SYWBS Part 4: Putting it all together

I guess this is a good time to illustrate in a bit more details the stuff that we have been talking on the "So you wanna buy shares" series. It was also opportune that we had a great piece of news of Norges' additional investment into the small and mid cap companies on Bursa Malaysia.

Lets recap.

1. Know yourself and what you want to do

The first thing we want to do before we invest is to get our objectives clear. In order to do that we would need to know our investment horizon: long term or short term. This horizon is not dictated by our preference, really, but rather our constraints in terms of capital, the need for cash (liquidity) and our time to monitor the market.

In this 'simulation' I would assume that the investor (Lets' give our hypothetical investor a name: Adam) does not have the time to monitor the shares hourly. At best daily at the end of the day or weekly. He has a day job that occupies his time. He has some money that he sets aside each month from the paycheck for investment purpose, so he does not need regular cash from his investments. Based on that, the investment horizon would be a mid to long term and by that I would mean he would not need to touch his investment money for at least 12 months.

2. Know what you got to do (strategy)

As Adam does not have the time to punt the market, he would need an alternative investing strategy and that would be building a portfolio. In our previous article, we touched on a top down strategy as one of the thought process that we could apply in trying to narrow down our investment focus.

The strategy may be different if Adam has the time to say monitor the market on full time basis. For the time being, let's stick to the top down approach.

3. Do what you got to do

The first thing that Adam would need to do is decide which market would he want to invest in, i.e. the top of the top. Assuming that Adam is only investing in Malaysia, that would mean he has to select which market sector to invest in. Well, the choice is not as easy as it seems. There is activity-based sector (utilities, O&G,  Banking) and there is cross-activity size-based sector (Large Cap, Mid Cap, Small Cap, Fledgling). So where does he start?

Well, there is where the economic outlooks and reports that appear in the newspapers come in handy. And more tellingly, we have indices to help Adam decipher the health and wealth of a particular sector. Bursa Malaysia, via its index series has the following sectors indexed:

• FTSE Bursa Malaysia KLCI - 30 largest companies in FTSE Bursa Malaysia EMAS Index (FBMEMAS) by full market capitalisation.
• FTSE Bursa Malaysia Mid 70 Index - next 70 companies in FBMEMAS.
• FTSE Bursa Malaysia Top 100 Index - sum of constituents in the above two indices.
• FTSE Bursa Malaysia Hijrah Shariah Index - 30 largest Shariah-compliant companies in
• FBMEMAS screened by Yasaar Ltd and the Securities Commission's Shariah Advisory Council
• FTSE Bursa Malaysia Asian Palm Oil Plantation Index (USD and MYR) - companies earning substantial proportion of revenue from palm oil activities in the Asia Pacific Region.
• The FTSE Bursa Malaysia EMAS Index - constituents of the FTSE Bursa Malaysia Top 100 Index and FTSE Bursa Malaysia Small Cap Index.
• FTSE Bursa Malaysia EMAS Industry Indices - 10 Industries, 19 Supersectors and 39 Sectors.
• FTSE Bursa Malaysia Small Cap Index - top 98% of the Bursa Malaysia Main Market excluding FTSE Bursa Malaysia Top 100 Index constituents.
• FTSE Bursa Malaysia EMAS Shariah Index - Shariah-compliant constituents of the FBMEMAS that meet the screening requirements of the SAC.
• FTSE Bursa Malaysia ACE Index - all eligible companies listed on the ACE Market.
• FTSE Bursa Malaysia Palm Oil Plantation Index - based on FBMEMAS and comprising companies earning a substantial proportion of revenue from palm oil activities.

Now Adam has to bear in mind that these indices would differ from one index provider to another and be mindful to read the fact sheet.

Broad based

Lets assume that Adam was interested with the news that Norges is investing more in Mid and Small cap companies in Bursa Malaysia. He would therefore would like to know more about the companies within this categories that would be on the radar of Norges. But since there are hundreds of companies out there, how could Adam narrow down the list further? His monthly investment coffer cannot buy them all.

