The face of the average mutual fund investor

Mutual funds are sold as the investment for the masses, allowing ordinary Filipinos with as little as P5,000 to get their feet wet in an instantly diversified portfolio of stocks, bonds, or both.

It was a little bit of a surprise to find out that the average mutual fund investor as of June 30, 2008 has a placement of roughly P483,820 in mutual funds — not your average Filipino, obviously. That’s an impressive little factoid.

Based on official figures from the Investment Company Association of the Philippines (ICAP), this figure is lower than the average investment size of P580,843 in December 2007, which is again lower than P622,079 in June 30, 2007.

Interviews with the chief executive officers of BPI Investment Management Inc., Philam Asset Management Inc., and Sunlife Financial, which account for more than 90.0 percent of the industry, show that assets under management are declining mostly because of the market downturn and not due to massive redemptions. Sure, there some investors took their money out, but in my article last Monday, “Investors calmer in face of investment storm,” mutual fund practitioners said investors were indeed less jittery and this was a welcome surprise to them in the face of the current market downturn.

That’s because for the past six months, markets have gone haywire and mutual funds in the Philippines bled. If you look at the ranked year-to-date returns below, United Fund’s negative 10.0 percent return, while the smallest loss among the roster of stock funds, makes you wonder what it did to protect its portfolio from the depressed financial markets both here and abroad. (For some reason, United Fund does not act like a stock fund because it does not go up when the stock market grows and doesn’t also go down when the markets are down.)

Fernando Jose Sison III, the ICAP chairman this year and one of the pioneers of the mutual fund industry, said that in BPI alone, the average mutual fund investment is around P1 million. Same with Sunlife.

“We can conclude that such investors have already amassed sizeable funds that they are setting aside for a rainy day and are already knowledgeable about the stock market, bond market, and the capital markets in general,” Sison said.

I reiterated to him an idea broached in this blog first by Oda last year for the industry to report performance not just by listing down yields. For next year’s annual awards, perhaps the ICAP could measure volatility, for example. The reason that’s important to investors is that while we understand the nature of the beast –-mutual funds give potentially higher returns but expose you to higher risks too –- and that it’s best treated as a long term investment, you wouldn’t want to be caught in a severe downswing on the year you need your funds. So you would like some measurement of how volatile a fund can be.

At first, Sison was skeptical. He thought mutual fund investors would not appreciate such a figure because mutual funds already seem too complicated to ordinary investors. But he emailed and said he changed his mind, because of the average investment size of mutual fund investors.

“It is in this light that I agree with your thinking that some sort of performance benchmark, other than a straightforward rate-of-return computation, would be useful and relevant to mutual fund investors,” Sison said.

“This other performance benchmark could be a volatility indicator, as what you mentioned, or a reward-to-risk ratio, as what my employer organization (BPI) currently measures and monitors. Such additional performance benchmark, taken in relation to yield performance, will certainly add depth to an investor’s analysis of his medium-term (3 years) or long-term (5 years and above) investment options. We observe that once an investor has opened a mutual fund account, he tends to keep it, add to it, and diversify into other types of mutual funds, thus, a medium- to long-term outlook is more of the general mindset of such investors,” he added.

I certainly hope we will be seeing those figures in the papers, and in the ICAP awards next year. Meanwhile, see below how mutual funds have fared in the last six months. These are all year-to-date returns as of July 29, 2008, ranked in terms of yields.

Stock Funds
(Primarily invested in Peso securities)

United Fund, Inc. -10.45%
First Metro Save and Learn Equity Fund, Inc. -18.04%
ATR KimEng Equity Opportunity Fund, Inc. -23.33%
Sun Life Prosperity Phil. Equity Fund, Inc. -23.57%
Philequity Fund, Inc. -24.61%
Philequity PSE Index Fund Inc. -24.99%
Philam Strategic Growth Fund, Inc. -25.89%
Philippine Stock Index Fund Corp. -30.24%

Balanced Funds
(Primarily invested in Peso securities)
First Metro Save and Learn Balanced Fund Inc. 1.01%
First Galleon Family Fund, Inc. 0.31%
Optima Balanced Fund, Inc. -16.24%
Sun Life Prosperity Balanced Fund, Inc. -16.94%
MFCP Kabuhayan Fund, Inc. -17.18%
GSIS Mutual Fund, Inc. -22.17%
Philam Fund, Inc. -23.03%

(Primarily invested in foreign currency securities)
Sun Life Prosperity Dollar Advantage Fund, Inc. -2.25%

Bond Funds
(Primarily invested in Peso securities)
Cocolife Fixed Income Fund, Inc. 2.23%
ALFM Peso Bond Fund, Inc. 1.66%
Ekklesia Mutual Fund Inc. 0.34%
First Metro Save and Learn Fixed Income Fund, Inc. -0.05%
Philam Managed Income Fund 0.94%

Sun Life Prosperity Bond Fund, Inc. -0.98%
Legacy GS Fund, Inc. -0.98%
Philam Bond Fund, Inc. -2.6%
Sun Life Prosperity GS Fund, Inc. -4.56%
Prudentialife Fixed Income Fund Inc. -5.27%

(Primarily invested in foreign currency securities)
ALFM Dollar Bond Fund, Inc. 1.81%
AIG Global Bond Fund Phils.,Inc. 1.64%
Grepalife Fixed Income Fund Corp. 1.07%
Grepalife Dollar Bond Fund Corp. 0.92%
Philequity Dollar Income Fund Inc. 0.56%
ALFM Euro Bond Fund, Inc. 0.31%
Philam Dollar Bond Fund, Inc. 0.07%
MAA Privilege Dollar Fixed Income Fund, Inc. -1.34%
Sun Life Prosperity Dollar Abundance Fund, Inc. -2.31%
MAA Privilege Euro Fixed Income Fund, Inc. -4.45%

Money Market Funds
(Primarily invested in Peso securities)
Sun Life Prosperity Money Market Fund, Inc. 1.21%
Philequity Money Market Fund Inc. -0.36%
Legacy TD Fund, Inc. -0.97%
ATR KimEng Money Market Fund, Inc. -5.96%

Source: ICAP

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