Thailand ETF Review for a Top Stock Market in Asia

7/29/2019 Thailand ETF Review for a Top Stock Market in Asia

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Thailand ETF Reviewfor a

Top Stock Market in Asia

Index Fund Performance for THD

Versus Benchmarks forMature and Emerging Markets

A Market Brief

by

Steven Kim

MintKit Investing

www.mintkit.com

2013 MintKit.com
http://www.mintkit.com/http://www.mintkit.com/


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Summary

In picking an index fund bound for growth, a review of the exchange traded fund (ETF)

for Thailand sets the stage for investing in a top stock market in Asia. For this purpose, the

vehicle of choice is an ETF that trades in the U.S. under the ticker symbol ofTHD.

As with budding markets in general, the bourse in Thailand is wont to thrash around a lot

more than those of the mature regions. For this reason, the volatility of the market is as

important as the return on investment in sizing up the corresponding fund.

On the upside, THD has turned in a rousing performance over the past few years in spite

of the stormy weather kicked up by the financial crisis of 2008 and its aftershock. On one

hand, the index fund crumbled more than the broad benchmarks of the emerging markets

as a whole. Despite the smackdown, however, THD regained its vigor in short order and

continued to trudge higher in the years to follow.

From a larger stance, the benchmarks of the emerging regions have been unable to

recover fully from the pounding they received during the financial flap. As a result, the

tracking funds for the sprouting markets have lagged behind the foremost benchmark of

the bourse used by professional investors.

Despite the poor showing of the emerging regions in general, Thailand has managed to

outshine its peers. Granted, the stock market did encounter a number of setbacks alongthe way. A case in point was the takedown prompted by the crash of the American bourse

in the autumn of 2011.

By contrast to their usual behavior, the emerging regions as a group have fared worse

than the U.S. market in recent years. Even so, Thailand has turned out to be one of the

bright spots on the global stage.

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In short, the exchange traded fund for Thailand has turned in a sparkling performance

since the financial crisis and its fallout. On one hand, THD has been somewhat more

volatile than the broad-based vehicles for the emerging regions; in particular, the index

funds sporting the labels ofEEMand VWO. In line with their usual behavior, the lattervehicles were in turn more flighty than the flagship pool for the mature markets; namely,

the tracking vehicle known as SPY.

On the bright side, though, the exchange traded fund for Thailand has outpaced SPY by a

hefty margin over the span of half a decade, and likewise for the past few years. Given this

backdrop, many an investor would have done well to trade off a modicum of turbulence in

return for the windfall turned in by THD.

* * *

Keywords:

Thailand, THD, Asia, ETF, Exchange Traded Funds, Index Fund, Top, Stocks, Emerging,

Market, Risk, Volatility, SPY, EEM, VWO

* * *

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* * *

An index fund is a handy way to invest in Thailand, a pacesetter boasting a top stock

market in Asia. For this purpose, a convenient vehicle lies in an exchange traded fund

based on a benchmark known as the MSCI Thailand Investable Market Index. On the U.S.

bourse, the corresponding pool trades under the call sign ofTHD.

As a prelude to investing in any type of asset, the sage investor has to weigh the payoff

over time against the risk along the way. To this end, one obvious gauge lies in the total

return on investment in terms of capital gains plus dividend payouts.

A second measure of performance concerns the flightiness of an asset during the upspurts

and downcasts in the marketplace. In this light, an apt yardstick lies in the scope of price

swings in comparison to the stock market at large.

In general, the two types of criteria namely, payoff and volatility are closely intertwined.An increase in the first factor usually entails a hike in the second. For this reason, the

mindful player has to balance the two traits in light of personal circumstances ranging from

financial resources to risk tolerance.

Benchmarks for ETF Comparison

Whatever the target domain, an exchange traded fund happens to be an equity listed in

the stock market. For this reason, it makes good sense to compare the communal pool

against the performance of the bourse at large.

