This Week at a Glance…

i) RM5 in sight: The ringgit plunges to RM4.7830 against the dollar.

The local note has declined by 4.01% since the start of the year and is now only 22 cents away from RM5.00.

ii) How do I diversify into the global market to protect myself from currency depreciation?

This can be done through fund providers like GOInvest, Versa, and Public Mutual, but what are their differences and which charges the lowest fees?

Scroll down for more details.

Edging closer to Rahmah price of RM5.00

The ringgit nosedived to RM4.7830 on Wednesday, continuing its downtrend since the start of the year.

It is only 10 cents away from its all-time low of RM4.88 in 1998, and many are depressingly confident that it will hit RM5.00 soon.

Now now, before we start getting political, let’s investigate the pertinent factors that have driven the ringgit to such a dire state.

Ringgit’s weakness is mainly dollar-driven.

The dollar, when compared to a basket of six major currencies (Euro, Pound, Canadian Dollar, Yen, Swedish Kroner, and Swiss Franc), has gained 3.37% in the past 45 days.

This pattern is also observed in other dollar pairs such as USDSGD (+2.07%), USDCNY (+1.35%), and USDTHB (+5.33%).

Why is the dollar rallying?

On Monday, the US released its latest CPI data, which rose higher than expected to 3.1%.

For two months in a row, US inflation has failed to meet expectations and has in fact spiked back up again.

These figures slashed hopes that the Federal Reserve will reduce interest rates earlier than expected.

Currencies fluctuate due to supply and demand.

If demand for a currency is high while its supply remains constricted, then it will strengthen (vice versa).

Many factors affect this balance, but it mainly comes from the interest rates set by central banks.

The higher the interest rate, the stronger the currency.

But why?

Higher interest rates do not only increase borrowing costs; it also increases the yields of treasuries, bonds, money-market funds, and other deposit products.

This drives up demand for the currency, making it stronger.

A rhetorical question: if bank A gives you 5.50% for FD and bank B gives 3.00%, which bank would you choose?

When we compare Malaysia’s interest rate to the US, it becomes clear why the ringgit is struggling.

US interest rates are at a 23 year high, while our OPR is only back to pre-pandemic levels.

Combined with speculation that the Fed is unlikely to reduce rates, the ringgit has continued to face outflows.

“Bank Negara Malaysia! Hike the OPR or something!”

Contrary to popular belief, BNM cannot control the long-term trend of the ringgit.

Its mandate is to maintain financial stability, and it only has the power to reduce the day-to-day volatility of the local note.

As for hiking the OPR, you must understand that the main purpose of it is to tame inflation, not to strengthen the ringgit.

Since Malaysia’s inflation has moderated to BNM’s target, there’s no need for the central bank to hike rates and unnecessarily burden the rakyat.

Ringgit likely to continue facing downward pressure.

With the US Fed likely to maintain interest rates due to persistent inflation, pressure on the ringgit is expected to continue.

BNM is unlikely to adjust the OPR – lowering it would only weaken the ringgit further, while hiking it is unnecessary.

So buckle up. 🥲

The falling ringgit stresses the importance of diversification.

Fortunately, there are many places where you can have exposure to the global market right now.

In my previous newsletter, I talked about how to invest in the US market, which can be done through ETFs and stocks in Rakuten.

This week, we’ll compare local funds that invest in global equities, specifically GOInvest, Versa, and Public Mutual.

GOInvest: Many types of aggressive funds. Global Exposure.

Pros: Wide variety of funds to choose from - the options I provided below are not exhaustive. Exposure to the global market, not only in the US.

Cons: 1.5% sales fee upon investing, Up to 1.87% annual management and trustee fee.

i) Principal DALI Global Equity Fund (Class D)

• Performance since fund’s inception (April 2023): +18.02%

• Exposure: Global market.

• Top Holdings: BNP Paribas, Comgest Growth Europe, Tencent, and Alibaba.

• Shariah complaint.

• Fees: 1.5% upon investing, 1.86% annual management and trustee fee.

ii) Principal Global Titans Fund (Class D)

• Performance since fund’s inception (April 2023): +19.54%

• Exposure: Large caps from US, Europe, and Japan.

• Top Holdings: Apple, Microsoft, Amazon, and Nestle

• Not Shariah compliant.

• Fees: 1.5% upon investing, 1.87% annual management and trustee fee.

iii) Principal Islamic Global Selection Aggressive Fund (Class D)

• Performance since fund’s inception (April 2023): +12.90%

• Exposure: Global market.

• Top Holdings (Mixed): Equities, Sukuk, Gold ETF, Money market instruments & Deposit

• Shariah compliant.

• Fees: 1.5% upon investing, 1.85% annual management and trustee fee.

To view and invest, head over to your TnG wallet and select “GOInvest” on the homepage, then tap on the “Invest” section.

Versa: Simple and Low Fees.

Pros: Extremely easy to begin investing, no upfront costs or sales fees, up to 1.85% management and trustee fee.

Cons: Options are mostly limited to funds that have a large exposure in the US market.

i) Versa Growth

• 5-Year Annualized Returns: +12.60%

• Exposure: Mainly the US market.

• Top Holdings: iShares Core S&P 500 ETF, Vanguard Total Stock Market ETF

• Not Shariah compliant

• Fees: 1.04% annual management and trustee fee.

ii) Versa Global-i

• 1-Year Annualized Return: +17.46%

• Exposure: Mainly the US market.

• Top Holdings: Microsoft, Google, Visa, Apple, and Amazon.

• Shariah compliant

• Fees: 1.85% annual management and trustee fee.

iii) Versa SGD

• 10-Year Annualized Return: +6.07%

• Exposure: SGD-denominated assets, moderate risk.

• Top Holdings: DBS Group, OCBC, and UOB.

• Not Shariah compliant.

• Fees: 1.58% annual management and trustee fee.

To begin investing, head over to your Versa app and tap on “Manage” then select “Cash In”.

If you do not have Versa account, be sure to register with our referral code “THEFUTURIZTS” to receive RM10 for your first deposit of RM100 and above!

Public Mutual: Choose from 100+ different funds. Global Exposure.

Pros: Probably too many funds to choose from (100+). Exposure depends on which funds you select.

Cons: Difficult to begin investing (you have to call an agent, get briefed, etc.), very high fees (up to 5.50% upon investing), 1.86% management and trustee fee.

i) Public Global Select Fund

• 5-Year Annualized Returns: +13.34%

• Exposure: Global market.

• Top Holdings: Foreign assets (mainly equities from US, UK, France, Germany, etc.)

• Not Shariah compliant

• Fees: Up to 5.0% upon investing, 1.86% annual management and trustee fee.

ii) Public Islamic Opportunities Fund

• 5-Year Annualized Returns: +12.75%

• Exposure: Mainly Malaysia.

• Top Holdings: Sukuk, Islamic money market instruments and deposits, Shariah compliant foreign companies.

• Shariah compliant

• Fees: Up to 5.0% upon investing, 1.56% annual management and trustee fee.

I personally do not invest in any of Public Mutual’s funds because of the very high upfront costs.

That said, if you would like to explore more, head over to their website and check out the top performing funds.

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That’s all for this week’s newsletter!

Disclaimer: Past performances are not indicative of future performance. The options that I provided are only suggestions and not financial advice. You should do your own research before investing in any product.