DAR Wong: The Difference between Mutual Fund Investment & Trust Fund Investment

By: Vance Wong

In today's economy, many men-in-the-streets are still oblivious to the nature of Mutual Fund Investment and Trust Fund Investment. Could you briefly outline their difference?

DAR Wong (DW): Investing in a Mutual Fund and Trust Fund are quite different and considered as two different entities. A fund management company may host and operate one or many separate fund entities of those mentioned above.

A Mutual Fund comprises a group of private investors who have pre-agreed to invest into the certain instrument (or business), then chip in the monies in denominated amount with an intention to receive a periodic return (yield).

On the other hand, a Trust Fund would have held some existing assets and through the management and expansion of this portfolio, profit from it. Then, the yield is paid to the shareholders (or investors) as dividends on a periodic basis.

What are the most commonly seen Trust Funds in the market? Can any retail investors like us participate in it?

DW: If the Trust Fund is set up and owned by a family, outsiders would not be allowed to participate.

Alternatively, a charity Trust Fund – that a philanthropist contributes and set up (or a few of them) – would make profits from the expansion and management of the portfolio. For good faith reason, the Trustee will distribute the profits to the public as a charity fund to help the needy.

Among all, ordinary folks may consider the investment in REITs (Real Estate Investment Trusts) that are more practical, legal and steady in returns. Singapore Exchange is the largest REITs marketplace in ASEAN region with property assets spanning across borders while covering hospitality, logistic and warehouses, shopping malls, office buildings, etc.

The rental income from these property assets is paid back as dividends to investors at an average five to eight percent per annum, making them a popular sector among many retail investors!

Let's take a look at mutual funds now. Over past years, we have noticed the rise of mutual fund investing into physical businesses, such as education, F&B chain, etc. Is this a new trend or a "catch" not known to us yet?

DW: As the world economy moves into globalisation, many fund investments do not just participate in financial market instruments anymore. Through investing into a physical business, the fund operation may expand cross-border territories and fetch larger returns. Below are some benefits from setting a mutual fund for investing into brick-and-mortar business:

• Transparency – all accounts are properly audited and distributed to every investor for their knowledge

  
  

• Legality – law-abiding and eradicate dishonesty in money management

  
  

• Fund Expansion – the identification of a cornerstone investor will quickly canvass many other investors into the fund

  
  

• Business Expansion – once the firm fetches good returns, it becomes easier to expand the fund size for further acquisition. The fund may eventually be converted into a public (listed) Trust Fund.

We heard that your fund company is in the pipeline of setting up a new mutual fund for investing into movie and showbiz production. Could you give us some head up news about this? Which are the traditional business that you think will be qualified to be acquired by Mutual Fund?

DW: Since January, we have been discussing with a cornerstone investor for setting up a new fund to invest in movie production. Over the past few years, he has invested in many local films and fetched good returns.

Now, we are exploring into the film market in China and some Asian countries. On hindsight, we believe his good reputation will attract many other investors and hence, we plan to start up in upcoming August – September.

Moving into the future economy, we foresee the acquisition of physical businesses through mutual fund investments will gradually become more popular. Such industries may include coffee shop chains, mineral and mining fields, renewable energies among much more.

The reasons are solidly based on the worthiness of land lease, existing asset value, operating profits and long-term appreciation of assets.

Last but not least, in the past one year, many fund investments have gone bust. Why are the risks so random and unexpected?

DW: For sure, all investments carry risks in certain ways. However, the degree of risk factors is largely based on leveraging mechanism. Over past years, many veteran Fund investments have gone bust because of random swings in the financial markets and the using of high leveraging factors.

Especially in the past 12 months, Europe and American markets have been extremely unpredictable, besides U.S. Treasuries and crude oil prices that have imposed extraordinary high risks on many large investors. Hence, it might be less risky if the investment has been placed in physical businesses.

Nevertheless, we are NOT saying that there is absolutely no risk by investing in physical businesses. However, quite literally, a full cash acquisition on business assets would have zero leverage since there is no bank loan involved.

Moreover, the operating profits will further enhance the asset value while suppressing the risk factor to a lower degree. Even though the asset value might decline, we would consider that as a cyclic pattern and will return to higher market values over long-term.

DAR Wong is a professional Fund Manager with 28 years of experiences dealing in global financial markets. His training module and advisory have covered 17 countries with clientele base from Government Ministries, Exchanges, Agriculture and Research Institutues, Financial Institutions, Financial Media, Investment Enterprises, Commercial Associations, Accredited Investors etc. He is specialised in Financial and Agricultural Futures, Equity Index, Precious Metals, Currency Hedging, Energies, Rubber, Palm Oil and constructing risk-management for Trading corporations and Fund investment.

Source: Yahoo Finance