Mutual Funds

[stbahng]

How safe is it to invest in mutual funds in Thailand?

I saw an ad from K-Bank that sounded to good to be true.

30+% per year gain......

[Irene]

They are quite safe and under control and supervision of the Securities Exchange Commission of Thailand similar to SEC in the States. The Thailand SEC is untra-cautious. Record-wise, no failure has yet happened. The return on equity has been impressive except a few that invested in small and medium sized companies fund fared below par. Go for funds that attached to SET 50 companies. Extreme rise happened in 2003 when 114% gain occurred. The only snag I see is when in crisis they tend to go down quicker than self-investment because of the run by the unitholders who are really small holders and more frightened than the seasoned investors. The Retirement Mutual Fund and Long Term Fund in which unit holders have to continue investing until retirement fare well because they have to bite their bullets and not allowed to sell in order to qualify for tax allowance of a maximum sum of 300,000 baht each. The return of that 30% is normally related to this retirement fund. This is an indication that to make money in Thai stock exchange, stick to top 50 companies and buy them when the atmosphere is bad.

However, I prefer to recommend one and only exchange traded fund in Thailand called TDEX which is a reflection of SET 50 companies in which fees are low and yet the risk is similar to a mutual fund. The rise and fall of TDEX follow the SET 50 index. The secret is the timing to buy. I normally accumulate whenever there is bad news like today. I sense that in the long run equity like TDEX would fare better than fixed income instruments or bank deposits. I remember reading of a story of one American lady who religiously bought General Electric monthly on a certain date irrespective of the price quoted. Upon her death, her wealth on that investment astonished the world and the return was similar to that return earned by Warren Buffett. (But it is a bad example for lack of diversification. Luckily for her, she picked GE. Just imagine if it was Enron).

[JimmyTheMook]

I was impressed by the figures in that ad as well. Went into the bank and was trying to get a straight answer about buy in fees and running costs, the staff seemed to know very little about it.

[samran]

of any of them, I'd rate Aberdeen and ING funds probably some of the better fund managers here.

Of the banks, I think SCB have a pretty good team as well, as well as Kasikorn. I "think" TMB run a joint thing with Maquarie bank. The Mac Bank guys are sharp as tacks, and I've read some impressive research out of them. For all its faults, I think it is worth checking out TMB (though it could possibly be that they are totally useless and I am completely wrong in my assessment).

[fletchsmile]

of any of them, I'd rate Aberdeen and ING funds probably some of the better fund managers here.

Of the banks, I think SCB have a pretty good team as well, as well as Kasikorn. I "think" TMB run a joint thing with Maquarie bank. The Mac Bank guys are sharp as tacks, and I've read some impressive research out of them. For all its faults, I think it is worth checking out TMB (though it could possibly be that they are totally useless and I am completely wrong in my assessment).

Would agree with Samran. I like these two mutual fund providers. Good performance and hold themselves to international standards. You can buy direct or thru an agent (most of the banks, for example sell mutual funds from these two).

For EFTs/Index Funds: Personally I don't like ETFs or Index funds for Thailand. They are fine in good times, and cheaper on costs. However, if things suddenly turn bad, or there are underperformers in the index their hands are tied. One interesting example would be PTT. This accounts for over 15% of SET - a large exposue and great in good times, not in bad times. Currently has legal issues. Longer term in Thailand managed funds which cost more, have tended to outperform cheaper index funds. At the end of the day it's risk weighted return that counts, not costs. eg would you rather pay 2% for 20%+ returns, or 1% for 10% returns. Thailand is a less developed market and narrower in quality, but for more mature markets index funds and ETFs can sometimes be very good if not better alternatives. ETFs and index funds are an opportunity to dip your toes into the market for people who are less familar with what they want. ETFs can also be better for traders wanting to move in and out of the market quicker and often, compared to someone like me who is an investor and usually looks long term. i.e I'm usually interested in performance over 3-5 years +, not a fast buck/baht

As for the 30% plus marketing. I think they've picked favourable periods to make the numbers look better. Since 2000, average would be 20%+p.a. I hope they've also added risk warnings, funds can go down as well, and no guarantee of the future. The longer term you hold the better in many ways. Can you take falls of 20%+ in a few months too?

