Tuesday, August 11, 2020

Investments in small, mid-cap stocks help some funds buck the market trend

Jul 07. 2020
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By The Nation

Thai funds that invested in small- and mid-cap stocks have generated better returns in the first half of the year than funds that invested in large-cap stocks during the Covid-19 crisis, experts said.

The Covid-19 outbreak caused a severe impact on the Thai stock market during the first half of this year, causing the Stock Exchange of Thailand (SET) Index to dropped below 1,000 points. Although the index has rebounded, the index still contracted 15.2 per cent.

According to Morningstar Research (Thailand) data, as of June 30 this year the top 10 Thai funds that invested in large-cap stocks generated the highest returns of minus 5.17 per cent and the lowest of minus 9.80 per cent, while the top 10 Thai funds that invested in small- and mid-cap stocks generated the highest returns of 7.75 per cent and the lowest of minus 2.70 per cent.

Among Thai funds that invested in small- and mid-cap stocks, two Krungthai Asset Management (KTAM) funds, namely Krung Thai mai Equity Fund (KT-mai) and Krung Thai Mid-Small Cap Equity Fund (KTMSEQ), generated returns of 7.75 per cent and 3.29 per cent, respectively.

Thai funds that invested in small- and mid-cap stocks were able to generate outstanding returns because the Market for Alternative Investment (mai) and SET indices in the first half of this year dropped to minus 3.8 per cent and minus 12.7 per cent, respectively.

Meanwhile, the SET100, SET50 and SET indices dropped sharply to minus 16.4 per cent, minus 17.2 per cent, and minus 15.2 per cent, respectively.These funds had focused on investment in financial, hospitals and public utility stocks that escaped from the Covid-19 fallout and have a very small proportion of investment in large-cap stocks.

On the contrary, returns of Thai funds that invested in large-cap stocks at more than 70 per cent decreased due to the decline in commercial bank and energy stocks. Commercial bank stocks were pressured by rising bad debt, while energy stocks were pressured by falling crude oil price.

Chayanee Juengmanon, senior analyst at Morningstar Research (Thailand), said that the Covid-19 outbreak had caused a severe impact on large businesses' performances, especially commercial banks and energy companies, resulting in the decline in returns of funds that invested in large-cap stocks.

"However, funds that invested in small- and mid-cap stocks have risks more than funds that invested in large-cap stocks during the market volatility, so we advise investors to evaluate funds whether the fund is capable of taking risks or not before investing," she said.

Meanwhile, Somchai Amornthum, the assistant to the chief executive officer of the Strategic Asset Allocation and Fund Marketing Department at KTAM, said that funds that invested in small- and mid-cap stocks had become popular among investors because small- and mid-cap stocks gained positive sentiment from the government's lockdown easing.

"However, these funds would be under pressure from market volatility as we expect the index this year to move sideways between 1,350 and 1,450, while the index next year is expected to rise to 1,530," he said.

"Therefore, we advise investors to gradually invest in funds that have invested in small- and mid-cap stocks to speculate on returns in the long term for more than three years."

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