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Published on September 3, 2007

From Thursday, "ThaiDEX SET50ETF" will be a new financial product for individual investors to choose for their portfolio aside from stock trading and mutual fund investment.

Exchange-traded funds (ETFs) are open-ended mutual funds that can be traded at any time throughout the course of the day, similar to stock trading. The ThaiDEX SET50ETF is an ETF offered for the first time in Thailand.

The ETF will replicate movement of the SET50 index as the underlying asset that will link to returns. The SET50 index will represent price movement and liquidity of the 50 biggest-capitalisation stocks. Every six months, the 50 stocks in the SET50 will be revised regarding their rank of capitalisation.

ThaiDEX SET50ETF is an interesting fund for both short-term and long-term investors, particularly new investors. The fund is designed as a low-risk product with returns that are close to the SET50 index and with a low initial investment. It can be traded every day.

According to the statistics of the Stock Exchange of Thailand, the SET50 offered the highest return during 2000-2006 at 188.6 per cent compared to the SET at 169.85 per cent, the bond index at 16.32 per cent and fixed one-year at 11.20 per cent.

Despite a fund feature, ThaiDEX SET50ETF can be traded like stocks via all brokers, while open-ended mutual funds are traded only via selling agents or asset-management firms.

In addition, investors can limit their in-

vestment risk as they are allowed to use "stop order", "limit order" and "margin" in order to lock in profit. For example, Investor A buys ThaiDEX SET50ETF at the net asset value (NAV) of Bt6 per unit trust and then the price goes up to Bt6.10. So, he gains Bt0.10. He believes the index will increase further but is not 100-per-cent certain about this. Thus he orders "stop order" at Bt6.08 in case the index falls. If the index really falls, he has still got Bt0.8 profit.

If the index surges as he predicts, he will also gain.

When the investor wants to buy or sell the unit trust of the ThaiDEX SET50ETF, the price must be quoted in incremental tick size of Bt0.01. The trading fee will be around 0.10-0.25 per cent of the trading amount.

There is an investment technique recommended by experts, Dollar Cost Average, which suggests that investors invest in the same amount at a regular period. Thus, when the ETF's NAV does down, the investor would be able to buy more units in the same amount of money, or vice versa.

For example, in the first month, the NAV of the ETF is at Bt5.80 and investor invested Bt100,000 and receives 17,241 units. In the second month, the NAV falls to Bt5.60 and the investor will get a higher number of units at 17,857 units. In the third month, the ETF's NAV rises to Bt6.20 and investor will get a lower number of units at 16,129 units. In the fourth month, ETF's NAV is at Bt7.20 and investor will get only 13,889 units.

On average, with the Dollar Cost Average strategy, the investor's average cost will be Bt6.14 per unit, which is lower than the normal investment of Bt6.20.

Investors can also get both capital gains and dividends from the ETF.

For the first ETF in Thailand, One Asset Management is the fund manager, while KGI Securities (Thailand) is the market-maker.

ThaiDEX SET50ETF was set up0 with Bt5 billion registered capital. Its initial public offering was on August 21-28, with a minimum investment amount of Bt5,000 per individual. The par value will be priced by calculating the closing index of the SET50 and dividing by 100. The reservation fee is 0.1 per cent plus value added tax of the price.

Investors can make reservations at Siam City Bank, City Corp Securities (Thailand), Kim Eng Securities (Thailand), Thanachart Securities and Bualuang Securities.

Siriporn Chanjindamanee

The Nation