In the financial forum, the most popular benchmark of the stock market among

professionals be they practitioners or researchers lies in the Standard & Poors index

of 500 leading equities. From a pragmatic stance, the latter yardstick is tracked by a

communal pool that trades in the U.S. under the ticker symbol ofSPY.

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In dealing with Thailand in particular, another fitting benchmark keeps tabs on the budding

markets round the world. In days of yore, the Asian economy used to be a frontier market

that appealed only to the pioneering souls within the cohort of international investors.

On the other hand, a country that was once exotic has a way of turning over time into a

familiar place. As a result, the rising star shows up as a matter of course on the radar

screens of the investing public. In this way, the frontier tract morphs into an emerging

market as the years go by.

In the current environment, it seems fair to say that Thailand has evolved from a frontier

market into an emerging one for a swelling throng of investors. In that case, an apt move isto compare THD against the benchmarks of the emerging regions.

For this purpose, a standard bearer lies in the Vanguard Emerging Markets fund, the

heavyweight in the domain in terms of the assets under management. The communal pool

trades in the U.S. via the handle ofVWO.

Meanwhile a second contender lies in the iShares Emerging Markets fund, which flies

under the banner ofEEM. This tracking vehicle is the top dog in terms of the average

volume of shares traded on the bourse.

Given the dominant traits of the two funds, we can infer that VWO is the index fund

favored by long-range investors. In comparison, EEM serves more as a trading vehicle for

short-term punters.

In line with earlier remarks, our task is to compare the index fund for Thailand against the

broader benchmarks of the emerging regions. In sizing up each of the contenders, the

core criteria deal with the return on investment and the volatility of the vehicle.

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Impact of Overhead on Fund Performance

From a larger stance, the burden of maintenance fees plays a vital role in the performance

of a communal fund. Other things being equal, a lean vehicle that requires only a trifling

cutout for administrative outlays is wont to outrun a lumbering pool weighed down by a

heavy load.

In practice, though, the millstone of administrative charges can be ignored in an initial

review by a busy investor pressed for time. The reason for giving short shrift to the cost

stems from the fact that the drain of maintenance fees is already reflected in the overall

performance of the index fund.

More precisely, the administrative overhead required to run a communal pool shows up as

a reduction in the stream of capital gains, dividend payouts, or both. As a result, the total

return on investment already takes into account the grind of maintenance fees.

In that case, the overhead can be viewed as a secondary trait in gauging the performance

of the fund. In particular, the maintenance charge may be treated as a tie-breaker in

casting the prospects for the future amongst two or more candidates. To wit: whatever the

payoff might have been in the past, an index fund with a hefty load is more likely than not

to lag behind a rival with a leaner setup.

In the early stages of evaluation, however, the canny investor has more weighty issues to

contend with. For this reason, the prober can gloss over the issue of maintenance fees

during the first phase of sizing up an index fund.

Graphic View of Chart Action

A financial market does not move in a straight line. For this reason, a lucid review of any

security has to consider the performance over an ample stretch that includes an upsurge

as well as a breakdown of the market.

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In the modern era, a watershed cropped up with the financial crisis of 2008 and its

aftermath. Given this backdrop, the behavior of sundry assets during and after the shocker

provides a revealing portrait of performance.

In order to grok a market of any sort, a good point of departure involves a survey of the

price action in a graphic mode. Furthermore, a simultaneous plot of the assets under

review serves to highlight the relative merits of the vehicles.

In line with this precept, the chart below has been adapted from Yahoo Finance

(finance.yahoo.com), the most popular site for investors. The exhibit spans a window of 5

years ending in early 2013.

As the legend on the chart explains, the green curve depicts the path of THD throughout

the interval. Near the beginning of the timespan, the index fund lost well over half its value

around the time of the financial crisis in 2008.

