Provident fund leader boosted by equities

Tisco Asset Management, Thailand's largest provident fund management firm by asset size, last year offered returns in a range of 7.5 to 14.8 per cent from its mixed funds containing 10 to 30 per cent of investment in equities.

Returns of 35 to 43 per cent from Tisco's mixed funds' investments in stocks in 2007 beat the SET Index's performance of 26 per cent, said deputy managing director and head of Tisco's provident fund business, Araya Thirakomen.

"Our target is that our returns should be better than the deposit rate and inflation," she said.

At the end of February, the value of Tisco Asset Management's assets under management was Bt64.23 billion, representing a 14.32 per cent share of the market.

Having begun provident fund management services in 1969, it now manages 59 provident funds with 2,123 employers and 354,479 employees. In January, Tisco overtook Krung Thai Asset Management as the country's number one provident fund manager.

At the end of last year, Tisco Asset Management's provident funds had total assets of Bt62.73 billion. Of this, Bt43.74 billion was in mixed funds, Bt14.42 billion in general fixed-income funds, Bt4.52 billion in secured fixed-income funds, and Bt51 million in specific funds.

Tisco's mixed funds follow a policy of investing in deposit accounts, government, state enterprise and corporate bonds, treasury bills, promissory notes and stocks. Its general fixed-income and secured fixed-income funds follow the same policy of not investing in equities, but the latter focuses on deposits of, and debt instruments issued by, large-scale financial institutions, government and state enterprises.

According to a breakdown by asset allocation at the end of 2007, bonds, treasury bills and other debt instruments guaranteed by the Finance Ministry accounted for Bt27.83 billion, or 44.36 per cent of Tisco's assets under management. Debentures accounted for Bt15.83 billion, or 25.23 per cent.

Deposits, promissory notes, bills of exchange and negotiable certificates of deposit were valued at Bt9.65 billion; common and preferred shares, unit trusts and warrants, Bt8.84 billion or 14.09 per cent; and other assets made up the rest.

By comparison, Bt183.22 billion or 41.48 per cent of the overall provident fund industry portfolio at the end of 2007 was in bonds, treasury bills and other debt instruments guaranteed by the Finance Ministry; Bt94.12 billion or 21.30 per cent was in debentures; and Bt99 billion or 22.43 per cent was in deposits, promissory notes, bills of exchange and negotiable certificates of deposit.

 As well, Bt63.33 billion or 14.34 per cent was invested in common and preferred shares, unit trusts and warrants; and Bt2.04 billion or 0.46 per cent in other assets.

Araya said provident funds managed by her firm had invested in stocks listed in Tisco Asset management's Stock Universe, which contains 50 to 60 stocks.

"We don't invest in all 50 to 60 stocks," she said. "Factors used to choose stocks in the Stock Universe are trading liquidity and returns from capital gain and dividends.

"For long-term investment, we are interested in China's market, as the value of the yuan will be stronger than the baht in the long run. However, we think the domestic stock market is attractive in the short run as net returns from investment in some countries are only a little bit higher than those from the domestic market. Volatility in the stock market presents investment opportunities," Araya said.

"We are now overweight in banking stocks. For debt instruments, most of them in our portfolio have a two- to five-year tenor. We think there is a chance that interest rates might be slashed a bit."

Even though the number of players in the provident fund management market has declined from 20 last year to the present 17, competition in the industry remains intense as smaller firms strive to expand their assets under management.

"Performance and service are our strong selling points as we have comprehensive information data to serve both existing and new members. Moreover, we have expertise in offering tailor-made products to customers," Araya said.

Tisco Asset Management's target for this year is growth of 20 per cent in both assets under management and its number of employers.

The industry has growth potential as the number of employers who have established provident funds for their employees is about 9,000, out of 400,000 firms registered with the Commerce Ministry.

Next Thursday, Krung Thai Asset Management.

First of the Four

This is the first in a series of four articles on the asset allocation of Thailand's top provident fund management companies.