ASB vs ASW2020. 28% difference!

I always wondered exactly how much more dividend ASB (Amanah Saham Bumiputra) pays compared to the other PNB (Permodalan Nasional) funds that are open to non-bumis. As far as I can tell, the best performing fund that's not exclusive to the bumis is ASW2020.

It seems that ASB has returned an average of 9.55% over the last 10 years (1999-2009), while ASW2020 has returned an average of 7.48%.

The average difference of 2.07% is significant. It is 28% more. PNB has always said that the difference in performance is due to the difference in portfolio composition (types and mix of assets) and risk-return balance between the 2 funds. However since both funds are capital guaranteed, then I have to ask... how come PNB doesn't invest ASW2020 into the same portfolio composition as ASB to extract the same returns?

And how exactly does PNB guarantee the capital for both funds when their risk-return profiles are different? This means if ASB can be capital guaranteed with 9.55% return, why can't ASW2020? Why would ASW2020's portfolio, which is similarly capital guaranteed - only manage to return 7.48%? Why the disparity?

The real question in my mind is whether there is any cross-fund subsidisation of returns and/or capital guarantee from ASW2020 to ASB?

There are 2 other things that make ASB inequitably unfair compared to ASW2020.

1. ASW2020 caps the initial "fresh funds" investment of each individual at RM20,000 to 50,000. It has changed with every new issue over the years. ASB's cap is RM200,000 per individual.

If you look at it from a per capita citizen/investor point of view, an ASB investor would have earned an average 9.55% annually on RM200,000 in ASB. He would have pocketed RM19,100 per year or a total of RM191,000 over 10 years. With an initial investment of RM200,000, he has virtually doubled his money!

A non-bumi investor in ASW2020 would have earned an average of 7.48% annually on RM50,000 (lets say that's the cap). He would have earned RM3,740 per year or a total of RM37,400 over 10 years. Assuming he was allowed to invest RM200,000, his dividends would be RM14,960 per year or a total of RM149,600 over 10 years.

That is a difference of RM41,400... where has it gone?

In addition, the dividends can be left in the funds, to be reinvested. And they typically are. This differential will therefore be compounded exponentially year after year as the fund balance grows... ie. any cross-subsidisation gets larger and larger. So, while I have (for simplicity's sake on a hot Sunday afternoon) assumed a constant RM50,000 (for ASW2020) and RM200,000 (for ASB), the account balances involved are actually much, much larger due to the compounding effect of dividends reinvested in the funds.

2. Malaysian banks are compelled to offer financing or loans to people investing in ASB. Bumis can borrow up to their individual investment limit (ie. RM200,000) with nothing more their eventual ASB certificate as collateral.

RHB is offering ASB financing at a price of BLR-1.35%. In 2009, RHB's BLR was 5.55%. That simply means that in 2009, ASB investors were borrowing money with no personal undertaking required, at a cost of 4.25% in order to earn a dividend return of 8.55%.

Think about it. Supernormal returns above any other funds that PNB manages, without having to come up with any capital or take any risk due to available bank financing. That's a sweet, sweet deal for ASB investors.

In other words, money is simply being handed to them on a silver platter! Money that is being sucked out of PNB's non-ASB funds (like ASW2020, ASM, AS1Malaysia) and other bank borrowers.

Sources:
ASB dividend history: My Malaysia Stockfolio
ASW2020 dividend history: nutri for my soul
ASB financing info: RHB Bank
2009 BLR info: Meshio.com