Ourdated Info

The other day I noticed that some of the mutual fund and UITF posts on the blog were outdated.

The good thing is that minimum holding periods and minimum investment amounts have gone down since I wrote those posts.  That means investing is becoming more affordable and convenient.  Unfortunately that also means that the new investors may be getting inaccurate information.

I'm not sure how long it will take to update everything but I'll put a note on top of each updated post indicating when it was last updated.

Know Your Cut-off Time!

I just wanted to write a quick post about transaction cut-off times and settlement periods.  It seems that this topic isn't often discussed in blog posts and articles about investment funds.  I think there are two reasons for this:

1.  It's just not sexy.  People would rather read about gains and losses than waiting times.

2.  Mutual funds and UITFs aren't really suitable for day-trading.  Investors who want to be able to invest and redeem quickly are better off buying stocks or ETF shares directly.  Thus timing is usually not that important.

Still, it's important to know these details about your investments.  You might need to redeem funds quickly, or have cash available by a certain date.  Issuing a redemption order after the cut-off time means having the transaction processed the next banking day with a corresponding delay to the actual settlement date (the date funds are credited to your bank account).

Go to your fund's website or contact your agent to get the information.  Then make a note of it and keep it (electronically or physically) wherever you keep your investment records.  It's a small tip that may pay off in the future.

Philippine Index Funds Part 2: Philequity and First Metro

Let's continue our review of index funds.  If you missed it you can check out Part 1.

This post features Philequity and First Metro.  First up is Philequity:

PSE Index Fund
Fund Type: Mutual Fund
Index Tracked: Philippine Stock Exchange Index
Minimum Initial Investment: P200000
Minimum Transaction: P50000
Redemption Fee:2% in the first year, 1.5% in the second year
Annual Fee:1.5%
Tracking Error:  No data

Steep investment requirements, high fees.  Not very attractive.


Next is First Metro.  This fund was actually covered in a previous post so I'll just put a summary below.

First Metro ETF
Fund Type: ETF
Index Tracked: Philippine Stock Exchange Index
Minimum Initial Investment: (Multiple of 10 shares) x NAVPU (P111.00 as of 8/8/2014)
Minimum Transaction: Same as above
Transaction Fees: Broker/trading platform dependent
Annual Fee:  < 2%
Tracking Error:  0.05%


That's it for this post.

Philippine Index Funds Part 1: BPI

In he previous post we took a look at index funds: what they are and their pros and cons.  There are a number of index funds available to Filipino investors.  Let's start with BPI's offerings.

First up is a bond index fund: the ABF Philippines Bond Index Fund. This is a bit different from the examples in the last post in that it tracks a bond index instead of an equity index. It tracks the iBoxx Philippines Index.  Here's the key information as of the time of writing:

ABF Philippines Bond Index Fund
Fund Type: UITF
Index Tracked:  iBoxx Philippines Index
Minimum Initial Investment: P10000
Minimum Transaction: P1000
Minimum Holding Period: None
Annual Fee: ~ 0.349%
Tracking Error (from June 2012):  ~ 0.2%

Explanatory Memo
Performance Report for June 2014

The fees and tracking error are quite low, which is a good thing.


Next is an equity index fund:

BPI Philippine Equity Index Fund
Fund Type: UITF
Index Tracked:  Philippine Stock Exchange Index
Minimum Initial Investment: P10000
Minimum Transaction: P1000
Minimum Holding Period: None
Annual Fee: ~ 1.5%
Tracking Error (from June 2012):  ~ 2.27%

Explanatory Memo
Performance Report for June 2014

The fee isn't as low as what I'd expect of an index fund.  The tracking error is much higher than that of the bond index fund above, but I'm not sure if it's too high or okay.


Next is another equity index fund, the ALFM Philippine Stock Index Fund.  This differs from the other equity fund in that it is a mutual fund managed by BPI Investment Management Inc., a subsidiary of BPI.  As such it is regulated under the SEC instead of the BSP.

ALFM Philippine Stock Index Fund
Fund Type: MF
Index Tracked:  Philippine Stock Exchange Index
Minimum Initial Investment: P5000
Minimum Transaction: P1000
Minimum Holding Period: 180 days
Annual Fee: ~ 1.5%
Early Redemption Fee: 1% of the redemption amount
Tracking Error (from June 2012):  ~ 0.88%

Prospectus
Performance Report for June 2014

I'm not a big fan of minimum holding periods and early exit fees but 180 days is short compared to some mutual funds.  Invest only if you have an emergency fund already setup.  The annual fee is comparable to the other equity index fund above, but the tracking error is much better.


Lastly there's the Philippine Dollar Bond Index fund:

Philippine Dollar Bond Index Fund
Fund Type: UITF
Index Tracked:  JP Morgan Asia Credit Index – Philippines
Minimum Initial Investment: $500
Minimum Transaction: $200
Minimum Holding Period: None
Annual Fee: ~ 0.267%
Tracking Error (3-year):  ~ 1.06%

Explanatory Memo
Performance Report for June 2014

The investment and transaction amounts required are pretty high.  The fees are quite low and the tracking error isn't that bad.

That's all for BPI.  Next on the index fund list is Philequity and First Metro.

 

Index Funds

Roughly speaking an index measures the performance of a segment certain market, for example the stock market.  In the Philippines when people talk about the stock market going up or down, they usually mean the PSEI (Philippine Stock Exchange Index).  The composition of the index is not permanent.  From time to time stocks are added and removed from the index.

An index fund attempts to track the performance of an index.  When the index goes up or down, the fund NAVPS/NAVPU should also go up or down by the same percentage.

Who should invest in index funds?  Investors who:

• believe that over long time periods the index tends to go up.  This is backed-up by historical data, but of course "past performance is not a guarantee of future returns".


• want to invest in the index but don't have enough cash to invest directly in stocks that make up the index.  Replicating the index by buying shares in individual companies is quite expensive.  Investing in a fund allows the investor to invest in the index for a relatively low amount.


• want to invest in the index but don't have the time or inclination to manage a portfolio of stocks.  When the index composition changes, the investor should buy and sell shares to mirror the index's new composition.  Investing in a fund allows the investor to "set-and-forget", in other words to invest and let the fund do the rest.


• want to invest in an equity fund with lower fees.  Theoretically, an index fund should be passively-managed and have a lower annual fee than actively managed funds.

Who should not invest in index funds?  Investors who:

• believe they can outperform the market.  Doing this is very difficult over a long time period.


• want control over which stocks to buy or sell.


• want control  over when to buy or sell.

What should investors look for in an index mutual fund?

• Accurate index tracking - if an fund doesn't accurately track the index's movements, it's not an index fund.  The deviation from the index is called the tracking error, the lower the better.


• Low fees - there's no reason for an index fund to charge a high fee

In the next posts we'll take a look at the equity index funds available in the Philippines:

Index Funds Part 1
Index Funds Part 2