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Sunday, May 10, 2015

Can Bond Fund get 13.4% Annualized Return a Year? - AMB Income Trust Fund (AMBITF)

Recently there's people talking about AMB Income Trust Fund (AMBITF) getting an annualized return of 13.4%. As we all know, bond fund is usually lower risk with lower return. But an annualized return of 13.4% is almost as good as the performance of equity fund. So the question is

Is it possible?  

Before explaining, let's have a look at the fund itself. 
AMBITF - source from iFAST
From a scale of 0 to 10, AMBITF belongs to the lower risk of 1, which under the Asset Class of Fixed Income. According to the risk rating, "1-Lower Risk" means fund that invest mainly in Malaysia bonds with limited foreign currency exposure are exposed to interest rate risk. 

So is it possible to get annualized return of 13.4%?

AMBITF - source from iFAST

Yes, AMBITF could get it! In fact, if you look at the total return for each particular, surprisingly most of them are above 10%

But, the next question we should ask is why?
Things happen for a reason and we should always find out why, especially when it is too good to be true. Of course, in this case, it is true! But let's see why! 

AMBITF - source from iFAST
Above is the comparison with some other Fixed Income funds.
Risk Rating 1 : AMBITF, AmIncome Plus, KAF Enhanced Bond Fund
Risk Rating 2 : Eastspring Investments Bond Fund, AMB Dana Arif Class A-MYR, KAF Bond Fund

Looking at the graph, you would noticed that AMBITF climb the highest with a few surges, while all the other fixed income funds are climbing at almost the same pace with some doing slightly better. This is where we should begin to be suspicious! So here it is why!

AMBITF Annual Report
If you from read from the annual report, you would noticed that the high return of AMBITF actually contributed by the recovery of defaulted quoted fixed income securities. Tracked back to previous year annual report, AMBITF is actively engage with the defaulted issuers, namely, Kerisma Berhad, Intelbest Berhad, Tracoma Berhad and Ace Polymer Sdn. Bhd. 

How long can it last? 
Again, after finding out the reason, of course we would want to know how long the write-backs would last or can the high return maintain and continue for a few years? From the annual report, the AMBITF management team stated that they will continue to engage actively with the defaulted issuers and take necessary actions, in order to improve the recovery of the defaulted bond. Unfortunately, recovery of defaulted bonds are usually not guaranteed and the recovery rate is not certain as well. So we might not know how long it could last. 

Lesson #1: Always find out the reason! 
Lesson #2: Always know what you are buying!
Lesson #3: Always know the risk that you are involve in! 
#yourfinancedoctor is just a sharing and doesn't indicate if buy or not on a particular fund. 

Till then. ;)
Earn, Save, Invest, Repeat!

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