On a positive note, though, the tracking fund for Thailand fared better in the wake of the

fiasco. As an example, the crackup of the index fund was less severe in the spring of 2009

while the stock market at large plumbed its lows during the pits of the Great Recession.

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In the years to follow, THD managed to clamber higher albeit in a halting fashion. During

the jagged recovery, a milestone lay in a flop of the index fund in the autumn of 2011 in

tandem with a crash of the U.S. bourse.

Despite the knockdown, though, THD regained its poise before long and continued totrudge higher. By the end of the 5-year stretch, the index fund gained more than 60

percent in terms of the total return on investment.

By way of comparison, the red and purple curves in the foregoing chart portray the

movements of EEM and VWO respectively. On the whole, the duo of index funds turned in

similar results. The common outcome should come as no surprise since the two pools hold

many of the same equities within their portfolios.

On the downside, though, VWO crumpled a bit more than EEM in the midst of the financial

flap. The gap in performance showed up starkly in early 2009, in the immediate run-up to

the trough of the global recession coupled with the nadir for the stock market as a whole.

After its grody performance, VWO narrowed the lag behind its rival to some extent. As a

result, the pair of index funds turned in comparable results during the last 3 years.

Moving on to the remaining benchmark covered by the chart, the blue line depicts the

course of SPY over the past half-decade. The flagship fund hit rock bottom in March 2009

then clawed its way upward in the years to follow.

The challenges faced by SPY show up clearly in the fallback during the summer of 2010.

Another showcase popped up with the crash of the stock market in the autumn of the

following year.

Looking at the big picture, the financial flap of 2008 served to highlight the massive risks

that lurk in the marketplace. On a positive note, the catastrophe laid bare the raw fiber of

diverse assets under extreme conditions.

On the other hand, the calamity was an outlier which did not reflect the usual conditions in

the marketplace. For one thing, the smashup of the financial markets and banking system

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turned out to be the worst since the Great Depression of the 1930s. In addition, the

concurrent breakdown of the global economy was the most crippling since the Second

World War.

In view of the historical background, a holocaust on a similar scale is unlikely to crop upany time soon. For this reason, the experience in the wake of the debacle should serve as

a better guide to the prospects going forward.

As it happens, the recent past includes the crash of the stock market in 2011 followed by a

labored recovery in its aftermath. Given the wild swings to the upside as well as downside,

the last 3 years should serve as a solid foundation for sketching out the conditions over the

near term as well as the intermediate future.

Roundup for a Top Stock Market in Asia

The stock markets in the budding regions of the world have a way of soaring and plunging

far more than their counterparts in the mature countries. This hallmark applies to the

bourse in Thailand as well as other frisky markets.

On the upside, THD turned in a rousing performance over the past half-decade. In the

process, the dynamo shrugged off the barrage of challenges posed by the financial crisis

of 2008 and its aftermath.

On the downside, the index fund crumpled more than the benchmarks of the emerging

markets in the throes of the financial flap. Even so, THD regained its footing before long

and tramped higher in a fitful fashion over the years to follow.

By contrast, the emerging markets in the aggregate have been unable to recover fully from

the crackup suffered during the financial flap and its aftershock. As a result, the tracking

funds have lagged behind SPY, the workhorse that serves as the flagship pool within the

mature economies as well as the standard bearer for the stock markets of the world.

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To sum up, THD has been somewhat more volatile than EEM and VWO. As to be

expected, the latter funds were in turn more flighty than the leading touchstone in the form

of SPY.

By contrast to their usual behavior, the emerging markets as a group have fared worsethan the U.S. bourse in recent years. Even so, Thailand has turned out to be one of the

bright spots within the flowering regions.

In addition, THD has outpaced SPY by a sizable margin over the span of half a decade as

well as the past few years. Given this backdrop, many an investor would have done well to

trade off a modicum of turbulence in exchange for the bounty served up by the ETF for

Thailand.

