Mutual funds: the smart choice for cautious investors

Local bond funds: As a result last year’s floods plus the US economic downturn and the sovereign debt crisis in Europe, the Bank of Thailand has maintained its policy interest rate at 3 per cent in the first half of this year. This rate is expected to rise in the second half of this year, along with a rise in market bond supply and inflation.

If you are seeking high-liquidity investment or are averse to the volatility of long-term bonds, we advise that you invest in money-market funds with daily trading. Short-term rollover bond funds, such as those with three- or six-month maturity, are an attractive choice for investors should the interest rate rise in the next few months.

Local equity funds: If you are looking at Thai stocks this year, we recommend investing in sectors with high potential growth driven by domestic consumption, such as the retail, commercial bank, construction material, and food and beverage sectors. For inexperienced investors, we advise index equity funds, whose returns rely on the underlying indexes of the funds, such as the SET Index, SET 100 and SET 50. Target funds with specific investment periods and returns are also good choices. 

Foreign investment fund: As a rule, foreign investment is recommended for asset allocation. Due to the potential for better interest rates or foreign-exchange spreads, such investment could give investors higher returns than local instruments. 

For a foreign-bond fund, we advise you choose one that invests in Asian bonds, such as sovereign or corporate bonds of China, South Korea and Taiwan, all of which possess potential growth and respectable credit levels.

For foreign-equity funds, BRIC (Brazil, Russia, India, China) stocks are extremely attractive because their economies and industrial production command high growth potential, share values are under current adjustment factors, and the ratio of sovereign debt to GDP is lower than in developed countries like the US or European nations.

Gold funds: This year the price of gold has risen along with central banks’ rising desire to hold on to the US dollar, which is likely to weaken in the long run. Analysts expect that the US Federal Reserve will launch QE3 in the second half of this year, after the US economy has slowed due to fading near-term tailwinds, uncertainty ahead of this year’s US election, and the year-end “fiscal cliff”. These factors will buoy the gold price. So, if you are investing in gold funds, we recommend choosing those with foreign-exchange hedging policies; their returns will track the movement of the gold price. You should, however, be aware of risks arising from fluctuations in the price of gold or those in foreign-exchange rates, and other economic factors.

Investment through mutual funds is, all in all, a solid choice for every investment environment with various asset classes. As a rule, fund managers do a professional job. Besides, returns from mutual-fund investment are exempt from personal income tax. If you are a low risk-tolerant investor, consider investing in short-term bond funds or capital protection funds. Otherwise, allocate more investment to equity and commodity funds in the hope of higher returns for your portfolio. To meet your investment objectives at an acceptable risk level, however, you should scrutinise the information in the prospectus before making any decisions.

 

Jarulag Ruangsuwan is senior vice president in the Sales and Marketing Department at Asset Plus Fund Management. Views expressed are her own.