ING Funds to bet on further oil-price rises

Fresh from the recent price rebound for West Texas Intermediate (WTI) crude oil, ING Funds will be the first Thai asset-management company offering an oil-linked structured-note fund, betting on an eventual price rise in the next two years.

In general, crude-oil prices have been rising since a recent four-day tumble, the deepest dive in three years, because tension over Iran's nuclear programme has cooled down. Iran is the second-largest oil producer in the Organisation of Petroleum Exporting Countries (Opec). The price of WTI declined US$4.14 (Bt138) per barrel in the sudden slump as oil reserves rose by 2.95 million barrels.

Analysts' views differ as to how far oil prices will react to changing global economic forces. One camp - notably, Goldman Sachs - predicts a price of $200 a barrel in the next six to 24 months.

Another camp sees a medium-term bear rally and some correction, since prices have already shot up almost 240 per cent in the past four years. Morgan Stanley believes oil prices will level out at about $135 a barrel next year.

Under the terms and conditions of the structured note, investors in the ING Thai WTI Oil Linked Fund will receive a 10-per-cent annualised return, excluding a 3-per-cent management fee, if WTI hits at least 106 per cent in any half-year within a two-year period.

For instance, if the oil price starts at $130 a barrel, the 106-per-cent barrier will be $137.80. If the WTI price reaches $138 in the first six months, investors will receive a 5-per-cent return, or 10 per cent per year. And investors will have four shots at that, one every six months.

However, if the price does not make it up to 106 per cent in two years, the fund will fold and the money be returned, with costs factored in.

ING Funds managing director Maris Tarab believes oil prices will eventually rise.

"Gazprom predicts $250 a barrel soon, while Opec says the price will reach $170 a barrel this summer," he said.

The economic rationale is also ready-made: a shrinking oil supply faces ravenous demand from emerging markets like China and India.

There will also be elements of currency-exchange speculation, with the unhedged fund being in Australian dollars. Maris believes Australia's superior exports, domestic economy and interest rates will ensure a continuous appreciation of its currency against the baht.

ING Funds' assets under management have been boosted by the acquisition of TMB Bank by its parent company, the Dutch-based ING Group. Assets under management from banks alone now total Bt21 billion.

Last year, ING Funds' assets under management totalled Bt108 billion, including mutual, provident, property and private funds. The target submitted to Amsterdam this year is Bt204 billion, Maris said.