Several foreign investment fund categories in Thailand had huge net outflows in 2019, according to a report from Morningstar.
Of the 10 categories that had the highest net outflows last year, seven were foreign investments.
Global allocation or mixed-asset funds had the highest outflows of THB 35.2bn ($1.16bn), followed by global bond funds (THB 22.2bn).
The report noted, however, that most of the foreign investment fund categories outperformed domestic funds. For example, the three best-performing categories during the year were global indirect property (19.5%), global allocation (12.5%) and global bond (6.2%).
“As many of the foreign categories had negative average returns in 2018, the rebound in 2019 was a good opportunity for profit-taking,” explained Chayanee Juengmanon, Bangkok-based senior research analyst at Morningstar.
However, not all foreign fund categories had net outflows, Juengmanon noted. For example, global property funds, which attracted the most money among all categories in 2018, continued to be popular with inflows of THB 51.7bn in 2019, while foreign bond fixed-term funds had inflows of THB 10.7bn.
A preference for domestic fixed income
On the flipside, domestic mutual funds gained popularity in 2019, with Thai mid/long-term and short-term bond funds leading in terms of net inflows, according to the report.
In Thailand, mid/long-term fixed income funds invest in bonds with duration of more than two years, while short-term fixed income products have duration of one-to-two years, Juengmanon said.
Fixed income tax issue
Juengmanon believes that the net inflows into fixed income funds were a result of a change in regulations of how fixed income products – both foreign and domestic – were taxed in Thailand.
Effective August last year, Thai regulators imposed a 15% withholding tax on fixed income funds in order to address an imbalance in the way bonds are taxed. Previously, the tax imposed on buyers of fixed income funds was waived, but taxes were imposed on buyers who buy single bonds directly.
However, the new tax is only applied to buyers of fixed income products after August – right after the regulation took effect at the time, which means holders of fixed income funds before August were exempted from the tax, according to a local media report.
“The taxation of Thai fixed income funds may have motivated investors to buy bond funds [before the tax rule took effect],” Juengmanon said, adding that the net inflow toward bond funds rose between June and July.
Juengmanon noted that the capital flows into bond funds were concentrated in a few products. For example, among all mid/long-term bond funds, TMB Asset Management’s Aggregate Bond Fund accounted for THB 34bn of the THB 70bn net inflows in the category. Under the short-term bond category, TMB AM’s Short Bond Fund had THB 31bn of net inflows out of the total THB 54bn.
However, given the new tax regime, industry players expect that there will be lower activity in the fixed income market. SCB Asset Management, for example, said in a local media report that domestic fund managers may offer more equity products if investors find fixed income returns unattractive due to the new tax.
Fixed income funds make up 46% of Thailand’s THB 5.4trn fund industry, according to the report. Equity funds only account for 29% of the market.
The Pimco fund
Separately, Pimco has remained to be the largest master fund firm in Thailand with its Pimco GIS Global Income Fund, according to the Morningstar report.
The largest feeder fund investing in the Pimco product is TMB Asset Management’s Global Income Fund, which has THB 26.1bn in assets.
At least three other feeder funds managed by SCB Asset Management, Krungsri Asset Management and UOB Asset Management also have feeder funds investing in the Pimco product and collectively have around TMB 28.1bn in assets, according to the report.
However, Pimco’s market share of 16% at the end of December as a master fund firm is lower compared with its nearly 30% position in 2017, due to continued outflows from the global bond category in recent years.
Meanwhile, the report added that Wellington Management had positive growth during the year with its Global Quality Growth Fund as one growth driver. The fund is made available via TMB Asset Management’s feeder fund, the TMB Global Quality Growth Fund.