Looking for a mutual fund you can count on

Sexy mutual fund returns are a sure way of getting most people’s attention. With the recent turbulence in the equities market, however, many realize that it’s also important to look at how often a fund outperforms the index, and not just by how much.

Of course, the sweetest thing would be to find a fund that outperforms with great returns all the time! But perhaps that’s like looking for that dream girl or boy. :-)

Read my article on how to look for a mutual fund you can count on here.

Plus, here is an excerpt of my interview with Fernando Jose Sison III, president of BPI Investment Management Inc. He also heads the Asset Management & Trust Group, which manages the ALFM family of funds. ALFM accounts for roughly half of the mutual fund industry.

What are the factors why you are the biggest?

It’s a combination of the distribution, the returns and the types of funds we have. The ALFM family of funds is the only one that boasts of multi-currency bond funds. We have peso, US dollar and Euro, so customers can diversify not only among asset classes but also among currencies.

The yields have been fairly consistent. Not necessarily the best but certainly not the worst, so customers are happy with the consistency. The type of feedback we give them by way of performance report is that every month we give out a hard copy and this is also available in the website and the distribution network is also very wide.

What is the best way to choose funds?

People must understand the financial requirement first before they match a product to their requirement. Second, they must know how much investible money they have. If what they have is just enough for living expenses, amortization, and the like, they are not yet in the investment stage.

They must be aware that the amount they have for investment is just for investment. They cannot say I will put it there and then next month I’ll get the income. That mentality is best suited for time deposits. Since we cannot project what the future yield will be – the fund has to match their risk profile, their time horizon and their investment objective.

Some are asking if they should borrow money from places with low interest rate.

We don’t recommend borrowing money for investment because the investment is not guaranteed whereas the loan obligation is a sure thing.

Assuming they have gone through the initial stages of analysis, how do they then choose which mutual fund to invest in? What should they look at?

Reputation of the fund manager and consistency of the yield. The best performing fund in one period may be the worst performing fund in another period. You wouldn’t like that because you do not know when you need money. If you need money at the time the fund is performing the worst, then you would have lost everything you made in the previous year.

Go for more consistency, so that every time you need money, the fund would show a respectable or superior return compared with traditional investment deposit products or plain vanilla corporate securities.

So check the reputation of the fund manager, the consistency of yields, the ease by which you can get in touch with sales agents.

How to read the NAV table

Know what your acquisition cost. As long as the current price is higher than your cost, you are making money. Second, relate the time period for the current price to when you bought it. The time frame has to be factored into the valuation, not the absolute increase in price.

What is ALFM all about?

ALFM should be earning higher than what an investor would get if he invests on his own. Second it must be convenient for him if he wants to add or redeem. He must not be kept in the dark on how his fund is doing. Last but not least, he must be able to have this security that even if he hibernates, the fund manager will always be there to take care of his investments.

How do you operate as a company?

The funds have different fund managers. They watch the market and manage the funds. We have a separate group that sells. Another group facilitates the payments and redemptions and do the transactions for investors. The backroom prepares the reports, for the investor, for senior management and for regulators.

It’s a team effort, with a research analyst, a position analyst, and a middle office person. These positions are there whether its P10 million or P30 billion.

What qualifications do you look for in a fund manager?

Fund managers can be trained. These new officers are required to undergo the BPI training program. When they are on the job, somebody is sitting in with them. Everybody can be a pilot as long as they have a good vision. There are ten people in a basketball team. Each one can dribble. But when they are in the game, you will see that two are better than eight. You will not see that during the tryout.

Why would I buy a stock index fund instead of going directly to the stock market?

People who go directly to the stock market must know three things: what to buy, when to buy and how much to buy, at what price to buy, and when to sell, how much to sell, at what price to sell at what price.

If you go to an index fund, it will behave like the composite index. And the minimum is only P50,000. If you will play the stock market with P50,000, you will be limited in your choices.

You can have the services of a broker with P50,000, but you have to call them up. They will not call you up.

Why should I buy ALFM rather than other funds?

Because you can sleep well at night and we have the distribution network. You can log on to ALFM.com and see the price. In BPI branches, even if they don’t sell the fund, they will make the price available so customers can just check what is the price. ALFM is the only mutual fund that offers a free life insurance for P200,000 if the investment is worth at least 100,000. For novice investors who are starting to create an investment portfolio, the free insurance is an attractive proposition. Our observation is, as the investment goes bigger, that attractiveness of the insurance diminishes.

Some of our investors with P20 million investment don’t even bother to fill up that application form. But to somebody who is putting in P100,000, that’s attractive.

The entry-level point for our peso fund is P50,000, but the entitlement is P100,000. For the ALFM dollar its $1,000, for the euro 1,000 euro and for the stock index fund P50,000.

For people who are dollar earners, do you recommend that they convert their earnings because the dollar is weakening?

It depends on their needs. If the money is for monthly living expenses, convert immediately. For savings, it will also be good to diversify into US currency especially if they continue to earn in that currency.

We don’t have a crystal ball, so we cannot read the market accurately. A good policy would be to convert 80%, keep 20% in the original currency, that way they can’t go wrong. Even if the peso appreciates, when they earned, they earned in dollars. They didn’t buy from peso to dollars. There’s no loss.

How do you minimize the losses from more volatility in the financial markets?

Investing only what you are prepared to lock in for a long time. You lose only when you sell. The stock goes down, but you hold on to it. You must be prepared to ride out the volatility. That’s the natural characteristic of equity investments. They are riskier, but they earn higher. People who don’t have the stomach for it will never have high returns but will not suffer from the risks of equity investments.

What is the total cost to your investors? What are your fees?

For ALFM Peso, 1.5%, for ALFM dollar 1.25%, for ALFM euro 0.5%, for our stock index fund 1.5%.

We don’t charge a sales load, but if redeemed within the first 180 days, we charge an early redemption fee of 1% of the amount that is redeemed early. (If the investor takes his money out after 180 days, there is no redemption fee.)

It’s not an exit fee, it’s a penalty. We tell them, if your mindset is three months, just put it in a time deposit. But some say, the stock market will grow this much in two months, I don’t mind the penalty. If it grew 19% in two months, you will take away 1%, 18% na lang, I don’t mind because I won’t earn that much in a time deposit. But for a dollar fund that’s earning 6%, and then they pay the penalty, that’s not attractive.

This is to instill discipline at the outset that you should be prepared to hold on for six months or so. If there is no redemption penalty, they will come in and out like an ATM. If they understand their needs better, that sort of puts them in line.

All costs are disclosed in our prospectus.

What are the risk profiles of your four different funds?

For our Peso Bond Fund, more than 70% are in government securities. For our Dollar Bond Fund, we have Philippine dollar denominated securities, US Treasuries or supranationals like the Asian Development Bank. The quality of securities are very high.

Our Euro Fund has two-thirds in Philippine securities or German securities. Our stock index fund has the same composition as the PSEi so the stock can be sold at any time and they are very marketable securities.

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