A pooled investment instrument that holds a basket of securities and tracks an index or asset class is known as an exchange traded fund (ETF). ETF shares are traded on the Stock Exchange of Thailand (SET) in the same way as other listed securities in real time. As a result of interactions between three important entities, an ETF is first founded, and then its shares are made accessible for investors to purchase and sell.
An asset management firm (AMC) creates an ETF by documenting the fund’s investment objectives and the index (or other benchmark) that the fund will attempt to match. The AMC is also in charge of ensuring that the fund is listed on the SET, creating and redeeming fund shares, balancing the fund’s underlying portfolio of assets, distributing dividends, and reporting the fund’s asset composition and value.
An authorized participant (AP) signs a contract with the AMC authorizing it to order and redeem batches of shares in the fund. These shares are subsequently made available for purchase and sale on the SET. The AP must pass up the rights to a corresponding bundle of securities (or other assets) to the AMC in order to get a new batch of ETF shares. The AMC then uses the rights to balance the ETF’s underlying portfolio.
A market maker (MM) accepts the risk of holding a minimum number of shares in the fund and is responsible for buying and selling if no one else does so in order to keep the bid-offer spread liquid. Both the AP and the MM functions are frequently filled by the same company, such as a broker or another large institutional investor.
The figure below provides a simplified summary of how a Thai ETF works:
Why are ETFs so popular?
ETFs have gained a lot of traction in markets all over the world. They originally surfaced in the United States in the 1990s, and demand for this sort of investment has skyrocketed since then. In the United States, for example, ETF investment has surged twelvefold in the last decade, from $170 billion to $2 trillion. In Australia, ETF funds under administration have surged by more than 20% in just the last twelve months.
Transparent Pricing: An ETF’s net asset value (NAV) is the sum of its assets minus its liabilities in plain terms. Throughout the trading day, an ETF’s indicative net asset value (iNAV) is regularly posted to the market. The market price of ETF shares correlates closely to the net worth of the underlying assets held by the fund because the iNAV is available in real time. An equities-based mutual fund, on the other hand, is only required to report its portfolio’s NAV on a quarterly or semi-annual basis. As a result, investors consider an ETF to provide greater pricing transparency than a mutual fund.
Buying and selling an ETF is a lot easier than buying and selling a regular mutual fund. ETF shares are purchased and sold on an exchange’s main board alongside regular stocks and other listed instruments.
ETFs are considered to be far more tax efficient than regular mutual funds. This is because an ETF that tracks an index has a low portfolio asset turnover, resulting in fewer taxable events (realizations of a capital gain). An actively managed equities mutual fund, on the other hand, can have a portfolio turnover of more than 100%.
Access and Diversification: ETFs allow investors to acquire access to markets or asset classes that they would otherwise be unable to access. A good example is investing in the bond market. Purchasing shares in an ETF that holds a basket of securities is another quick and straightforward option to diversify one’s investment portfolio’s exposure.
Lower Management Fees: An actively managed mutual fund’s management fees are typically much greater than those levied by a passively managed ETF that tracks an index. Many financial analysts claim that paying these higher fees is a waste of money because stock selecting is ineffective and actively managed mutual funds rarely outperform relevant underlying indexes in the long run. It appears that many investors are paying attention to this debate and voting with their feet. Money has been migrating out of mutual funds and into exchange-traded funds (ETFs) in recent years.
What ETF products are available in Thailand?
If you want to check the profile and information page for a certain fund, you may also click on the relevant link in the table below:
How do I invest in a Thai ETF?
Directly with your Thai broker or online via your trading platform, you can place orders for shares in an ETF listed on the SET. The brokerage charge you pay to trade an ETF is identical to the fee you pay to trade a regular stock. ETF shares have a minimum lot size of 100 units. If an ETF is now selling at a market price of 7.50 Baht per share, your minimum investment would be 750 Baht.
Before investing in an ETF, you should read the prospectus to familiarize yourself with key facts such as the fund’s objectives, management fee, performance history, and dangers. Every month, the AMC that designed the ETF is obligated to publish an updated factsheet for the fund.
What are the risks and returns?
Like normal listed securities, the price of ETF shares can be influenced by a variety of factors, including the current economic, social, and political outlooks. Investors in exchange-traded funds (ETFs) may also be exposed to the risk of tracking mistake. This is the difference between the fund’s returns and the underlying index it aims to imitate.
The daily trading volume of several Thai ETFs is extremely low. In such a situation, there is a greater chance that an investor will suffer a “gap down” loss. It is also critical that you familiarize yourself with the market liquidity (previous daily trading volumes) of the shares in your selected ETF before placing a buy order. Maintaining awareness of liquidity and the possibility of a gap down loss will assist you avoid becoming trapped in a position where you want to sell your ETF shares but there are no or inadequate buyers in the market.
