Bond fund investors must trade aggressively for better returns: FAMI

MANILA, Philippines - Despite an energetic equities market, there are still investors that prefer the modest and safer fixed income or bond funds.

But investors that prefer fixed-income placements, need to be more active in their approach. Not very many investors are aware that government notes and bonds can be traded in order to generate higher returns.

First Metro Asset Management Inc. (FAMI) executive vice president and chief operating officer Hector de Leon however agrees that that is easier said than done.

“While the volatility of bond prices are relatively lower than that of stock prices, looking for trading opportunities in the bond market can be very difficult,” De Leon said.

But expert and professional fund managers that manage trust or mutual funds for the benefit of the investing public, can spot trading opportunities.

“The Philippine economy has never been this good for a long, long time.  The economy is growing at a good pace, inflation is at relatively low levels, and just recently exports have started to pick up. Filipinos overseas and the booming BPO (business process outsourcing) industry have pushed the country’s US dollar reserves to historic levels. There is so much money in circulation that interest rates simply had to go down,” the FAMI chief operating officer explained.

In the late 90’s the most popular investment products that were being offered by banks and financial institutions had very similar tag lines – “Double Your Money in Five Years”. And true enough, those that invested in 1998 saw their money doubled by 2003.

This means that these investors earned at a compounded annual growth rate of 14.72 percent from a fixed-income instrument, with government bonds as underlying securities. 

But conditions have changed, and interest rates had started to decline to historic lows.

Today, a typical savings account from a reputable bank will give around 0.5 percent per year. This means that the depositor earns P0.50 annually for every P100 saved.

Time deposit rates, can offer 1.75 percent to a little over three percent depending on how long the money if invested (usually three months to a year). The benchmark Treasury bill (T-bill) rates range from 1.947 percent to 2.709 percent, again depending on the tenor (usually 90 days to a year). 

Even if you were to invest in long-term Treasury Notes with tenors ranging from seven years to 20 years, you will only get coupon rates ranging from five percent to 5.875 percent per annum. These rates are not even close to the 14.72-percent returns that were available 15 years ago.

So far, the FAMI’s assets under management (AUMs) stood at a record P6.25 billion, up 25 percent from the P5 billion at the start of the year. Just a little over a year ago, total AUMs grew by 79 percent from a mere P3.5 billion in May 2011.

The four mutual funds under the title of First Metro Save and Learn funds are First Metro Save and Learn Fixed Income Fund (SALFIF), First Metro Save and Learn Equity Fund (SALEF), First Metro Save and Learn Balanced Fund (SALBF), and the First Metro Save and Learn Money Market Fund (SALMMF).

The SALEF exhibited the largest assets worth P3.78 billion with a net asset value per share (NAVPS) of 4.2191 as of March 13. Year-to-date (YTD) returns reflect an 11.81-percent growth of the said fund.

FAMI estimates that investments made a year ago would have grown by 26.01 percent. Further calculations show that placements made three years ago would likely have grown by 42.45 percent, and it would have grown by 15.09 percent in a five-year period.

SALEF is a mutual fund invested in the securities or the country’s stock market.

The SALFIF, or the mutual fund invested in fixed income or bond funds, amounted to P1.35 billion with a YTD of 3.27 percent. NAVPS stood at 1.7131, as of Mar. 13.

It likewise reflects a one-year return of 16.51 percent, a three-year return of 10.67 percent, and a five-year return of 7.56 percent.

The mutual fund invested in a mix of equities and fixed income or the SALBF had assets worth P914 million with a NAVPS of 2.378 percent as of Tuesday. YTD valuation was placed at 12.18 percent.

The SALMF, which is invested in the money market, remained placid at P207 million with YTD returns of 0.47 percent and a NAVPS of 1.0496. One-year returns stood at 0.38 percent, three-year returns of 0.54 percent, and five-year returns of 0.54 percent.

Incidentally, FAMI is conducting a briefing for the financial officers of The Catholic Educational Association of the Philippines (CEAP) and the Marist Brothers Foundation on April 24. The forum aims to help the schools identify opportunities in the bond markets so as to enable them to generate better returns from their fixed-income portfolios.