How to read the mutual fund table

For Filipinos who are just starting to get their long-term savings acts together, mutual funds have slowly become the investment instrument of choice. It’s not very hard to see why. For a minimum of P5,000, small savers get a professional fund manager working to grow their little nest egg. (Photo of cuckoo’s nest courtesy of Michelle Morelos)

Businesswoman Liah Alcantara is confident returns from the company she has nurtured will help her retire perhaps better than she initially expected. Lately, however, she realized she needed to “put her eggs in different baskets” and invested some of her extra money in mutual funds.

She says she is not a financial person and knows little about how the market works. After listening to her financial planner, however, she decided to make a go for it. Next steps: learning to keep calm amid the gyrations of the market and decoding the mutual fund table.

It’s hard not to be affected by market jitters especially when the mutual fund table looks like a message from the man on the moon. Here’s how to understand it better.

The first thing you need to remember is that whatever you see in the table is the past. That’s that. Remember what your spouse told you yesterday? The past is the past. :) That’s just like investing. Past performance do not guarantee future returns. (Please click on the tables and graphs to see entire images.)

Column number one simply lists the names of mutual funds. You will notice that funds are grouped now into five: stock funds (mostly invested in the stock market), balanced funds (mix stocks and bonds), bond funds in peso instruments (mostly bonds and near-cash instruments), bond funds in foreign currency instruments, and money market funds. The industry has certainly grown since the 1990s when investors only had three types to choose from.

The second column refers to the Net Asset Value per share. I like to think of this simply as the price of each mutual fund share. One quick way to find out if your investment is earning is to compare the price when you bought it, and its price today. This is no different than comparing the price of that lot you bought five years ago and its going rate at today’s prices. The story lies behind the movement of the NAVPS, not in the level itself.

“You have to know your acquisition cost. As long as the current price is higher than your cost, you are making money,” says Fernando Sison III, president of BPI Investment Management, Inc., which handles almost half of the assets of the entire mutual fund industry.

Now, here’s a simple factoid that many equity mutual fund investors forget every time the stock market goes crazy. Whatever difference you see is a paper loss or gain. You realize that gain or loss only when you sell at that price.

The next columns go into details that make your mutual fund snapshot more interesting. The 1-year return allows you to compare the price of your mutual fund share to its price a year ago without punching your calculator buttons. Three-year and 5-year returns allow you to see the historical returns.

Sison says the time period is very important when reading the mutual fund table. “The time frame has to be factored into the valuation, not the absolute increase in price,” Sison says.

The YTD return column shows “Year To Date” returns. It answers your need to find out how much you are earning today IF you bought shares last January 2, 2007.

As of today, September 6, 2007, the mutual fund table shows that Sun Life Prosperity Philippine Equity Fund, Inc. is outperforming everyone else in the equity game with a 15.95% gain YTD. I took time to plot the NAVPS since January 7. Check out the graph.

To tell you the truth, I like looking at the graph because the YTD, 3-year and 5-year returns smoothen out the returns too much for my taste. Although, mutual fund investors do not have to worry about timing the market, looking at the graph at least once every six months can give a sense of the volatility of the fund.

Looking further at the mutual fund table, you will see that if you bought your shares last September 6, 2006, exactly a year ago, your earnings would be 38.43%. The 3-year and 5-year returns are much lower, but certainly much higher than time deposit rates.

For Balanced Funds, GSIS Mutual Fund gives the best YTD returns:

For Peso Bond Funds, ALFM has left the others way behind:

Can the mutual fund table hide the truth?

It smoothens out the returns. A 15% 5-year return, for example, does not mean the fund earned 15% consistently for the last five years. That’s an average figure, and may mean that for some years, the return could have been negative and fantastically high the other years. Hopefully, the mutual fund industry will include in the table a measurement of funds’ volatility as well in the coming years. 

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