BPI whips up cocktail of stocks and bonds for retail investors

Mario Miranda, BPI Wealth Management segment head, says Filipinos are becoming more open to putting their money in instruments other than savings accounts.

MANILA, Philippines—The Philippine stock market has been suffering from bipolar disorder.

Since the start of the year, the mood pendulum has swung from one extreme of successive record highs to the other marked by frantic fund withdrawals that erased this year’s considerable gains.

There was a time not so long ago when such wild swings in the stock market’s performance would have caused Filipino investors to rush to their bank or fund manager and convert their investments into cold cash they can hide under their pillow.

But local investors have matured greatly since the global financial turmoil precipitated by the US subprime crisis in 2008. Local markets are jittery but calm, and investments in moderate-to-high-risk investments such as stocks and bonds have remained largely intact.

This can be attributed in part to the great strides that leading banks and financial institutions such as the Bank of Philippine Islands, the country’s oldest bank, have taken over the past few years to improve the financial literacy of Filipinos and open their minds to a wide range of investment possibilities.

Having record low interest on savings and time deposits of around 1 percent has also spurred great interest in financial instruments other than traditional bank deposits. The yield is just too low and not enough to even at least beat inflation, or the annual rise in the prices of basic commodities.

BPI is taking advantage of this heightened interest in investments by aggressively going after retail clients—those with investable funds of at least P10,000.

Prior to 2005, when BPI made that strategic shift to go after the retail market in a big way, the bank catered almost exclusively to large corporate accounts numbering just over 1,000 clients with at least P5 million to invest in a wide array of instruments including stocks and bonds.

“The shift to the retail business happened around 2005. Prior to that, the trust business was concentrated on large institutions such as retirement funds of corporations, schools, pre-need firms and insurance companies that would normally come in with about P20 million for long-term placements,” says Mario Miranda, BPI Wealth Management segment head. “For a long time we had large-ticket investments with a small number of clients of about 300 to 1,000.”

While the market was lucrative, it was very limited, and BPI knew it could not rely on that sector alone.

Thus, it was among the first in the market to establish common trust funds, which pooled funds of individual investors and invested them in the same instruments meant for institutional investors.

The initial investment requirement still amounted to P50,000, which was still out of reach of most Filipino investors.

But the bank reduced the requirement to P10,000, and this led to a quiet revolution marked by an increase in the number of Filipinos putting their money in investment instruments other than traditional savings and time deposits.

Deposit accounts still dominate the market, but an increasing number of Filipinos are more open to taking more risk and going for a mix of stocks, bonds and corporate paper.

“Two things happened, more products became available and at the same time Filipinos were looking for higher returns on their investments. These led to people becoming more aware that there are alternative investment vehicles. Banks were marketing them, as were investment houses and mutual fund companies,” Miranda says.

He adds that, from 1,000 institutional clients and around 10,000 individual clients in common trust funds, BPI now has over 90,000 retail customers investing outside basic savings and time deposits. The number of institutional clients likewise grew to 3,000.

“In terms of asset management, the retail market accounts for about half of assets under management—retail meaning individual,” says Miranda. “We have about P750 billion in assets under management as of end-June, and individuals would account for about P350 billion.”

The asset management business, according to Miranda, has changed from institutions to individuals.

“The challenge is to make these investment instruments even more accessible to Filipinos, especially now that interest rates are so low.”

Miranda cautions Filipinos against rushing headlong into investing, as it takes discipline and a sober approach. Investing, he stresses, is about continuous and regular setting aside of funds in instruments that match life goals, and not about going after a quick return.

“Customers should go through a suitability test to assess their risk appetite, awareness of products. The results give a starting point to determine if they should invest in say 70 percent bonds and 30 percent equities, or 50-50 in a balanced fund,” Miranda says.

BPI offers a wide range of investment funds catering to different risk profiles.

The BPI Short Term and Premium Bond funds, for example, are primarily invested in fixed income instruments and are ideal for those with very little appetite for risk. The BPI Balanced and Equity Value Funds, on the other hand, are those with an aggressive risk profile.

But whatever the risk profile, Miranda recommends that potential investors first make sure that they have an emergency fund—enough to cover six months’ worth of expenses—before investing in higher risk instruments such as stocks and bonds through mutual funds of mutual fund companies or unit investment trust funds offered by banks.

He also suggests that investors tap the expertise of trust officers or financial planners to devise an ideal financial plan.

“You need an expert. As they say, a barber cannot cut his own hair,” says Miranda, who is gunning for a retail investor base of 100,000 by the end of this year, and as many as 120,000 next year alongside an annual growth of 15-20 percent in assets under management.