Dividends: Any dividends generated by an ETF’s holdings will be dispersed to the fund’s shareholders. For handling the payments, the AMC will deduct a charge.
Is there an ETF listed in the US that tracks the Thai stock market?
Yes. BlackRock manages iShares, a portfolio of exchange-traded funds. The iShares MSCI Thailand Capped ETF tries to replicate the performance of a broad-based index of Thai stocks. I discussed how an investor trading on the NYSE can utilize this iShares EFT to short sell the SET in a previous article titled How to Short Sell the Thai Stock Market.
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Can a foreigner invest in Thailand’s stock market?
International trades are sometimes associated with high fees. Using a brokerage based in the country where you’re buying stocks can save you money.
Boom Securities, for example, will charge a minimum of 1,500THB (US$50) per trade. A Thai brokerage account will cost you around 60THB ($2) for the same commission.
Large commissions may be acceptable if you make a lot of trades. For many people, round-trip transaction costs of US$100 are a deal-breaker.
Having said that, opening a stock brokerage account in Thailand will almost certainly necessitate a long-term visa.
A 30-day tourist stamp will not suffice. There are a few exceptions, and it all depends on the bank. However, I will not spoil the fun by directing everyone to a public article.
If you already have a long-term visa in Thailand, buying stocks is much easier. Simply travel to Bangkok Bank’s Silom Road headquarters and open a Bualuang Securities account. They’ll take you step by step through the procedure.
There are two primary choices for non-residents. To begin, you might accept higher brokerage fees by establishing an account outside of Thailand. Second, rather than a separate brokerage account, you can buy mutual funds in Thailand using a regular bank account.
With a tourist visa, a few Thai institutions will allow foreigners to create a bank account. To buy specific stocks and ETFs, however, you must first open a real trading account, which needs long-term residency.
If you prefer managed funds or aren’t a Thai resident, Bangkok Bank also has Thailand’s largest mutual fund and ETF portfolio. It appears that whether or not you can open a bank account as a tourist is determined by the branch and the workers.
Aberdeen Asset Management is the manager of some of Thailand’s most successful funds. Unfortunately, non-resident foreigners are not permitted to open accounts.
How can I go about purchasing an ETF directly?
Because you can’t just go to the store and buy a basket of ETFs, you’ll need to open a brokerage account first. However, before determining where to open your account, think about your objectives. Certain types of accounts are better suited to specific objectives.
- Taxable: These are “normal” accounts that do not offer any tax benefits. This makes them excellent for achieving goals before reaching the federal retirement age of 59 1/2. When you sell your investments, there are no restrictions or penalties, but you must be cautious of taxes. You’ll owe them whenever you make a profit on an investment or receive dividend payments.
- Traditional IRAs and Roth IRAs are tax-advantaged retirement accounts that allow your investments to grow tax-deferredor even tax-free in the case of Roth IRAs. As a result, they’re effective tools for saving for retirement. The IRS, however, imposes particular contribution limits and withdrawal criteria for IRAs as a result of these tax benefits. You can’t contribute more than $6,000 every year ($7,000 if you’re 50 or older), and you can’t access your IRA assets until you’re 59 1/2 without incurring a 10% penaltyplus taxes on any money that hasn’t been taxed previously.
- 529: A 529 account is a wonderful place to start if you want to use ETFs to save for college: Money invested in a 529 plan grows tax-free and isn’t taxed when it’s withdrawn if it’s utilized for approved school costs. 529 plans can now be utilized for pre-college expenses such as private school tuition and trade school fees. While funds maintained in 529 accounts cannot be withdrawn for non-education expenses without incurring a penalty, they can be transferred to another relative without penalty.
- Custodial: If you want a more limited means to save on behalf of a child, custodial brokerage accounts are a good option. You can invest and manage money on behalf of a child beneficiary using these investment accounts. Custodial accounts have no tax advantages, except that up to $2,000 of investment income is taxed at the child’s reduced rate, and money can be spent much more broadly than 529s. A 529 plan’s funds can be used for any purpose that benefits the child. However, once the minor reaches the age of majority (typically 18 to 25 years old, depending on where you live), they will have complete control over the account.
Can foreigners purchase ETFs?
Investors are constantly looking for new ways to broaden their market exposure and profit from lucrative possibilities. For those who are willing to take on a bit extra risk, international investment is a possibility.
