UITFs grows up to 50% in earnings, BDO says

MANILA, Philippines - If one invested in a unit investment trust fund (UITF) managed by the BDO Unibank Inc. (formerly Banco de Oro Unibank Inc.), or BDO, say with a total amount of P10,000 by the end of 2009, it would have grown by 50.59 percent to P15,059.25 by the end of 2010.

UITFs are a pool of investments made by individuals and institutions with a fund manager of a bank (mostly commercial banks) and licensed by the Bangko Sentral ng Pilipinas (BSP).

The table below presents what P10,000 invested end 2009 would be at end 2010 depending on the type of UITF invested in.

If one were to track the original value of P10,000 invested five years ago in the different types of BDO UITFs over the last five years, one can clearly see in the graph below that although BDO Equity Fund and BDO Peso Balanced Fund registered the highest returns end 2010, these Funds also carried the highest risks and experienced the highest volatilities or fluctuations in values during the last five years.

On the other hand, the BDO Peso Money Market Fund, which had the least risk, experienced the lowest volatilities or fluctuations in values during the last five years and gave the lowest returns although relatively higher than those of time deposits.

Thus, the BDO UITFs have adhered to the risk-return principle of investing and therefore, have been true to their respective investment objectives.

During the last five years, the Philippines went through good as well as bad markets; most notable of the latter was the global financial crisis brought about by the collapse of sub-prime investments in the US. Investors who were in the UITFs during this bad time experienced volatilities and fluctuations. Those who took advantage of the market ups and downs, and stayed put and true to their original investment objectives and investment time horizons came out ahead!

To address the diverse needs of investors, BDO offers different UITFs grouped into four types.

A money market fund aims for capital preservation and income generation by investing in short-term fixed income securities with a portfolio average duration of one year or less giving returns relatively on the low-side but are relatively higher than those of savings and time deposit account.

Money market funds are offered primarily for risk-averse investors.

In addition to the peso-denominated money market fund, BDO Trust also offers the BDO Dollar Money Market Fund which posted past year and past five-year returns of 1.86 percent and 19.28 percent, respectively.

A bond fund aims for capital preservation and income generation over the medium term by investing in fixed income securities with a portfolio average duration of more than one year. 

This allows the bond funds to give higher returns as compared to money market funds but also carries with them higher volatility.

Bond funds are developed for investors who are risk tolerant and who have a longer investment time horizon of about three years.

The peso bond funds (BDO Peso Bond Fund, BDO GS Fund and BDO Peso Fixed Income Fund) offered by BDO posted past year returns ranging from 9.1 percent to 11.1 percent and past five-year returns ranging from 35.04 percent to 39.77 percent.

Their counterpart dollar bond funds (BDO Dollar Bond Fund and BDO Medium Term Dollar Bond Fund) posted returns ranging from 4.3 percent to 7.02 percent for the past year, and 29.82 percent to 38.82 percent for the past five years.

A balanced fund (such as the BDO Peso Balanced Fund) aims to provide capital appreciation over the medium term by investing in equities and in fixed income securities, the allocation of which is determined by fund managers depending on market conditions.

The equity component provides additional yields from potential gains on stock investments.

Balanced funds are for investors who are risk takers, who can invest for more than three years and who are aware that the potential for high yields carries with it the risk of capital losses that equity investments can bring.

An equity fund is for capital growth over the medium to long-term by investing in a selection of stock exchange-listed stock investments.

A longer time horizon is recommended when investing in an equity fund given the risks/volatility attached to investing in equities, thus this fund is suited for risk takers.

This type of fund, of which the BDO Equity Fund belongs, offers the highest potential returns derived from capital appreciation of the stock investments and dividend earnings.