Ayudhya Asset Management launches oil fund

CEO Chatrapee Tantixalerm told reporters yesterday that the closeended fund will keep at least 80 per cent of its net asset value (NAV) in the United States Oil Fund (USO), an exchangetraded fund (EFT) listed on the NYSE Arca.

The master fund invests in West Texas Intermediate (WTI) futures, he said.

The company chose USO as it is the largest oil futures fund with assets of US$2.61 billion (Bt billion) and has the highest trading liquidity among oil ETFs.

The fund will be redeemed when its NAV passes Bt11 per unit or when it reaches its oneyear term.

"We think there's a good chance that the oil price will hit 10 per cent," he said.

Ayudhya Oil 10% Target Fund will open from today to June 24 for purchases of at least Bt10,000.

Chief financial officer Prapas Tonpibulsak said the oil price is on an uptrend.

"We initially planned to set the target at 20 per cent (when the oil price was at about $40 a barrel) but we revised it downward to 10 per cent," he said.

The fund is a choice for investors wanting to diversify their risk or for oil users seeking a hedging instrument, he said.

Crude oil for July delivery hit a sevenmonth high of $71.18 a barrel in afterhours trading on the New York Mercantile Exchange.

Societe Generale raised its fourthquarter crude oil forecast by $11.50 a barrel to $72.50 out of optimism in the economy and expectations of higher inflation. Crude will average $75 a barrel in December, it said.

Ayudhya Asset Management's offering follows Krung Thai Asset Management's KTAM World Energy Fund, introduced on Tuesday.

KTAM's version will roll at least 80 per cent of its net asset value in the BGF World Energy Fund, which invests in 4060 stocks of companies engaged in energy without restrictions on market capitalisation, geography or investment style.

The subscription period runs from now until the end of this month. The fund has no maturity and it is redeemable every day.

Ladawan ChareonRajapark, managing director of Asset Plus Fund Management, said oil is an interesting asset class as it is a crucial raw material for consumption and production and demand is strong while supply and reserves are limited.

"The oil price has low correlation with stocks or debt instruments, so it is an asset class that helps diversify risk and creates good returns over the long run," she said.

Most oil analysts believe that WTI might reach $85 a barrel this year if Opec still maintains oil reserves at below average 10year demand, she said.

WTI might spike to $95 a barrel in the second half next year if Opec and nonOpec producers further slash their output.

"However, fund flows have been directed to risk assets. Investment needs economic indicator analysis and appropriate asset allocation because a shortterm market correction might be seen due to profittaking," she said.