Diversified fund banks on the sterling to start with

Fund managers often trumpet the virtues of investment diversification but seldom come up with a truly diversified fund.

Although Krung Thai Asset Management's latest offer - the Global Treasury Fund 1 - will for now only invest in British sterling bonds, commercial papers and deposits, Teeraphan Jittalarn, KTAM's senior executive vice president, hopes that investors will in future be able to alternate between sterling, US dollars and euros.

The company is in talks with the Securities and Exchange Commission to allow the money-market foreign investment fund to invest in three separate feeder funds from RBS Asset Management.

Investors can benefit from the fund's flexibility. The three currencies often move in different directions - the US dollar's weakness might be a boon to the euro.

For now, with the dollar in decline, the economy slowing down and historic interest rate cuts, there is only the way up for the dollar and the economy, said Teeraphun.

"The fund's liquidity is ideal for investors who would like to rest their money for the short term," said Teeraphan. The feeder funds all received the highest ratings from major rating agencies - AAAm from S&P, Aaa/MR1+ from Moody's and AAA/V1+ from Fitch. The weighted average maturity will be maintained at 60 days.

"For example, a parent can put their child's pound sterling tuition fees in the fund before transferring them to their child's British bank account," said Teeraphan.

At 42 per cent of the portfolio, the commercial papers make up the majority of the investment in the sterling fund. Certificates of deposit, floating-rate notes, term deposits and fixed-rate bonds make up the remainder of the investment.

The sterling fund's seven-day average yield is 5.10 to 5.35 per cent. KTAM's management fee will be a maximum of 1 per cent, but investors must also not forget to take in foreign-exchange rate risks with sterling likely to come down as a result of interest-rate cuts by the Bank of England in response to the credit crunch and rising inflation.

The other money-market fund from RBS Asset Management will invest in Australian dollar-denominated debts.