But could he? Technically, he can. He can buy the exposure into the sector by investing in a collective investment scheme that invest in the same sector and share the same objective (of course after reading the prospectus). He can look up the unit trust funds that invest in small and and mid cap companies and invest there. There are plenty of unit trust agents who could advise him over a cup of coffee and an EPF form in hand :-).

But if that is not his cup of tea, he could also try investing in a close-end fund. Which is also a collective investment scheme but is close-end (as opposed to the open-end unit trust schemes) and is listed and traded on Bursa Malaysia. We have only one example on Bursa Malaysia and that would be icapital.biz Berhad. Based on its annual report, the investment strategy are : "Your Fund invests in undervalued companies which are listed on the Main Market of Bursa Malaysia Securities Berhad (Bursa Securities) and the ACE Market of Bursa Securities". Well, that investment 'universe' is a bit too wide for Adam's Small and Mid cap strategy hence no can do...sigh.

He can try investing in an exchange traded fund ("ETF"), a passive collective investment scheme that tracks an index. An ETF that tracks the (say) FTSE BM Mid 70 index and FTSE BM Small Cap Index would fit in nicely in this strategy. Investing in ETF, would relieve Adam of the headache of punting in the sector.Let's have a look at the ETF's that are available in Bursa Malaysia:

List of ETFs

Equity ETF

• FBMKLCI-ETF (0820EA)
• CIMB FTSE ASEAN 40 MALAYSIA (0822EA)
• CIMB FTSE Xinhua China 25 (0823EA)

Equity ETF (Shariah Compliant)

• MyETF-DJIM25 (0821EA)
• MyETF MSCI Malaysia Islamic Dividend (0824EA)

Fixed Income ETF

• ABFMY1 (0800EA) 

Hmm... no ETF on Small and Mid Cap indices... so ETF is also out of the question on this strategy. It looked like all the broad based options are not really there, so Adam have no choice but to try to look at the individual stocks and building his own portfolio.

Narrowing it down

In order to narrow it down, Adam would need to have to know the relevant stocks that would be on the radar of the fund manager and other investors. Where could he find the clues?

The first clue would be from the index constituents. If Adam were to look at the FTSE website, he would stumble upon (I choose this phrase for a reason) the fact sheet and reports on the indices we mentioned earlier. Unfortunately the index provider does not release the list of all the index constituents unless you pay them a lot of money. FTSE however did give out this information to the public in the June 2013 report on the indices (all information here are sourced from the FTSE website). 

FMB 70 index had 70 companies listed in it. The top ten (by weight) is as follows:

• Gamuda
• IJM
• Dialog Group
• Malaysia Airports
• Alliance Financial Group
• AirAsia
• Bumi Armada
• IOI Properties Group
• Lafarge Malaysia
• YTL Power International

FMB Small companies index has 167 companies in it. The top ten is as follows:

• Star Publications Malaysia
• KNM Group
• MPHB Capital
• TA Enterprise
• Cb Industrial
• Muhibbah Engine
• Sumatec Resources
• Perdana Petroleum
• Scomi Energy Services
• Kian Joo Can Factory

If you would want to have a look at the report (which contains the best and worse performing of the sectors), please drop your email address in the comment box and I will try to email the pdf copy of the report to you soon.

The second source of clues are from the research reports and recommendations of research houses. For example, the following which appeared in the Star Newspaper recently where it delivered a report by UOBKayHian which said:

“We advocate being selective, picking beneficiaries of compelling investment themes or with specific event catalysts. These include Deleum, Barakah Offshore and Malaysian Resources Corp Bhd (MRCB),”

In order to narrow it down further, Adam should perform the fundamental analysis (and technical too) on these companies before buying the shares.  A topic for next time.

Well, that is all for today folks. Till next time :-)