Tips and Caveats

A key issue that lies beyond the scope of this article concerns the lack of a panacea for the

investor. Given the absence of a cure-all, each player has to size up the candidate assets

in light of individual circumstances.

An example of the latter lies in the level of tolerance for risk. Another sample involves the

way in which a given security happens to complement the other assets within a single

portfolio.

Amid the diversity of needs and wants amongst investors, the best choice of asset for one

person could well be a lousy pick for someone else. As a counterpoint, a particular actor

might decide that a lusty rate of growth is not worth the headache brought on by the

severe thrash of prices.

From a different angle, the prudent investor has to consult multiple sources of information

in order to obtain a robust and rounded view of any asset under review. A case in point is a

confirmation of historical data as well as the current status of a communal pool. Another

instance is the long-range outlook for the target market tracked by an index fund.

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The field of exchange traded funds is still in its infancy. Due to the jejune state of affairs,

the information available on the Web including the data provided by renowned portals

such as Yahoo Finance is often beset by a raft of flaws. A case in point is a batch of

performance figures which turns out to be incorrect, inconsistent and/or misleading.

An exemplar lies in the data provided by Yahoo Finance in the section on Risk for the

THD fund. For instance, the mean annual return for three years ending on January 30,

2013, is given as 2.63%. But the latter figure happens to be way out of whack with the

turnout for the index fund as portrayed in the chart we examined above.

Another stumper involves a popular measure of performance used by financial wonks in

gauging a dicey asset. More precisely, the yardstick deals with the extra payoff to aninvestor for taking on the risk entailed by a flighty stock.

Reward for Holding a Risky Asset

A great deal of wealth in the financial forum is tucked away in the form of debt issued by

sovereign states. Within this type of asset, the short-term bonds stamped out by the U.S.

Department of the Treasury are deemed to be the safest bets. For this reason, a universal

practice in financial economics is to consider the yield on Treasury bills that mature within

a year or less as the payoff resulting from a risk-free position.

On the whole, investors favor robust and demure assets over rickety or volatile ones. For

this reason, the main motive for holding any kind of risky asset springs from the prospect

of earning a higher return on investment.

In the argot of the financial community, the alpha factor refers to the gain on a risky

security beyond the yield offered by a riskless bond, other things being equal. In this

context, the key to the equality of other things is brushing aside the impact of changes in

the price level for the market as a whole.

To bring up a simple example, suppose that the return on a particular stock happened to

be 9% a year on average over the course of a decade. Over the same stretch, the bourse

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at large bounced around but ended up precisely where it started. In that case, the net

impact of the larger market on the price of the equity has turned out to be nil.

In addition, we assume that the mean return on Treasury bills throughout the decade was

0.5% per annum. In that case, the value of alpha is given by the difference between thepayoffs from the shaky stock and the riskless position; that is, the surfeit came out to 8.5%

a year.

In this way, the difference in payoffs for the fickle stock and the staid position represents

the excess return for taking up a risky security. The reward for holding the dicey asset

depends on the performance of the equity itself as well as the yield on Treasury bills.

Goofy Data on Fund Performance

When the financial crisis of 2008 flared up, the bulk of central banks round the world

decided to flood the marketplace with a tsunami of money whipped out of thin air. The

purpose of the ploy was to lubricate the wheels of commerce and thus shore up the

economy at large.

A direct outgrowth of the inundation was to squelch the cost of capital. In the U.S., for

instance, the central bank slashed the core rate of interest to a piddling amount hovering in

the range of zero to 0.25 percent on an annual basis.

Given the scanty cost of borrowing, the yield on short-term bonds was bound to be trifling

as well. As a result, the payoff on risk-free assets was zilch for all practical purposes.

We recall that the alpha factor refers to the return on a chancy asset beyond the payout

from a riskless bond. Since the financial fiasco, the yield on short-dated bills has been all

but negligible.

In recent years, then, the value of alpha for any stock has been pretty much the same

thing as the gross payoff for the equity after ignorning the price action for the bourse as a

whole. That would be the standard interpretation of the alpha factor.

