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Published on March 27, 2008

The trick is to catch the right wave at the right time and balance the risk-to-reward levels prudently.

The Market for Alternative Investment (MAI) Index last year rose 40 per cent, compared with a gain of 26.22 per cent for the SET Index.

The MAI is the second-tier exchange, for SMEs.

Being the only long-term equity fund  (LTF) to invest in MAI stocks, the SCB MAI Stock Long Term Equity Fund (SCBLT3) has caught some of the right waves as it posted a return of 46 per cent last year.

Since its inception, its net asset value has grown by 58.73 per cent.

Small and medium-cap companies are less prone to the global financial crisis, said Vijchu Chantatab, vice president of SCB Asset Management.

Despite the turbulence sparked by the sub-prime fallout, which has brought down hedge funds and investment banks, MAI stocks appear to be relatively sheltered from the storm.

But if unfavourable forces do hit these small companies, it is likely that they would have a much more difficult time recovering.

"Many of these stocks we hold are trading at a loss," Vijchu said.

But so far the fund has managed to escape major casualties.

One of the reasons for the fund's immunity to short-term shocks is that it can also invest in SET-listed companies.

In fact, the top five holdings as of this January are blue-chip stocks such as Banpu, PTT, Kasikornbank, PTT Exploration and Production, and Thai Oil.

According to Vijchu, the fund had allotted 40 per cent of its portfolio to SET and MAI stocks.

The remaining 20 per cent can swing either way. Almost half of the stocks it now holds are in big-cap names.

But the reason for this allocation is technical.

With the amount of money the fund holds, buying 9 to 10 per cent in small companies can be a risky play. Some MAI stocks are also illiquid.

But for tax allowances to be effective, investors must hold MAI units for five years.

This strategy beckons the question of whether growth in these firms can be sustained for the next three years, before the fund's maturity period expires.

Vijchu believes that if the government stimulus package works, this year's growth in gross domestic product could reach 5 per cent.

SET companies would see earnings grow by 12 to 15 per cent, but MAI companies should record higher expansion.

In two to three months, fund managers may revise its allocation and add more weight to bank and property shares, Vijchu added.

Ki Nan Tsui

The Nation