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.
February 4th, 2008 at 6:57 pm
email me and I can help you to make a placement with our mutual fund company
November 29th, 2007 at 10:10 pm
Appreciate your enlightenment regarding bond funds. I have been investing in bond funds for more than 2 years now, both UITF and mutual funds. The main difference between the two in terms of investments is I think: a) UITF is only invested in government bonds; whereas b) mutual funds can invest in private bonds. This therefore generally translates to higher return for mutual funds because private bonds usually give a higher return (in exchange for higher risk). This is probably the reason why mutual funds have a sales load because investors won’t mind this since the mutual fund is expected to give a higher return than a UITF bond fund. ALFM though (up to this day) is waiving their sales load, which makes their fund very attractive versus other mutual funds. One can also buy this via their BPI Trade website, which is very convenient for busy investors like me.
November 28th, 2007 at 11:01 am
From Dustin Woodard, of Your Guide to Mutual Funds. To understand bond funds, or fixed income funds we need to first understand what bonds are. Bonds are simply a loan, but in the form of a security. “Who’s the borrower?” you may ask. In this case, it is usually the government (including state and local governments) or corporations like IBM or General Motors. By issuing bonds, these borrowers can raise money from the public. Thus, ergo ALFM is indeed a Bond Fund.
From its website, ALFM is managed by the Asset Mgt and Trust Group of the Bank of the Philippine Islands, with over 155 years of wealth management experience and the largest local fund management company managing over 240 Billion of Funds
Suggest that interested investors get in touch directly with their Financial Advisors. Best to check out directly website of each fund (e.g. www: alfm.com.ph, or philam.com.ph, sunlife.com etc).
October 23rd, 2007 at 4:37 am
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October 8th, 2007 at 1:26 pm
it is really hard for me to look for the best mutual fund. pls help! im very interested to invest…
October 6th, 2007 at 1:43 am
I think N.S. means “Not Sufficient”. Just my guess…
October 5th, 2007 at 1:11 am
@SMB:
i’ll try to answer as much of your questions as i can. some of them lead to the same answer so here goes:
1. a fund’s performance (and hence its manager) is generally measured against a benchmark. typically, the benchmark is an index e.g. PSE index, MSCI World, S&P Total Return, etc.
2. Comparing the face value of a fund’s NAVPS to another fund’s NAVPS does not give any insight as to how well a fund is doing. You should instead look at the trend and the change in the NAVPS over a specific period of time and compare those as starters.
3. A Fund “creates” more units if more people buy units and vice-versa. Therefore, the bigger a fund gets, it gets harder and harder for the manager to get the fund fully invested. This introduces “cash drag” to the portfolio in that increasing cash investments are not invested while the newer units further carve up the overall portfolio.
finally i don’t know what N.S means.
hope this helps.
October 5th, 2007 at 12:58 am
@ kim:
ty. i’m glad you learn from my ramblings : )
@ charles;
you said: “I have a question why do you think mutual fund company or UITF tells their client to hold into their investment long term particularly Equity fund but what the fund manager actually doing is buying and selling equities in the short term? why do you think they give advice such as that but do the otherwise?”
my answer: mutual funds generally are buy and hold portfolios. of course, the portfolio turnover, i.e. how often and how much of the underlying stocks are traded is primarily dependent on the Fund’s mandate.
for example, you would generally expect higher turnover ratios (and hence more trading expenses) for sector and tech funds because of their very nature, relative to say a large cap fund, or fund who’s mandate is to “buy and own businesses, not stocks”.
its also true that most financial advisors would recommend buy and hold strategies to clients who own mutual funds, particularly during periods of market weakness/volatility. this stems from the fact that one part of an FA’s job is to educate and shield their clients from emotional investing (or to save face bec they recommended a bad investment haha).
having said that, there of course situations where pulling the trigger on a losing investment is the wiser decision, regardless of the duration the funds have been invested.
hope this helps.
October 3rd, 2007 at 2:27 pm
@ oda
check out philequity’s new website. it’s pretty much informative to me.
i agree with you about your findings and opinions. honestly, i learn a lot from your thoughts and insights.
October 1st, 2007 at 9:39 pm
day 3:
The benchmark the fund uses is misleading. On the prospectus, ALFM claims the benchmark is determined every year. Then the 2005 (note that there’s no 2006 annual report on the website) annual report states the benchmark the peso bond fund tries to beat is the 90-day peso T-Bill.
What’s wrong with this picture?
1. a benchmark is not determined every year according to the whim of the managers and
2. It must be appropriate to the fund its being compared to. In the case of the peso “bond” fund, how can a portfolio holding >70% in medium to long term govt debt (note the term used was DEBT not bonds) be fairly compared to a benchmark that’s composed of 90-day T-bills???
September 28th, 2007 at 8:54 pm
day 2, just quickly before trading begins…
Who are the managers? Mr. Sison never really answered the question, did he? sure its managed by ALFM, a faceless entity…but are are the people behind the fund REALLY qualified?
Gee, no one will ever know…heck even mr. Sison’s response in the interview was off-tangent when he said, and I quote “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.” And then there’s the mention of a basketball analogy…
Was he trying to say his “managers” are undergoing OJT while managing pinoys’ hard-earned money???
