Hi, I’m Ian.
Personally, I didn’t give much thought about ASB as I’m not a Bumiputera (Bumi). So, why am I writing on this subject?
Here is how it all started.
It began with my friend, KC Lau. He received an email on how a Bumi is able to generate 16% in returns from investing in ASB. Needless to say, it caught KC’s attention and he spent several hours on an excel spreadsheet to compute the figures. True enough, KC learnt that 16% returns from ASB is indeed plausible.
Intrigued, KC asked me to host a webinar on this subject. Initially, as I read his email, I thought the 16% is probably a typo. After all, I know that returns from ASB ranges from 7% – 8% a year. So, I began to clarify the returns. KC replied with the excel spreadsheet given and I was astounded. Then, I sighed as I think to myself, ‘Imagine that I’m qualified to earn 16% returns from an investment that is capital guaranteed with minimum risk.’
For me, it’s ‘Dream On, Bro’. But, if you are a Bumi reading this, then, whatever I write below should be of great interest to you. Therefore, here are the 7 things you need to know to get way above 10% returns from your ASB investment:
#1: Top 10 Investments held by ASB
Have you ever wondered why ASB is able to pay out consistent dividends to investors year after year? The answer is obvious. ASB invests in cash-cows that are capable of paying high dividends yields. From its dividends received, ASB would distribute the dividends to its investors. Here are the top 10 investments held by ASB as at 31 December 2016:
|No.||Stocks||% of Net Asset Value|
|1||Malayan Banking Bhd||20.49%|
|2||Sime Darby Bhd||15.35%|
|3||Axiata Group Bhd||3.46%|
|5||Tenaga Nasional Bhd||2.49%|
|6||Telekom Nasional Bhd||1.94%|
|8||SP Setia Bhd||1.77%|
|9||UWM Holdings Bhd||1.55%|
|10||I&P Group Bhd||1.45%|
In 2017, SP Setia Bhd has announced its proposal to acquire the entire equity interest in I&P Group Bhd.
#2: Lower Dividends in 2016
The amount of dividends distributed to ASB holders have declined from 8.50 sen in 2014 to 7.25 sen in 2016. Have you wondered why? Here, I did a little digging and discovered that ASB has derived lower dividend income from its investment.
Figures in RM Million (unless stated otherwise)
|Gross Dividend Income||4,787.2||4,545.89||4,301.11|
Instinctively (due to my work nature as I run Bursaking.com.my), I submit to you that the lower gross dividend income is due to lower profits from Sime Darby Bhd, Axiata Group Bhd, Digi.com Bhd and UMW Holdings Bhd. Their reported shareholders’ earnings are as followed:
Figures in RM Million
Source: Their Respective Annual Reports
#3: Low PTR
ASB has low Portfolio Turnover Ratio (PTR) of 0.16. This means, it is a fund that derives income from investing over the long-term. As such, dividends in the future are dependent on the future financial performances of the top 10 stocks mentioned in Point #1.
#4: Cash or Borrow?
Should I buy ASB units with cash? Or, should I borrow to buy ASB units? This will determine the returns from your ASB investment.
If you buy ASB units with cash, you will collect dividends of 7.25% in 2016. There is no leverage as you did not borrow to invest.
If you buy ASB units with ASB loans, you are able to boost your returns way above 10% a year as leverage is involved. As I write, it is possible for a Bumi to apply for ASB loans at rates between 5.10% – 5.35% for a maximum tenure of 30 years to invest in ASB units that pay out 7.25% in dividends a year. The table below is a list of banks that offer ASB loans:
|1||CIMB Bank||ASB Financing|
|2||Bank Simpanan Nasional||ASB with Floating Rate|
#5: What if I already bought my ASB units with cash?
As I write, the maximum amount of investment a Bumi individual can make in ASB is RM 200,000. So, let us assume that you have already bought RM 200,000 worth of ASB units with cash. You intend to choose one of the two options.
Keep all ASB units in Cash.
– Cash out the RM 200,000 in ASB.
– Invest that in a new portfolio of stocks that pay 6% dividends a year
– You apply for RM 200,000 in ASB loan for 30 years
– Use ASB Loan to invest in ASB units.
So, what is the difference in returns after 5 years?
The answer: RM 31,505. How does it feel to make, on average, RM 6,301 a year in extra income over the next 5 years? Pretty cool, isn’t it?
Figures in RM
|ASB Cash Returns||83,803||55,308|
|Total Cash Returns||83,803||115,308|
#6: How Much Can I Borrow?
Firstly, you can borrow up to 100% of the amount of ASB investment. This is unlike most residential properties where the financing is up to 90% for 1st time buyers (in general). Whoa …
Secondly, it depends on your debt-service ratio (DSR). It differs based on your credit score. There are many factors that would affect your credit score. In general, this includes your source of income, the amount of your income, and your current monthly debt obligations. You may pay a visit to the bank to check your DSR and the amount of loan you are eligible to apply for.
#7: What are the Risks Involved?
There are three main risks involved in getting an ASB loan to finance your purchase of ASB units. The first two is pretty obvious. They include upward revisions of the interest rates of the ASB loan and lower income distribution of your ASB investments in the future.
Thirdly, there is an opportunity cost for getting an ASB loan. This is because you could use your DSR to secure mortgages on investment properties. So, if you are an astute property investor, then, this would be of concern to you. If you are not an investor and do not wish to buy a property in the future, then, ASB loans are more suitable for you.
So, How do I Compute my Returns on my own ASB Investment?
I’ve covered the broad strokes. KC has already conducted a webinar session to show you how you can compute your returns from your ASB investment step-by-step using an excel spreadsheet. This session include a pretty lively discussion on everything and anything you need to know to boost your returns from ASB.