New uob fund protects principal investment

The new fund fully protects the principal. The size of the fund is Bt1.4 billion. The minimum invest¬ment is Bt10,000 with three years' maturity.

The initial public offering, which opened yesterday, closes on August 20.

Vana Bulbon, chief executive officer of UOB Asset Management, said the new UOB Select Spectrum 1 protects 100 per cent of the prin¬cipal in baht. It is transferable to an openend fund.

"The fund will invest in a zerocoupon bond in US dollars, which is issued by KBN, a Norwegian state enterprise, or KfW, a German bank. Both are rated AAA by Standard & Poor's. The fund will also invest the remaining money in a euro curren¬cy option whose return is linked to spectrum index issued by BNP Paribas bank, which is rated AA+ by S&P," said Vana.

The proportion to invest in a euro currency option will be equal to the discounted zerocoupon bond.

The principal will be fully pro¬tected as the fund will buy curren¬cy exchange forward contracts to fully hedge exchange rate risks.

However, the returns which investors could get would depend on the returns from the euro cur¬rency option investment.

For example, if the discount price of the zerocoupon bond is 20 per cent for three years, the Bt1.4billion investment will get Bt280 million in discount. The fund will invest Bt280 million in the euro currency option.

"For option investment strategy, we'll get benefit from a long posi¬tion when the return is higher and a short position when the return is lower. Therefore, the option will invest in the stock market by tak¬ing the long position on the expect¬ed best return stock and then tak¬ing the short position on the expect¬ed worst return one," said Vana.

Usually the equity investment styles will be classified into four groups - value stocks, growth stocks, dividend stocks and market stocks - which offer different returns up to the market situation. The spectrum index will rank these four groups based on expected returns, while the option invest¬ment will adjust the portfolio com¬patible with the index.

As long as the expected best return is higher than the expected worst return, it still gets benefit from the overall investment, no matter what the direction of the market.

But it is also possible that the investors will get no return at all in case the spectrum index in the third year is lower than the spectrum index on the fund's registered date. If getting slight return, it might not cover the exchange rate loss, which could occur in case the baht is stronger.

The expected return in the euro option investment is a maximum of 12.15 per cent a year and a minimum 5 per cent a year, while the average return is 8.53 per cent a year.