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On a positive note, the financial portal at Yahoo provides a listing for the alpha factor

associated with THD. On the downside, though, a notice next to the entry indicates that

the value of the parameter is given in relation to a standard index.

Meanwhile the portal explains elsewhere on the site that the standard index refers to the

composite benchmark of 500 leading stocks compiled by Standard & Poors. As an aside,

we note that the flagship yardstick is often dubbed as SPXby a multitude of participants

and observers in the financial ring.

The form of alpha adopted by Yahoo appears to denote the extent by which THD has

surpassed SPX. This aberrant practice of course differs a great deal from the customaryusage of the terminology throughout the financial community.

Regardless of the definition used for alpha, though, the value listed at the Web site turns

out to be problematic for a couple of reasons. Before we deal with the knotty issues in

greater detail, we turn briefly to a separate but related topic.

In line with earlier remarks, the tracking vehicle for the Standard & Poors benchmark lies

in the index fund known as SPY. From a pragmatic stance, the communal pool mirrors the

movements of the flagship benchmark within a fraction of 0.1%. As a result, the

performance of the tracking fund is pretty much the same thing as the turnout for the target

yardstick. In that case, the superiority of THD over the SPX benchmark is for all practical

purposes the same thing as its lead over the SPY fund.

According to the portal at Yahoo, the deviant form of the alpha factor came out to 24.33%

a year. At that rate of growth, the gap in performance over a stretch of three years would

amount to some 92.19%. On the other hand, we can infer from the chart above that the

difference in turnout between THD and SPY over three years was a lot closer to 60% than

92%.

To make matters worse, the data reported do not even appear to be consistent with each

other. As a starting point, we note that the Standard & Poors index has advanced rather

than declined by a goodly amount over the past three years.

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In that case, the version of alpha employed by Yahoo ought to be smaller than the

absolute payoff for THD. Yet we find that the alleged gain of 24.33% a year on a relative

basis is far greater than the professed value of 2.63% denoting the absolute perlormance.

The welter of problems presented above serves as a stark reminder of the pitfalls involved

in dealing with flaky data in the realm of exchange traded funds. Due to the slew of

sinkholes that crater the landscape, the shrewd investor has to tread with care before

making a crucial decision of any sort.

Resources on the Web

On a cheery note, an exchange traded fund offers a simple way for the earnest investor to

beat the mass of participants in the marketplace. The following article talks about the use

of tracking funds to trounce the bulk of players, ranging from casual amateurs to gung-ho

professionals: How to Beat the Investment Funds. For instance, the primer explains how

the genuine investor can outpace the vast majority of mutual funds and hedge funds while

earning a bonus for taking up the nifty scheme. A link to the write-up is given below in the

section on References.

As we saw earlier, the field of exchange traded funds is chock-a-block with faulty

information. A rundown of the problems is given in a survey titled Cruddy Information on

Exchange Traded Funds. The article also presents a palette of countermeasures for

dealing with the bogies.

Thailand is an exceptional country in a variety of ways. One curio lies in the long-running

chain of bombshells that whomp the nation but seem to cause no severe problems over

the long range.

The turmoil on the political front is spotlighted by the following flaps at the dawn of the

millennium (Central, 2013; Wikipedia, 2013a).

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In September 2006, a military coup ousted the sitting prime minister named Thaksin

Shinawatra (alias Chinnawat).

After the elections of December 2007, the Peoples Power Party (PPP) a faction

in favor of Thaksin came to head up a coalition government.

The following May, the Peoples Alliance for Democracy (PAD, also known as

Yellow Shirts) which opposed the Thaksin camp staged demonstrations

against the new government. The protesters managed to occupy the prime

ministers office in August, followed by Bangkoks two international airports in

November.

