Yields on money market funds would likely improve this year, supported by softening inflation that would likewise ease pressure on benchmark rates, Asia United Bank (AUB) said.
“With inflation back to normal levels, we expect the Bangko Sentral ng Pilipinas (BSP) to have less pressure to raise interest rates. In fact, the BSP is expected to reduce banks’ reserve requirements this year. A reduction in the reserve requirement would flush out more liquidity in the system and would result in lower cost of funding for banks,” said Andrew Chua, AUB senior vice president and head of trust and investments group.
Chua sees Philippine inflation to hover between 3 percent and 4 percent this year, thereby moving back to the BSP’s targeted range of 2-4 percent.
In 2018, inflation surged to an average of 5.2 percent from 2.9 percent the previous year due to the combined impact of rising oil prices, adjustments from a new tax program and rice supply bottlenecks.
“This, in effect, would lower interest rates so the effect on our bond funds will be positive as a stable interest rate environment translates to higher accruals on UITFs (unit investment trust funds), with an upside from potential trading gains,” Chua said.
UITFs consist of funds pooled from retail investors and are managed and invested by a trust company or a bank’s trust department.
Two of AUB’s unit investment trust funds (UITFs) were ranked as top performers by the Trust Officers Association of the Philippines (TOAP) as of Feb. 7.
The AUB Peso Investment Fund ranked No. 1 out of 11 trust institutions, offering a return of 6.81 percent, while AUB Peso Money Market Fund ranked second among 39 trust institutions, offering a return of 9.3 percent, both for a 30-day contribution and for a minimum investment of P10,000.
The AUB Gold Dollar Fund also registered higher than average annualized return for a 30-day period at 8.95 percent. These UITFs dominated the Chartered Financial Analyst (CFA) Society Philippines’ “Best Managed Fund of the Year” awards in 2018.