UITFs in Spectacular Rebound

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Sharing with you all Money Magnets this article which came out today on how UITFs rebounded from its performance 4 years ago.  I'm happy that a lot more Filipinos are investing their money in these types of investments.  It supports the fact that a lot more Filipinos are gaining financial literacy!  As the new show in ABS-CBN declares ... Happy, Yipee, Yehey!     

4 yrs later, UITFs in spectacular rebound
by:  Jun Vallecera, Business Mirror

MANILA, Philippines - What a difference four years can make. Reforms put in place after the sector was burned in a massive, multibillion-peso selloff in 2006 triggered by panic over rising interest rates yielded something positive for trust units of private banks.

The Trust Officers Association of the Philippines (TOAP) has reported P700 billion worth of funds invested in various trust units (UITF) now in operation, a testament to the resilience of an industry decimated and almost wiped out not too long ago by rampaging investors described by regulators at that time as having been influenced by a herd mentality.

But once again, interest rates are low and stable, helping UITFs achieve growth of 430 percent over a four-year stretch and more than five times larger than estimated UITF placements of only P132 billion in the riotous months of 2006 when most anybody wanted out.

For UITF investors at that time, this was the period known as the “May incident” an understated phrase, definitely—when investors pulled out to limit losses.

This time around, however, everyone is bullish and TOAP, comprised of 47 banks and investment houses, is looking forward to another banner year.

For instance, the trust-banking unit of the United Coconut Planters Bank anticipates a bright year ahead for its Equity Fund and its Peso Balanced Fund.

UCPB first vice president and trust officer Alexandra Deveras said the local stock market, a heavy recipient of foreign-fund inflows in search of earnings opportunities in emerging markets like the Philippines, “is expected to continue performing well on account of the favorable macroeconomic conditions and strong corporate fundamentals.”
The bank’s Peso Balanced Fund outperformed the stock market by posting the highest return in 2010 of 43.09 percent when the Philippine Stock Exchange index managed to post returns of only 37.6 percent.

This means an investor who participated in UCPB’s peso UITF with P12,000 last year has grown his investment to P17,170 today.

The bank’s peso UITF posted the highest return (43.09 percent) in a field with 12 other competitors, higher than even the next highest peso fund managed by the Rizal Commercial Banking Corp., which gave 40.90 percent, or that of Banco de Oro’s 39.81 percent.

The balanced peso fund of the Bank of the Philippine Islands gave out 37.39 percent, the Land Bank of the Philippines’ Growth Fund 34.25 percent, the Metropolitan Bank and Trust Co.’s Capital Growth Fund 31 percent and ING Bank’s Balanced Fund 29.42 percent.

Among equity UITFs, the best-performing was the Large Capitalization Philippine Equity Portfolio of the Union Bank of the Philippines which gave out 109.08 percent, or ownership of a fund worth P25,089 on an investment of only P12,000 just a year earlier.

Then comes second best-performing UCPB and its United Equity Fund which delivered returns of 78 percent, or more superior than third-best equity UITF managed by ING Bank which delivered 61.9 percent; or those of Banco de Oro’s Equity Fund which gave 50.59 percent, RCBC’s Rizal Equity Fund which gave 49.26 percent, or Metrobank’s Metro Equity Fund which gave another 47.77 percent.

Among peso-bond UITFs, the best performing was the Current Income Portfolio fund of the Union Bank of the Philippines which invested mainly in the benchmark 91-day Treasury bills and delivered a respectable 11.08 percent, or lower than returns in 2009 of 14.35 percent.

BDO’s Peso Bond Fund delivered 9.10 percent while Union Bank’s Infinity Prime Fund delivered just 8.66 percent while that of ING Bank’s Peso Income Fund gave only 7.48 percent.

ING Bank’s trust business had earlier been bought by the Bank of the Philippine Islands for an undisclosed amount and folded into the trust operations of BPI.

BPI president Aurelio Montinola anticipates continued growth in trust banking this year notwithstanding the stiff competition provided by the Bangko Sentral ng Pilipinas, which continues to offer returns priced off the existing policy rates of the Bangko Sentral ng Pilipinas.

The SDA rate for one-week, two-week and one-month SDAs are fractionally higher than the BSP’s borrowing rate of only 4 percent but compelling enough for some investors whose risk appetites tend to be low.

“There is a lot of liquidity in the financial system right now and some people will take in SDAs while others will move their money to the trust business,” Montinola said.

The stampede started by short-term investors during the May incident in 2006 nearly killed the industry and certainly gave it a bad reputation for quite a while.

Regulations now discourage the short-sighted investor because the expected return or yield of one’s participation changes from day to day.

Regulations also require UITFs to reflect these changes every day as they mark-to-market or endeavor to regularly reflect the present value of their holdings to participants.

UITF placements, while they may be offered by banks and investment houses, are not deposits whose principal amount is guaranteed to a certain extent by the Philippine Deposit Insurance Corp., or PDIC.

Since the debacle in 2006, regulations were strengthened by the BSP making it mandatory for trust units to conduct a suitability test for all UITF participants to weed out as much of the short-term investor as could be banished from the industry through regulations, and by very transparent information outlets either through the web sites of the trust units or printed materials. At the height of the 2006 panic selloff, a forum organized by the BusinessMirror had Deputy BSP Governor Nestor Espenilla acknowledging the lack of vetting systems among bank trust units for suitable investors; and another resource person noted that among nine trust units with Internet sites, only a couple had very clear information on the potential rewards and risks of investing in this tool.

That was then, and this is now, nearly five years ago, when the market for UITFs is obviously very much recovered and kicking. As the saying goes, even wise men can make mistakes, but only fools don’t learn from them.

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  1. I really find all of your articles helpful, i’m now in the process of determining which type of investment should i venture. and i’m really studying how it works and everything about it.

    on March 11, 2011 at 7:14 PM