The country’s largest mutual fund company advises individual investors to be more prudent this year amid the challenging environment of high inflation and weak peso.
“What we advise you to do is to have a diversified portfolio. Participate in the dollar bonds and have a little bit of defensive position in the money market space. Then you have a portfolio that can weather various economic changes over the medium to long term. We encourage you to participate in pooled investment funds,” says Roberto Martin Enrile, president of BPI Investment Management Inc., a wholly-owned subsidiary of the Bank of the Philippine Islands.
“I think that what an investor needs to have in mind is diversification. That has always been reliable. It is just a matter of tweaking the components of your diversified portfolio to see where the over and underweight should be, and maybe reviewing it on a regular basis to do the necessarily rebalancing,” he says.
BPI Investment manages various fund types such as peso bond fund, dollar bond fund, euro bond fund, money market fund, medium-term bonds, and stock index fund.
“Typically, you get the lowest volatility and return from the money market fund. The highest volatility and the highest return historically is pure equity fund. We also have a balanced fund. It is a diversified portfolio that has both equities and bonds. Depending on the market condition, we tweak the proportion. But typically, it is 50:50,” he says.
Most fund investors lost money this year after the peso depreciated more than 8 percent since January and the Philippine Stock Exchange index fell 15 percent. Inflation rate hit a nine-year peak of 6.4 percent in August 2018, while the Bangko Sentral ng Pilipinas raised the benchmark borrowing rate by 150 basis points since the start of the year to 4.5 percent.
“We don’t encourage you to look short-term. Things can change at the end of the year, which is more than three months from now. Things can even change over a span of 12 months, but our returns have shown us that the longer-term investors are the ones who make the most,” Enrile says in an interview.
“One of the key factors of a successful investor is patience and an overriding belief in the fundamentals of the economy you are investing in. We would like to focus a little bit more on patience nowadays. It easy to be jumpy or jittery. If you know you don’t have a long-term investment horizon or you need to pay something by yearend, stay defensive. Stick to money market. If you know you have a longer term window for your money, expose yourself to a little more risk,” says Enrile who has a BS Management degree from Ateneo de Manila University and a Master’s Degree from Babson College in the US.
Enrile says the mutual fund industry which is regulated by the Securities and Exchange Commission provides individual investors with an opportunity to take advantage of the country’s economic growth story. “You can have an initial investment of P5,000, and top it up every month,” he says.
“Mutual fund is a pooled investment in principle. It makes use of a team of professional fund managers to manage the risks. That’s one key difference from going directly to the bank. There are various products that have their own specific risks and return profiles. So starting from money market funds all the way to the equity funds, there will be something that will suit your return needs or risk appetite,” he says.
“Your age, your means, your needs—all of these things go into what we think is the best strategy. These are all being evaluated property at the front desk,” he says.
Enrile says 2018 is a challenging year, because “we are coming to the environment of rising interest rate, and rising inflation principally because the cost of goods is going up.”
“As a result, the Central Bank deemed it necessary to start to raise rates and try to slow inflation. With that combination of economic circumstances, the peso weakened. As a result, stock investors particularly those offshore saw it fit to unload Philippine stocks, mostly in view of the currency, not because of fundamentals of listed companies being particularly weaker. It is mostly because they are losing on the currency,” he says.
Enrile says BPI expects the peso to end 2018 at 54.50 against the US dollar and the PSE index to settle within a range of 7,900 and 8,100 by December. He says it could reach the 10,000-point mark within the next two to three years.
“We are not expecting a very sharp recovery in the market. We think that the currency weakness will persist through next year. We think that the rising interest rate will persist. We think that inflation will probably peak around September this year at 6.7 percent,” he says.
“The growth fundamentals will prevail still, notwithstanding some erosion in the current account balance, currency and inflation picture. We are still going to be one of the more robust growing economies in the region, maybe even globally. I think it is going to be a mild recovery,” he says.
Enrile, who worked in the stock market for 20 years before joining the banking sector, says BPI Investment plans to offer more products in the market to provide investors with greater opportunities. We are set to launch a new product in September. This is gonna be an income paying product. That is an innovation in the market that we would like to think we are first to introduce,” he says. “We continue to explore other products moving to next two or three years. We will see what investors’ appetite is. If they have appetite for China product, we are happy to launch that. If there is an appetite for product that is based on energy or some thematic investment product, we can launch something like that,” he says.
“We are also looking at offshore distribution for the next one or two years. We want to have our Philippine products distributed in the region. We are targeting those who believe in the Philippine growth story wherever they are. We have been told by some of our partners offshore that there is a demand for Philippines-based products that are not being launched or manufactured offshore. In the same token that we can distribute offshore products, we also like to explore distributing our products offshore,” he says.
Enrile advises first-time investors, especially the millennials, to work with professional fund managers. “Go with somebody who can look at your funds. It is challenging enough for those who have been in the industry for over 20 years. Invest in funds. Look for the right manager that you can build relationship with. Look for the right products for you,” he says.
“Start with what you want to accomplish. Don’t start with what you think will make the most money. More often than not, that entails the most risk. Start with the end in mind. Then work your way backwards to what your portfolio should look like. Look for the right partners. Look for the right managers. Do your homework. Look at the historical figures of the funds,” he says.
“If you are new to investing or new to the capital market, don’t go at it on your own. I have seen a lot of disappointments with those who have done that, especially in the stock market. Stick with professionals with track records. Stick with reputable institutions,” he says.
Enrile says despite the 7-percent contraction of the general mutual fund industry this year, BPI Investment posted a 2.3-percent growth in assets under management as of August 2018. “To some extent, we have been very prudent about taking risks this year. We have done okay,” he says. “We offer very competitive returns this year relative to the industry in a challenging market, which is a testament to having a professional management.”
“We are happy to see the business still grow amid a very challenging environment,” says Enrile.