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Phuket Finance: Understanding your fund’s “duration’

Legacy Phuket Gazette

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PHUKET: As I have written extensively about the dangers of bond funds in the current environment, it is worth mentioning a standard measurement used to determine approximately how sensitive a bond portfolio or fund is to interest rate increases.

Don’t let the word duration fool you; what the measurement actually means is, the approximate decrease in value for a 1% increase in interest rates.

It is called duration because it was originally calculated as a weighted average of the times to maturity for all of the bonds in a portfolio.

This is now called ‘average maturity’ and the two together are a good way of comparing bond funds in today’s environment. Most bond funds will have these both on their fact sheets, and if they don’t you should avoid them until you can find them out.

If you look solely at the recent track record of two funds and compare, you may be in for big trouble in the future.

If one fund has averaged ten percent with duration of 2.5 while another has averaged 12% but with duration of 8, the first fund offers a much better trade-off between risk and reward. If interest rates go up by 2%, the second portfolio will lose approximately 16% while the first would lose about 5%.

Duration is also only an approximation because it assumes the yield curve shift is parallel, which is not usually the case. In English that means interests rates for a 3 year bond will not usually change by the same amount as they will for a ten year bond or a twenty year one.

The lower interest rates are at the start, and the greater the overall move in interest rates, the larger the error is likely to be.

You will likely find most bond funds holding large portions of debt from safe governments in the developed world will usually fall into one of two categories right now. They either don’t make any money or they have a high duration and are thus very risky when inevitably, the interest rates return to normal levels.

One place where one can find decent yields with lower duration is in some globally diversified bond funds that are very light weight in the developed world.

Interest rates are not rock bottom in many places and thus you can earn a little money. Of course the trade off here is that the fund faces exchange risk relative to each of the bonds it is holding.

Some funds do a very good job of managing this however, and I am currently a fan of two funds run by Franklin Templeton.

The two funds I like are their Global Total Return Fund and Global Bond Fund. They aren’t going to make money every year, but historically they tend to do very well when they do well, and not so bad at all in their rough years.

They do provide a bit of diversification to a portfolio, as I would avoid most developed world bond funds unless they are extremely short weighted maturity funds with low duration and you are less concerned with making any return and simply want to avoid a loss.

David Mayes MBA, lives in Phuket and provides wealth management services to expats around the globe, focusing on UK pension transfers. He can be reached at 085-335-8573 or david.m@faramond.com.

— David Mayes

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Turbulence ahead for Thailand’s aviation industry | VIDEO

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Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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Domestic air passenger numbers double those of January

Maya Taylor

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Domestic air passenger numbers double those of January | The Thaiger
PHOTO: Vietjet

Passenger numbers on domestic flights within Thailand have doubled within a month, rising from 4,000 in January to over 10,000 this month. Having nearly recovered to pre-pandemic levels, domestic travel plummeted once more when Covid-19 resurfaced late last year.

Apirat Chaiwongnoi from the Department of Airports says 15 of Thailand’s 29 airports are now operating domestic flights, with more expected to follow. He believes the aviation sector will continue to recover further in the coming 6 months, bolstered by the national vaccine rollout.

Around 120 domestic flights a day are now operating, which is twice the number that were operating at the lowest point in the crisis. Prior to the resurgence of the virus in December, domestic passenger numbers had recovered to 30,000 – 40,000 a day, around 80% of pre-pandemic numbers.

The DoA says airports must continue to adhere to the Covid-19 hygiene measures put in place by the Health Ministry and the Civil Aviation Authority of Thailand.

SOURCE: Bangkok Post

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Samut Sakhon’s shrimp market to remain closed until February 15

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Samut Sakhon’s shrimp market to remain closed until February 15 | The Thaiger
PHOTO: Kom Chad Luek

Samut Sakhon’s Central Shrimp Market, the epicentre of Thailand’s recent wave of Covid-19, will remain closed until February 15. The market can reopen once the overall hygiene situation at the market and surrounding area has improved, according to the province’s disease control committee.

Local officials say the shrimp market needs to remain closed until the market structure and nearby residential facilities are inspected. People who violate the order face up to a year in prison and a fine up to 100,000 baht.

More than 12,000 people in the province have tested positive for Covid-19. The increasing number of infections is a result from the active case finding to contain the spread of the virus.

SOURCE: Thai PBS World | Thairath Online

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