We learnt how to invest in Bhutan stock market. But Bhutan stock market is quite risky. There is no mutual fund or an ETF or a broad index fund in Bhutan.
Investors can only pick individual stock and not broad-based stocks like VOO of the USA and STI of Singapore.
The public companies listed under stock exchange of Bhutan cover only seven sectors providing very less diversifications.
It’s not only risky but also stressful to analyze and pick invest in just one or two companies of Bhutan.
So, how about we spread our risk in all the companies listed under stock exchange of Bhutan?
The answer is creating some index funds in Bhutan based on following areas or combinations:
- Standard Bhutan Stock Index (BSI)
- Market Cap of listed companies
- Sector of the company Business
Considering all these, we can create some of the following index funds in Bhutan Stock Exchange you can invest:
- Market BSI Index Fund in Bhutan Stock Exchange
- Large Market Cap Based Index Fund of Bhutan
- One-sector One-stock Based Index Fund of Bhutan
- Small Market Cap Based Index Fund of Bhutan
- Stock-Bond Combo Based Index Fund of Bhutan
Because of that, it may contain the same investment class (shares of 10 companies) or different classes (bonds, shares, and FD).
Market BSI Index Fund in Bhutan Stock Exchange
Bhutan Stock Index was started in Feb 2020 with the starting base points of 1000. It has increased to 1061.65 points now.
This means that each point increase or decrease in the BSI will be due to average changes in the price of shares of companies listed under stock exchange of Bhutan.
However, we can’t make direct investments in it. BSI isn’t an investable index fund of Bhutan like that of VOO of the USA or STI of Singapore. There is no fund tracking BSI.
But we can do so by investing our money in all the companies of BSI in their market capitalization ratios.
The above table shows the Bhutan stock market. The share price and the market capitalization of the companies listed under stock exchange of Bhutan are on 28/07/2022.
If you want to invest Nu.100,000 in this index model, you have to spread the amount in accordance with cap % of all the 18 companies.
This means your investment will be more in large market cap companies like BNBL than small market cap companies like SVL.
It will be the most diversified model of investing in Bhutan stock market. You are purchasing shares of all the companies listed in Bhutan Stock Exchange.
Large Market Cap Based Index Fund
We can pick the largest companies based on their market valuation for this index. On 28/07/2022, the 5 largest companies of Bhutan are:
- BNBL – Nu. 13.04 billions
- RICBL – Nu. 9.78 billions
- DPNB – Nu. 5.33 billions
- DFAL – Nu. 4.78 billions
- PCAL – Nu. 3.33 billions
If you invest in this index fund model, you’ll be investing in the five biggest companies of Bhutan.
Let us say you are going to invest Nu.100,000 in above index, your money will be spread in their respective cap % share.
You can also make your own index fund in Bhutan considering the market values of the companies.
One idea can be a 1-billion Index fund in Bhutan.
However, such index fund won’t be fully diversified investing. They don’t include all the companies of Bhutan Stock Exchange.
Small Market Cap Based Index Fund
In this index, let me consider the 5 companies of Bhutan having small market value. As per market values, the 5 small companies of Bhutan are:
- BPCL – Nu. 0.11 billion
- DPL – Nu. 0.20 billion
- SVL – Nu. 0. 22 billion
- KCL – Nu. 0.23 billion
- BCCL -Nu. 0.33 billion
The total current market value of these five small companies in Bhutan is around Nu. 1.10 billion.
If you invest in small companies of Bhutan, your investment will be spread among them in their respective % share in that total capitalization.
You can customize it by including all companies of market value below Nu. 1 billion. You can also consider 10 Small Companies of BSI.
The main objective should be to diversify as much as possible to reduce the investing risk.
Stock-Bond Combo Based Index Fund
If you invest in shares, you’re an owner of the company to the extent of amount you invested. In law, shareholders are owners.
But when you invest in bonds, you are lending your money. In law, bond holders are creditors.
In other countries, people can invest in bond-stock combo index ETF or mutual funds.
In Bhutan stock exchange, both bonds and shares are traded. But no index fund in Bhutan for a bond-stock combo investment.
But we can create one ourselves based on our risk tolerance levels and also ages to track the performances of both shares and bonds.
People invest difference of 100 and age into stock and the balance into bond. If you are 30, it’ll be 70% stock and 30% bond.
But there are people who consider 110 instead of 100 to provide more exposure into stock.
100% of my portfolio is stock which is quite risky. I’m planning to invest at least 10% into our Bhutan government bond.
1-Sector-1-Stock Index Fund in Bhutan
You can also create an index in Bhutan by picking one stock from every sector. Bhutan stock index tracks 18 companies across seven sectors.
The main objective is to spread your investment across different sectors of Bhutan and reduce the risk. When one sector does bad, others will be fine.
Covid-19 pandemic taught us its importance. Tourism sector was badly hit but not much to essential items trading companies.
In this index, you can pick either the biggest or the smallest stock. Your investment can also be spread either equally or in cap % like in previous index funds.
Pros and Cons of DIY Index Investing in Bhutan
When you invest in index or an ETF that tracks an index, you are investing in a group of investments.
You are allocating your money across various assets, industries, sectors, sizes, natures or other categories.
It’s to handle market’s ups and downs. Investments of different natures react differently to a same event.
It reduces the risks, smoothens out and maintains the growth potentials. You won’t suffer from analysis paralysis or paradox of choices.
Investing continuously in the index fund model will protect you from the cycle of greed and fear, and losing more money in the stock market.
However, someone who can handle the risk of stock market swings and also have time for individual stock analysis may find it boring.
They will rather aim to gain more in one or two stocks than settling with average of all the stocks.
Unless you have more investment, increase in that particular index points won’t give much growth to your investment.
Yet experienced investors like Charlie Munger and Warren Buffett usually recommend such style of investing for common people.
Value Cost Average to Re-balance Your Investment
When one or two section of the portfolio grows beyond their ratios in the index, you can sell them and put in others to maintain their balances.
Therefore, it is called value cost averaging. But you must still follow ‘buy low and sell high’ principle.
Value cost averaging helps to reap the profit when the price rises and buy when the price falls – just opposite to the cycle of greed and fear.
Personally I exercise the value cost average on my portfolio whenever a single stock price increases or decreases more than 10%.
But you shouldn’t do this balancing exercise often. Broker fees of 1% of the trade value will eat away your profits. Luckily there is no capital gain tax in Bhutan.
This is the only solution I can think of for the problem of having no index fund in Bhutan, and not getting diversified investment model.
We know there is no index fund in Bhutan. How do you invest in Bhutan Stock Market to reduce risk? Please share in the comment.
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