price of stocks held by that fund. Therefore during a bull market, stock prices goes up, the unit price goes up as well. During a bear market such as in 2008, the opposite occurs. As investors of common unit trust fund, we enjoy both the dividends from the fund as well as the long terms appreciation of the unit price.  

In the case of ASB, the unit price is fixed at RM1.00 per unit. The unit price never fluctuates and will remain the same even when you redeem your units for cash. Irregardless of a bull or a bearish market, investors all year round can buy and sell ASB units at a price of RM1.00 per unit.

I believe by fixing the unit price, ASB investors would not be worried about when to buy or sell units. This reduces panic sales of units during a bearish market and investors are reassured of returns regardless of market condition.

On the other hand during a bearish market, investors of common unit trust fund begin to panic and start redeeming their units. As more and more investors redeem their units, fund managers are force to start selling existing stocks in order to generate cash to pay of redeemers. Adversely, the fund size shirnks and the number of units in circulation will reduce drastically.

When a common unit trust price becomes lower and investor's confidence begin to return due to market recovery, we start seeing money being thrown back into unit trust funds. This is where opportunities are created for some investors to buy low and sell high via unit trust. Alternatively, investors who invest long term into unit trust are able to purchase more units for the same amount invested. 

Justification No. 2 : Without panic sales, ASB benefit from Dividends of Stocks
As pointed out in Justification No. 1,  since ASB is not effected by panic sales, the fund size remain consistent. ASB fund managers can then hold on to quality stocks (with great dividend payout) since they do not need to sell stocks to generate cash.

While the KLCI suffered a major beating in 2008, good solid companies continue to generate revenue even though their stock price drop during a bearish market. With company revenues not really effected by the financial crisis, dividend can still be declared to stock holders such as ASB. The dividend from companies is then translated into profit by ASB and returned to investors.

To further elaborate this point, let's take a look at the top 10 stocks held by ASB at the end of 2008:
22.07% of ASB's portfolio is invested into Sime Darby Berhad. Guess how much dividend was declared by Sime Darby to stock holders for Financial Year end 2008? Take a look below:
Taken from Sime Darby Press Release Archive
Total Gross Dividend from Sime Darby is 49cents/share

I don't have the actual number of shares held by ASB in Sime Darby in 2008, but I can roughly guess by the following calculation:

ASB's Asset Value (Aset Bersih) as of 31 Dec 2008 : RM 62.723 billion
Asset Allocated to Equity (72.53% of Asset Value) : RM 49.493 billion
22.07% of Equity Allocation invested in Sime Darby : RM10.04 billion
Sime Darby share price on 2 Jan 2008 : RM 11.60 per share

Assuming ASB bought all Sime Darby shares on 2 Jan 2008 at RM11.60 per share, ASB would have approximately 866 million shares in Sime Darby. Dividend earned would be 866 million shares multiplied by 49 cents/share. That's approximately RM424.1 million in dividend earned from Sime Darby alone!*

*this is an approximation calculation, not an actual figure from ASB
Looking into ASB's 2008 annual report, ASB received dividend income totaling up to RM 3,156.95 million as shown in table below (circled red):
To me it makes much sense that even during 2008 Financial Crisis, ASB is able to deliver returns to their investors thanks to profitable dividends from the companies they invest in. 

By doing this case study, I've managed to answer some of the doubts I have in mind about ASB. Accusation  has it that during the 2008 crisis, ASB had to take loans in order to pay off the investor's dividend. From what I see, that accusation is all but another rumor.

I'm not a Bumiputera and neither do I take sides with the ruling government. What I've presented here are my findings as an investor and I'm glad that fellow Bumiputera friends are earning better then decent returns from ASB.

Cheers and Happy Investing!

Clement Jouling ialah Perunding Unit Amanah berlesen (Licensed Unit Trust Consultant) dan seorang 'Dealer' berdaftar emas dan perak bagi syarikat "Gold Silver Resources". Sekiranya anda berminat untuk mengetahui lebih lanjut tentang pelaburan unit amanah serta jual beli emas dan perak boleh hubungi beliau nombor dan alamat email yang tertera.

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