Soft Closure of Funds What is soft closure? Open-ended funds are normally open for investors to invest and withdraw their money anytime. Nevertheless, sometimes fund managers might decide to soft close the fund. Soft closure means that investors will no longer be able to subscribe into the funds. However, it does not mean that investors will be losing out their investment or prohibited from redemption. The fund manager will still be managing the fund and the investors could still perform redemption of the funds. Also, even with the soft closing of the funds, it is still possible for investors with regular savings to continue their contribution into these funds. Why do fund house soft closes their funds? One of the reasons for it is that the fund managers might think that the current level of assets under management in these funds is approaching the maximum asset threshold that is best able for them to manage, at this particular point of time, and it is in the best interest for the investors for them to soft close the funds. Another reason for fund manager to soft close the fund is that there might be a lack of investment opportunity. This is especially true for the small cap funds, where a manager with increasing subscriptions will find it difficult to build position in a thinly traded stock. On top of that, new money might be coming into the fund so rapidly that the fund manager could not find places to invest it all. Consequently, the fund manager will either deploy the increasing inflows into their current holdings (end up holding significant percentage in one specific stock) or they might keep it in cash or cash equivalent instruments (cash drag). Both of these moves will eventually hinder the performance of the funds. Reopen for subscription Soft closure of fund does not mean that the fund will be permanently close for subscription. As previously mentioned, if a fund manager is able to discover new investment opportunity or he/she is now comfortable with the fund size, they will probably reopen the fund for new subscriptions. As such, we would like to advocate investors not to blindly chase after the funds that are announced to be soft closing soon. In fact, investors should analyse these funds accordingly, and choose funds that align with their overall investment objectives. Any replacement for these soft-closing funds? At this juncture, the Affin Hwang Select Asia (Ex Japan) Quantum Fund has soft-closed, and the Eastspring Investments Small-cap Fund will be soft-closing next week. In our opinion, we think that an alternative fund that can consider as a replacement for Affin Hwang Select Asia (Ex Japan) Quantum Fund is RHB Asian Growth Opportunities Fund as both funds shared the same investment strategy of investing into the small cap securities in Asia ex Japan region. For investors who are looking into Asia ex Japan region, they can also consider our recommended funds – CIMB-Principal Asia Pacific Dynamic Income Fund – MYR and Affin Hwang Select Asia (Ex Japan) Opportunity Fund. However, investors should note that while these two funds are investing in the Asia ex-Japan region, they are not investing specifically into the small cap space. As for Eastspring Investments Small-Cap Fund that is going to soft close next week, investors can look into KAF Vision Fund, InterPac Dynamic Equity Fund and also InterPac Dana Safi for replacement.
Takeaway We would like to reiterate to our investors that whenever a fund is soft closing, it does not mean that the existing investors will be losing out their investments or being restricted from making redemption; soft closure will have no impact on investors’ ability to make redemptions. The main reason for funds to soft close is to prevent the fund size from getting too large and become unmanageable for the fund manager. This is for the interest of the existing investors in these funds. As such, investors should not be panic when they receive any notification regarding the soft closure of fund. | |||||||||||||||
| The Research Team is part of iFAST Capital Sdn Bhd | |||||||||||||||
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