top of page

Response to Dr Wealth's Mutual Fund Article: More work needs to be done

Updated: Feb 9, 2023

I recently came across the new Dr Wealth article titled, "Should You Invest in Singapore Mutual Funds or Unit Trusts?" and it felt like a punch in the gut. Penned by their newest writer - whose writing style is easily recognisable and not for the best of reasons - this article was rife with inaccuracies, both factual and grammatical. Let's jump right in.

1. Ever had a financial consultant friend ring you up out of nowhere and asking you to ‘invest’ your money?

Why the apostrophes? Either you're investing it or you're not.

2. For many average Singapore, investing in unit trusts and mutual funds through financial advisor are deemed safer ways to grow your money.

Firstly, 'for many average Singaporeans' or 'the average Singaporean', and deemed by who exactly? I am obligated to emphasise that 'non-guaranteed, projected, past performance is not indicative of future performance' or I could lose my license.

That being said, unit trusts have a long, extensive history of having a higher risk-adjusted return than most market funds so yeah, they would most likely be considerably safer than the majority of ETFs. They do however, come with the potential risk of higher yield.

Still, you have funds like the AXA Fortress A which not only outperforms its Index [not even including subsequent expense ratios] but also has a higher Sharpe Ratio.

Fortress Fund A
Fortress Fund A / Image Credit: AXA

3. Through mutual funds Investors can invest in loads or multi asset classes of stocks, bonds to money markets. However, diversification doesn’t mean lower risk. They all carry risk to a certain extent. In most cases, the higher the risk, the higher the potential return, the less likely it will achieve a higher return.

What does this even mean? Honestly, what was the author trying to say? The whole purpose of diversification is to create lower risk for the adjusted return! Either you end up with almost the same risk for a higher return or a lower risk for the same return.

This next part really gets me. "The higher the risk, the higher the potential return, but the less likely it will achieve a higher return." I'm not sure you understand what the word 'potential' means.

4 . The reasons why mutual funds are found everywhere in Singapore is that these mutual funds are profitable to both the fund managers and the financial advisors selling it. You need do your research to know what you are investing in instead of blindly going into it.

Yeah, and the reason why lightbulbs are found everywhere is because they advance your standard of living, much like unit trusts. Except that now, unit trusts have evolved into a big conspiracy whose larger goal is to let salespeople profit rather then to benefit those buying into them.

Since you have no idea what you're looking at in the slightest, 'you need do' your research.

5. The reason why most mutual funds and unit trust fund managers do not beat the market is because of costs and expenses.

If the market is defined by the Standard & Poor Dow Jones Index SPIVA Scorecard (see research), it's actually been repeatedly shown that every sector is different. In the vast, vast majority of US markets, even net of fees fund managers under-perform the benchmark. After accounting for a likely total expense ratio [between 0.4 - 0.7% overall a year], fund managers in the US still under-perform overall.

As such, it is largely inaccurate to attribute their failure to costs and expenses. The actual reason is somewhat worse, but largely reserved to the US and other efficient markets.

You have several solutions to understanding market under-performance:

  1. You can isolate and check the fundamental history of the funds and their performances.

  2. Don't choose the US. Why would you want to compete with the most efficient market in the world? Yeesh.

  3. You can invest in markets more aggressive or inefficient, which I specialise in, or fixed income funds that do better than passive income funds. I love dividends and high growth. Who doesn't?

6. Not to mention the numerous amounts of charges you pay to get to invest in a fund from initial service charges, realization redemption fee, switching fee and administration charges. There’s also the management fee, the trustee fee and other miscellaneous fee.

This is actually how you know someone hasn't invested in a unit trust before, be it on a platform like iFast or an ILP. Otherwise they would know that the wrapper already addresses almost all of the charges. The fact sheet reports results net of fees (most of the time) while your unit trust wrappers have unlimited free switches for the rest of your life.

And miscellaneous fee? What is that? Are you just making stuff up at this point?

7. Show me your average annualized returns. Show me your fund charges. Show me the hidden costs. Like I mentioned, the majority of mutual funds and investment funds do NOT outperform the market.

Here is my average annualised return.

Averaged annualised return
Fund performance averaged annualised return / Image Credit: Dr Wealth

Here is my annualised return after fund charges and as well as my benchmark.

Fund annualised return post-charges and benchmark
Fund annualised return post-charges and benchmark / Image Credit: Dr Wealth

Does the writer even realise that the same picture also shows the annualised return since inception to be 6.06 net of fees, while the benchmark is 4.91? I actually get the general idea [because the entry of the fund inception has skewed the results in their favour] so I'm just trolling a little bit. But my points stands.

Don't be so lazy as to use such a crappy example. If you are so confident in your words, there is bound to be a much more decisive example out there.

Note: The majority of mutual funds not outperforming the market is based on a study in the US. Since your article is about the Singapore market, have you ever thought about reviewing Singapore's. If the Singapore market is as efficient as the US', why is our ETF performance so crappy?

All in all, reading this article hurt my brain.

I have no idea what Dr Wealth is doing. I admire Alvin Chow, honestly. When it comes to value investing, he's a stock-picking genius. Many blind followers of Buffett end up on a contradictory scale before ultimately earning nothing [you have to both index invest and value invest, which conflict with each other]. However, he might need to do a better job of ensuring his site's content has been vetted.

Well, that's an hour of my life that I'll never get back.

Disclaimer: The aim of this article is not to flame anyone but to point out that even the most established sites make mistakes.

Money Maverick


Passive Wins in efficient markets from the US: SPIVA Institutional Scorecard: How much do fees affect the Active versus Passive Debate

438 views0 comments


bottom of page