You have a craving for pad thai. Do you (a) make a trip to Or Tor Kor market to acquire the necessary 15 or so ingredients (rice noodles, roasted peanuts, dried shrimp, etc) and expertly fire up the wok at home, or do you (b) swing by your neighbourhood pad thai vendor? If you're as good a chef as me, the answer is b.
The very idea of cooking pad thai can be daunting, but you probably face more pressing life questions than cooking pad thai.
One urgent question is how to invest for your retirement. A recent study by Boonlert Jitmaneeroj of the Research Institute for Policy Evaluation and Design found that 52% of office workers surveyed would be underfunded by an average of 2.9 million baht upon retirement. The clock is ticking, but savers seem oblivious. If you think you're already saving enough, think again. The study cites overconfidence as one culprit.
So what can savers do? The good news is that if you're below 40 years of age, it's not too late to save adequately for retirement. If you're over 40, it's better late than never. The challenge is how to raise your rate of return over the long term. Equity is one option. Historical data bears this out: over the past 10 years, the SET50 Total Return Index averaged an annual return of 17.6%. But investing in stocks can be bewildering. Nearly 600 firms are listed on the Stock Exchange of Thailand. Some are large, some are small. Some are multinationals, many are exporters, and the remainder focus on the domestic market. How do you construct a portfolio of shares to ensure long-term growth while minimising risk? Yes, this is more daunting than cooking pad thai at home.
How can you manage the complexity of investing in stocks? The safest option is to invest in equity mutual funds. What are equity mutual funds? They are investment funds that pool money from many investors to purchase securities and that are managed by certified professionals, the financial equivalent of your pad thai chef. Mutual fund managers are responsible for assembling portfolios with risk-return profiles that cater to investor preferences. The tricky thing about mutual funds and restaurants is that they can be hard to evaluate. You don't really know what goes on behind the scenes in the back office or the kitchen.
So how do you evaluate mutual funds? Seek out the advice of experts. Morningstar is a leading provider of independent investment research all over the world (think Zagat, Michelin or Shell Chuan Chim for mutual funds). For the Thai market, you can use Morningstar mutual fund ratings as a starting point to find funds with strong performance records. Beware that the ratings are not designed to capture all the factors affecting future performance. Other factors, such as global economic turmoil, management turnover or regulatory changes, can come into play.
How do Thai mutual funds compare at the international level? Returns are above the global average. Equity large-cap and equity small/mid-cap funds showed strong average returns of 15.81% and 18.48% in 2014. Over the past 10 years, those figures were 11.83% and 13.11%. Morningstar recently released its Global Fund Investor Experience report for 2013, assessing the experience of mutual fund investors in 24 countries around the globe. Thailand's overall grade of B was slightly above average, behind the US and South Korea but neck-and-neck with the Netherlands, Singapore and Taiwan. Here are some reasons why Thailand did well:
Fees and expenses are low globally. Funds without loads or trailing commissions are widely available. No Thai fund charges asymmetrical performance fees that reward managers for outperformance without also reducing fees for underperformance.
Disclosure is average. Prospectuses were found to be too long at an average of 10 pages. Since the survey, however, Thai mutual funds have introduced concise fact sheets.
Regulation and taxation are favourable. The tax credit for long-term equity investments (such as long-term equity funds and retirement mutual funds) is beneficial to investors. On the downside, regulations make it difficult for Thai investors to access foreign-domiciled funds.
Sales and media practices are poor. Funds are mostly sold through banks, and distribution channels are limited. Nonetheless, the introduction of an internet-based trading platform for mutual funds (or "fund supermart") should increase investor access.
So take a good look at Thai mutual funds, especially if you want to save long-term for your retirement. By many measures, they are globally competitive. Who knows? The peace of mind you get from diversification and professional management might just give you more room to develop your culinary skills.
Kiatipong Ariyapruchya heads the Capital Market Research Institute at the Stock Exchange of Thailand. He holds a PhD in Economics from Columbia University, New York.