I hope not. Again, what are these “managers” previous investing/industry experience, esp. with fixed income instruments?
um I dunno but I think they can play basketball…hahaha
What is this so called BPI training program? Is it a program that’s as rigorous as say, an MBA program? does it grant a designation, e.g. CFA charterholders?
aaaaaaaaah…no!
September 28th, 2007 at 8:08 pm
hello,
i have been researching about mutual funds before we invest into it. I have a few questions though and I hope somebody from this blog could answer me.
First it was mentioned on the above article that a better strategy for equity funds is to focus on how often a fund beats the index. When you say index are you referring Philippine Stock Index Fund Corp.?
BTW is it another fund company of PSE just like Philequity, Philam, Sunlife, etc?
Why are their NAVPS way to high as compared to other equity funds?
Is it a good sign if the NAVPS price of a fund company is high as compared to other funds?
Also it was mentioned that an investor should go for more consistency, how can we measure or compare consistency among fund companies?
Also as I understand the formula for NAVPS is assets minus liabilities divided by number of shares issued or outstanding (please correct me if am wrong). My question is how are number of shares issued or outstanding determined and does it vary from day to day as well? Is it the number of shares sold and bought for a particular transaction day? How is it computed?
I have also been downloading the daily Mutual Fund performance from business.inquirer.net and from time to time I see the initials N.S on the table. What does it mean? (no sale haha).
I know I’ve got to many questions, but I hope you could help me in educating myself so I can understand mutual funds better before investing. Thank you!
September 28th, 2007 at 9:07 am
just found a great link regarding factors to consider when choosing a mutual fund. it’s about the expense ratio.
http://www.fool.com/school/mutualfunds/costs/ratios.htm
salve,
do you think this is also applicable in the philippine setting? i also wonder, why are costs for phil index funds no cheaper than those of actively managed equity funds?
September 27th, 2007 at 10:11 pm
some commentary on this fund…
since I began posting on this blog, I have repeatedly encouraged investors to be prudent, to know what they’re buying, and to not be blinded by returns…so please allow me to share my thoughts on this “bond” fund…
i quickly skimmed through the prospectus and found some glaring irregularities about the fund that’s supposedly accounts for half the mutual fund assets in the phils.
on the plus side, their website is more informative than philequity, albeit rife w/ misinformation that can easily wow any newbie investor…
here goes…(1 comment a day…what do you think?)
1st of all, the fund’s name is MISLEADING, esp. to the uninitiated. this fund IS NOT, and should NOT be called a bond fund…it’s at best a fixed-income fund…oh wait, if you read the prospectus, the title is ALFM Fixed Income Fund…
is this a case of intentionally naming the fund to what most pinoy investors can relate to? Maybe…
why is it misleading? read p. 28/37 of the prospectus and the fund boldly claims it may invest in “PRIVATE DEBT PAPER, PROMISSORY NOTES, ABS, DISCOUNT OF RECEIVABLES, etc.”
and if you look at the 2005 annual statement, there is 5% debt as part of the portfolio (maybe 8% but the pdf was too blurry)…
YIKES! you read it correctly–private debt paper!!! how in the world has private debt have a place in a BOND FUND??? Salve, maybe you should ask mr. Sison about this haha…
there’s no clear explanation even of what qualifies “private debt” to be included in the portfolio…
heck this could easily mean the fund can lend to the zobel-ayalas at lets see….prime + .05%…hahaha…
on the bright side, at least they disclosed…
ok bukas na ulit…
September 27th, 2007 at 4:33 pm
i am looking at high return of mutual fund,can someone guide me?
September 27th, 2007 at 4:26 pm
sunlife declared a 2% div in august, i thnk.. i dunno about the other MFs.
September 27th, 2007 at 1:01 pm
Do mutual funds declare dividends?
How about UITFs do they have dividend like features too?
September 27th, 2007 at 8:38 am
Ms. Salve,
I have a question why do you think mutual fund company or UITF tells their client to hold into their investment long term particularly Equity fund but what the fund manager actually doing is buying and selling equities in the short term? why do you think they give advice such as that but do the otherwise?
September 26th, 2007 at 2:35 am
@ross,
I’ve mentioned this already in my previous comments. I am also outside the Philippines. Based from my research, ATR Kim Eng is the only mutual fund, which accepts on-line application. You can visit their website for further info. http://www.mutualfund.com.ph
All other mutual funds require that you personally visit their office to make the investment.
September 26th, 2007 at 2:29 am
@Benedicta,
Assuming you have laready researched about the different mutual funds and you have already chosen a particular fund/company where you want to invest your money, next step is to personally visit the company and fill-out their forms and deposit your investment.
You can visit fund company’s website for specific instructions. The list of mutual fund companies with links to their websistes can be found at http://www.icap.com.ph
September 25th, 2007 at 9:09 pm
some ok responses, but weak overall…ill expound later…going to be a busy day…
September 25th, 2007 at 2:27 pm
My investment in ALFM Peso Bond Fund has a cumulative return of 25% for 2.5 years, not bad for a bond fund.
Besides, they are the only bond fund that still have a positive return when all the others have negatives for the most part of 2007.
September 25th, 2007 at 12:37 pm
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September 25th, 2007 at 10:17 am
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September 25th, 2007 at 7:27 am
im interested in investing to mutual funds but im out here in saudi arabia
any help you can provide is highly appreciated
thanks
ross
September 25th, 2007 at 7:01 am
If I were to invest at least in a mutual fund. How could I go about it. Thanks.