The United Front for Democracy Against Dictatorship (UDD, a.k.a. Red Shirts),

acting in support of Thaksin, rioted in April 2009 and shut down an international

conference in Pattaya.

In February 2010, a court order confiscated half of Thaksins assets which had been

frozen. As a result, the UDD came out to protest between March and May 2010,

and in the process occupied several blocks in downtown Bangkok.

The security forces clashed with the rioters, some of whom were armed. At the time

of the protests by the Red Shirts, numerous attacks by way of bombs and grenades

were launched against government offices and the homes of public officials. The

rampage resulted in at least 92 deaths along with damage to property througharson to the tune of some US$1.5 billion.

In the summer of 2011, Yinglak Shinawatra Thaksins youngest sister led the

Pheu Thai party at the polls. She won by a landslide in the general elections and

took control of the government.

Another aspect of the social unrest involved the violent acts of an ethnic group in

the southern provinces of Thailand. Since January 2004, thousands have been

killed and injured as Malay-Muslim separatists fought to gain their independence.

Whenever a crisis flares up in Thailand, the swarm of international investors is quick to flee

the country en masse. A direct fallout is a crushing bust-up of the local bourse.

On the upside, though, the mass protests in the streets have a limited impact on the

stability of the nation and the health of the economy. As a result, the equity market has a

way of recouping the bulk of its losses within a matter of months. In this setting, the bouts

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of political unrest in Thailand have turned out in general to be golden opportunities for

intrepid investors to scoop up valuable assets on the cheap.

A brief survey of the flare-ups in the political arena is presented in the section on Politics

and Government within the country briefing at Wikipedia (2013b). The write-up alsoprovides a medley of links to additional resources.

To wrap up, the savvy investor in this corner of the world has to pay more attention than

usual to the state of current affairs as well as future prospects on the political front. Despite

the dollop of extra effort required, however, the rewards in store can more than offset the

drawbacks of investing in Thailand in line with its role as a top stock market in Asia.

References

Central Intelligence Agency. Thailand. TheWorld Fact Book.

https://www.cia.gov/library/publications/the-world-factbook/geos/th.html tapped

2013/2/26.

MintKit Core. Cruddy Information on Exchange Traded Funds.

http://www.mintkit.com/cruddy-information-exchange-traded-funds tapped 2013/2/26.

MintKit Core. How to Beat the Investment Funds. http://www.mintkit.com/beat-

investment-funds tapped 2013/2/26.

MintKit Hub. Top 10 ETF List for Growth Performance, Risk and Cost.

http://w.mintkit.com/2011/02/top-10-etf-list-for-growth-performance.html tapped

2013/2/26.

Wikipedia. 20082010 Thai Political Crisis.

http://en.wikipedia.org/wiki/2008%E2%80%932010_Thai_political_crisis tapped

2013a/2/26.

Wikipedia. Thailand. http://en.wikipedia.org/wiki/Thailand tapped 2013b/2/26.

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https://www.cia.gov/library/publications/the-world-factbook/geos/th.htmlhttp://www.mintkit.com/cruddy-information-exchange-traded-fundshttp://www.mintkit.com/beat-investment-fundshttp://www.mintkit.com/beat-investment-fundshttp://w.mintkit.com/2011/02/top-10-etf-list-for-growth-performance.htmlhttp://en.wikipedia.org/wiki/2008%E2%80%932010_Thai_political_crisishttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thailandhttps://www.cia.gov/library/publications/the-world-factbook/geos/th.htmlhttp://www.mintkit.com/cruddy-information-exchange-traded-fundshttp://www.mintkit.com/beat-investment-fundshttp://www.mintkit.com/beat-investment-fundshttp://w.mintkit.com/2011/02/top-10-etf-list-for-growth-performance.htmlhttp://en.wikipedia.org/wiki/2008%E2%80%932010_Thai_political_crisishttp://en.wikipedia.org/wiki/Thailand

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Thailand ETF Review for a Top Stock Market in Asia