The APS Komaba Global Bond Fund will be terminated with effect from 5 October 2009. According to the letter sent out to unit holders, APS is terminating this fund because of small fund size. Its fund size dropped from S$80 million on May 2008 down to $6.4 million as of July 2009.  A check with the latest 1 year return showed that the 1 year return of the fund bid-bid as on  7 September 2009 was a horrible -46.83%! This fund has an interesting story behind:

It started out with DBS Shenton Income. Prior to 2005, DBS Shenton Income had a super duper returns despite it being just a bond fund. The returns of DBS Shenton were:

2001: 5.94%
2002: 9.9%
2003: 11.47%
2004: 10.28%
31 December 2004 – 30 June 2005: 2.48 % or 5.02%pa.

As it can be seen in the above, the returns were quite good every year and did not suffer any negative losses.

The DBS Shenton Income grew to a whopping S$1 billion around May 2005. This was mainly due to investors’ interest and Relationship Managers pushing this product over the counter. And than came the bomb shell. On 13 July 2005, DBS Asset Management announced that two-thirds of its fixed income team left the firm.

Then in around January 2006, the old fixed income team launched the APS Komaba Global Bond Fund. I know of many investors who were keen to follow them.

On 5 October 2009, APS Komaba Gobal Bond Fund will be terminated due to small fund size. A check at its track record shows that the 1 year bid-bid return was -46.83% as at 7 September 2009.

Sources:

DBS Shenton Income - why so popular?
APS KOMABA Global Bond Fund  (Jan 2006)
Management Changes at DBSAM (July 2005)
What's Been Happening  AT DBSAM? (August 2005)

So what can we learn from this?

1. Historical performance is not indicative of future. When a RM show you some nice brochure of past returns and tell you that it is repeatable, you know that you have received a very bad advice.
2. Investors have a “herd” instinct in which there is a tendency to rush and buy the best performer. If you follow the herd, you will die with the herd.
3. If a fund has been doing well, you could end up in the situation in which the fund manager resigns. So you’ll have to determine for yourself whether you want to stay with the (unknown) new guy or give up and follow the outgoing fund manager. If you invest in a passive managed fund, you will not be affected by such resignation. However, you should make sure that the passive managed funds do not invest significantly in swaps or dangerous derivatives.