BTW You can also buy Thailand only funds from offshore mutual providers. This avoids bringing money into Thailand.

eg in addition to holding Aberdeen and ING funds in Thailand, I have Aberdeen and Lion Capital funds which invest in Thailand, but held in Singapore. You can do in other currencies too, eg USD/ SGD

Edited December 13, 2007 by fletchsmile

[chiangmaibruce]

Fletch/Samran

A question you might be able to answer about Aberdeen. I have had some funds invested with them for a few years and have been impressed with their performance. I also have a (Thai) share portfolio so I know well enough that their returns are not easily achieved. I also note that Aberdeen has won a few awards for their performance, and are acknowledged as one of the best fund managers in Thailand.

A short time ago I read in this forum about an ING Good Governance fund which sounded interesting, so I took a look at the ING (Thailand) web site. I also noticed the return on their Thai Equity Fund is currently far superior to any of Aberdeen's funds. Given that there is a lot of overlap in the shares held by the relevant funds, just how does ING manage to squeeze out this extra performance? And has Aberdeen dropped the ball of late (key stock picker left?)

- CB

[Khun ?]

Maybe they use alot of margin investing.

[fletchsmile]

Fletch/Samran

A question you might be able to answer about Aberdeen. I have had some funds invested with them for a few years and have been impressed with their performance. I also have a (Thai) share portfolio so I know well enough that their returns are not easily achieved. I also note that Aberdeen has won a few awards for their performance, and are acknowledged as one of the best fund managers in Thailand.

A short time ago I read in this forum about an ING Good Governance fund which sounded interesting, so I took a look at the ING (Thailand) web site. I also noticed the return on their Thai Equity Fund is currently far superior to any of Aberdeen's funds. Given that there is a lot of overlap in the shares held by the relevant funds, just how does ING manage to squeeze out this extra performance? And has Aberdeen dropped the ball of late (key stock picker left?)

- CB

Yes we hold Aberdeen Growth, as well as ING Good Governance, and ING Thai Equity. All 3 have outperfomed the SET over longer periods. eg 3 years to 26 Oct, up 84%, 72 % and 78% vs "only" 42% for SET.

This year tho' Aberdeen seem to have faltered a little. Over 1 year Aberdeen up 19% whereas ING up 38%, and SET 23%.

I wondered similar a few months back when I saw Aberdeen unusually lagging. I'm not aware of any key changes in management. But a key reason for Aberdeen's underperfomance vs SET and ING's outperformance is weightings in PTT Group: PTT PLC, PTT Chemical, PTT Exp. Aberdeen is underweight in these vs SET. I think they took some profits recently on these, but even before that they were underweight. Both ING funds had over 30% in these 3 in Oct, whereas Aberdeen has much less. All 3 stocks have had very good years, all up over 50% over 1 year. ING also sought approval a few months back to be allowed to hold over 10% of their fund in these stocks, prior to that they had a 10% ceiling.

So in summary, ING has done better than SET and Aberdeen over 1 year, a big part on stock selection (PTT companies). But over 3 years, even despite this Aberdeen is still ahead. I wouldn't write Aberdeen off just yet. Could be dangerous to chase past 1 year performance, and given cyclical nature of stocks, I wouldn't be surprised to see Aberdeen pull it back. PTT are on double digit P/E ratios now, and starting to look a bit overvalued. ING will have the opportunity to reduce weightings, Aberdeen has already done so, tracker/index funds of course can't.

These also highlight the narrow shareholdings of the SET index, and some of the problems of the ETFs and index funds when bad times hit.

Edited December 17, 2007 by fletchsmile

[fletchsmile]

Now PTT is back from suspension, it was a good example. From 18 Dec to yesterday 19 Dec:

Aberdeen Growth down slightly, less than 0.1%, i.e virtually unchanged

Aberdeen LTF up 0.1%

ING Thai Equity and ING Good Governance both down around 1.6-1.7%

SET down 1.1%

Those are some big differences for a single day. But reflect the stock weightings of the funds towards PTT, PTTEP etc, now that the shares are moving downwards in the opposite direction