MUTUAL FUND 6-MONTH REPORT
Investors calmer in face of investment storm
By Ma. Salve Duplito
INQUIRER.net
First Posted 00:24:00 07/28/2008
Filed Under: Personal Finance, Investments
MANILA, Philippines--Mutual funds have been pummeled badly in the first six months of the year on all fronts but one: Curiously, Filipino investors aren't going out the exit door in droves--something that industry practitioners have never seen before.
They are surprised because the figures will make anyone wince. If you had P100,000 invested in stock funds in the beginning of the year, you would have lost anywhere from 18 percent (First Metro Save and Learn Equity Fund) to 30 percent (Philippine Stock Index Fund Group) of that amount as of July 23, 2008.
What's unique about this year's market downturn is that both stock and bond funds are down. Bond funds lost as much as 5.3-percent year-to-date (Prudential Fixed Income Bond Fund), while a few like Cocolife Fixed Income Fund Inc. are eking by with a 2.2-percent return year-to-date.
During previous market downturns, pooled fund investors could either turn to bonds or equities as their havens. This time, both are down. As a result, balanced funds are bleeding heavily as well, like Philam Fund Inc.'s 22.87-percent loss year-to-date. First Metro Save and Learn Balanced Fund Inc. just barely got by with 1.22-percent return year-to-date.
The picture couldn't have been more different a little more than a year ago. Karen Roa, president and CEO of Philam Asset Management Inc., was then bustling with good news when the stock market was testing uncharted waters, going as far as Davao City in Mindanao to meet groups of investors. These days, her pace might be less toxic. She tells Philam's agents not to be afraid to face their clients and do handholding as the fund rides out the market downturn.
"We are not worried. Our investors are not in panic mode. They are very circumspect about what needs to be done. You can see that the maturity of investors has increased over time. They are more calm," Roa said.
In contrast, when the bond market tanked in May 2006 and pooled funds were in the process of shifting from accrual method to mark-to-market--investing mumbo jumbo for changing the way by which returns are reported--it suffered from a massive withdrawal of funds from the public. Pooled investments, especially unit investment trust funds, were then hard-pressed to make their voices heard above the din that these were merely paper losses, but investors were already jittery and in a hurry to take their funds out. Roa said this was not the case anymore.
"Most investors are beginning to understand the nature of the product. Unlike in 2006, they are now calmer, the ones that are left are, in fact, trying to position themselves by buying more while shares are cheap and they understand that this is a cycle," says Roa.
The figures bear out Roa's story. As of June 2008, the mutual fund industry's assets under management is down 10.0 percent to P8.66 billion from December 2007 figures and most of the decline is due to market movements. Redemptions were higher in equity funds, but even the decline of 30.8 percent to P4.29 billion in equity funds during the period is almost at par only with the drop in the Philippine Stock Exchange index.
This was a stark difference from what happened in April 2006, when industry practitioners saw Filipinos parking P84.863 billion of their money in mutual funds. By the time investors who panicked were done bailing out, assets under management have gone down to P59.3 billion. That's a more than 30.0-percent drop in two months. While mutual funds slowly started to build up starting August, some jittery investors were lost forever.
"Filipino investors are very risk averse. The ones who are here now, the ones that are left, kind of understand it already. They have likely diversified, so when they need liquidity, they do not panic anymore," says Fernando Jose Sison III, president of BPI Investment Management Inc.
Instead of taking their money out of mutual funds completely, investors favored money market funds, which showed an 84-percent growth in the first six months this year. Sison says investors are also going to special deposit accounts in banks, which offer guaranteed returns.
Philam, BPI and Sunlife Financial account for more than 90.0 percent of the mutual fund industry. As of July 23, Sunlife lost P2.4 billion from redemptions but gained P1.6 billion through sales. Most of the drop in the volume of its assets under management, however, is accounted for by market movements at P2.7 billion.
"I think people don't want to take their money out when the fund is losing. That's a sure way to lose money. They are probably realizing that this is a long-term placement," Herrera says.
Roa, Sison and Herrera will not say when the market will become upbeat again, but all say those who stay calm will be rewarded. Philam and BPI, in fact, will launch more funds in the coming months, and Roa believes that the variety of funds will continue to grow to give Filipino investors a more interesting menu to choose from.
"In every 10 years, there is a bull and a bear market. How long bear markets can last? Two years is already pretty long," Roa says.
"This industry will continue to drive savings. This is liquid, you can get professionals to manage your money. The industry will soon be offering various kinds of funds, from global funds to commodities and other types," she says.
As far as the industry is concerned, the race may be for the swift, but sometimes, what really matters is finishing the race.
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