Investors can diversify their investments by location or increase or decrease their exposure to emerging, stable, or expanding foreign investment kinds by investing internationally. Overseas exchange traded funds (ETFs) are cost-effective and advantageous assets for your portfolio, allowing you to invest in foreign markets immediately.
You can utilize six different types of overseas ETFs to diversify and grow your portfolio.
Can I purchase ETFs on my own?
To buy an ETF, you’ll need to open a brokerage account, which is a type of investing account. You can start an online discount brokerage account and buy ETFs for yourself if you feel comfortable doing things yourself and want to save money.
Is Thailand impoverished?
In 2019, 6.2 percent of Thailand’s population is living below the national poverty level. In Thailand, the fraction of employed people earning less than $1.90 per day in 2019 is 0.0 percent.
Is there a Thai version of Robinhood?
Robinhood is now unavailable in Thailand, as well as in any other country outside of the United States. It had scheduled to open in the UK in 2020, however due to Covid-19, it has been postponed indefinitely. Since then, they have taken no more steps in their global expansion.
But don’t give up! In Thailand, you’ll find some choices that have shown to be trustworthy (maybe even more so than Robinhood!).
The covid-19 stock drop in the first quarter of 2020 revealed some of the Robinhood platform’s flaws. Several times, the app crashed, and investors were unable to trade during some of the most turbulent markets in history (examples are Gamestop, and more recently, Dogecoin). As a result of the interruptions, the corporation is facing some legal action.
Furthermore, Robinhood has previously experienced security breaches that exposed personal information about its customers, and it even permitted “unlimited leverage” at one point, which was quickly addressed. Nonetheless, it did not prevent some consumers from suffering significant losses.
Are ETFs suitable for novice investors?
Because of their many advantages, such as low expense ratios, ample liquidity, a wide range of investment options, diversification, and a low investment threshold, exchange traded funds (ETFs) are perfect for new investors. ETFs are also ideal vehicles for a variety of trading and investment strategies employed by beginner traders and investors because of these characteristics. The seven finest ETF trading methods for novices, in no particular order, are listed below.
Are ETFs preferable to stocks?
Consider the risk as well as the potential return when determining whether to invest in stocks or an ETF. When there is a broad dispersion of returns from the mean, stock-picking has an advantage over ETFs. And, with stock-picking, you can use your understanding of the industry or the stock to gain an advantage.
In two cases, ETFs have an edge over stocks. First, an ETF may be the best option when the return from equities in the sector has a tight dispersion around the mean. Second, if you can’t obtain an advantage through company knowledge, an ETF is the greatest option.
To grasp the core investment fundamentals, whether you’re picking equities or an ETF, you need to stay current on the sector or the stock. You don’t want all of your hard work to be undone as time goes on. While it’s critical to conduct research before selecting a stock or ETF, it’s equally critical to conduct research and select the broker that best matches your needs.
Is investing in ETFs risky?
Because the bulk of ETFs are index funds, they are relatively safe. An indexed ETF is a fund that invests in the same securities as a specific index, such as the S&P 500, with the hopes of matching the index’s annual returns. While all investments involve risk, and indexed funds are subject to the whole range of market volatility (meaning that if the index drops in value, so does the fund), the stock market’s overall trend is bullish. Indexes, and the ETFs that track them, are most likely to gain value over time.
Because they monitor certain indexes, indexed ETFs only purchase and sell equities when the underlying indices do. This eliminates the need for a fund manager to select assets based on study, analysis, or instinct. When it comes to mutual funds, for example, investors must devote time and effort into investigating the fund manager as well as the fund’s return history to guarantee the fund is well-managed. With indexed ETFs, this is not an issue; investors can simply choose an index they believe will do well in the future year.
How do I choose an international exchange-traded fund (ETF)?
Both local and international ETFs, like other investments, come with their own set of dangers. Market-specific hazards, such as stock values, can be present. They can also be macro hazards, such as large amounts of government debt, which can lead to inflation.
International stock investments are more volatile than domestic stock investments. Equity returns may be hampered by factors such as a lack of market regulation, differing accounting methods, political instability, and currency fluctuations.
According to Vanguard’s study, with the right diversity levels, investors can mitigate some of these risks.
Another risk to consider when investing in international ETFs is the possibility of country weighting overlap. Market opportunities are frequently used by fund managers to make decisions. As a result, many ETFs’ stock holdings in specific industries or regions may be comparable.
Pay attention to the fund’s top holdings, as well as investment allocations across sectors and regions, when choosing an international ETF. The idea is to match your assets to your intended asset allocation while avoiding overexposure to a single market segment.
Remember that a sector or region may be popular now but will soon lose favor tomorrow.