With multiplying and dizzying investment choices and options, each fund's success hinges upon its execution. What puts UOB AM's UOB Smart Commodity Fund apart from others is its "contrarian" take on commodities, said Vana Bulbon, chief executive officer of UOB AM.
Unlike most funds that take a constant weight on commodity holdings - meaning that holdings will be revised every month or quarter or year - the new UOB fund will adjust its positions daily, said Vana.
This, according to Vana, has translated into a better performance. As at the end of April, the Deutsche Bank Liquid Commodity Index (DBLCI), which the feeder fund - DB Platinum Commodity Euro Fund - mirrors, had a year-to-date return of 12.58 per cent, compared to S&P Goldman Sachs Commodity Index (GSCI) of the same period of 11.53 per cent, baht-adjusted. The gap widens through the duration. Since December 1988, the DBLCI mean-reversed index has returned 2,741.22 per cent, compared to S&P GSCI's 771.08 per cent.
By applying the mean reverse method daily - whereby weight allocation can be scaled up and down every day - Vana said the fund can better adapt to market volatility and anticipate trends.
The feeder fund, DB Platinum Commodity Euro Fund, will invest in fixed-income securities and index swap to exchange the return of the fixed income against the performance of DBLCI. Since its inception on May 17, 2005, the fund has had a 142.59-per-cent return, adjusted to baht. Though not as diversified as the S&P GSCI, the DBLCI, according to Vana, is well-diversified.
Its allocation is spread across heating oil, corn, wheat, gold, aluminium and crude oil, all of which have different cycles.
Despite what Vana sees as obvious demand and dwindling supplies, there are execution risks, as in any case of trading, fund managers, in this case, State Street Global Advisers, might misfire by buying high and selling low. One must not forget too that swaps have their own sets of risks as do derivatives.
UOB AM has seven foreign investment funds worth Bt8 billion outstanding in its portfolio, said Vana. Total NAV for the company now stands at Bt80 billion, and UOB AM has plans to roll out more foreign investment funds, possibly every month, depending on the trend of the moment, said Vana.