Trust Banking Group
United Coconut Planters Bank
Weekly Market Commentary
05 May 2014
A
UITF just for you. One of the most significant
developments in investments in recent years is the
democratization of investment services. In the recent
past, only institutional investors or high net worth
individuals can have access to professional fund
managers due to the substantial fees required by the
latter. This has discouraged retail investors to seek
professional advice.
UCPB Trust Banking Group, for instance offers six
different types of UITF. Two equity funds (UEF &
UHDF), a peso bond fund (UPBF), a mixture of
equities and bonds (UBF) and two money market funds
(UCMF & U$MMF).
But things started to change with the advent of mutual
funds. These are pooled funds managed by
professional fund managers and offered to retail
investors and small institutions. The main advantage
of a mutual fund is that services previously available
only to large clients can now be availed of by retail
investors.
Table 1
There could be a fund that may fit your requirement
(Table 1).
These services include:
Real diversification. It’s so hard to attain
diversification with only a small amount to invest.
However, mutual funds now offer investors real
diversification even for a small amount. Retail
investors can now have access to funds which are well
diversified within an asset class (e.g., stocks, bonds,
commodities, currencies, emerging markets) or across
assets classes. In addition, retail investors can choose
the investment approach they prefer such as long only,
hedge funds or ethical investing.
A traditional time deposit investor may want to consider
UCMF as an investment vehicle. While this fund
cannot guarantee returns, its performance is stable
since the fund is only invested in the Special Deposit
Account (SDA) facility of the BSP and in time deposit.
Professional services. Retail investors can now have
access to the services of professional money
managers very similar to what institutional investors
and high net worth individuals enjoy.
Table 2 below shows that performance of the UCMF
versus time deposit (TD). Despite the high TD rates
used (these rates are available only to large clients),
the UCMF still shows a substantial outperformance
over TD placements. For example even if a client
enjoys a premium TD rate of 1.25% per annum on his
placement, the UCMF still outperforms the former by
32%.
Aside from these services, mutual funds offer investors
liquidity, affordability and low overall cost.
The mutual fund experience overseas later became the
template used by local banks when they introduced
their own version of a pooled fund, initially as Common
Trust Fund (CTF) and later, as Unit Investment Trust
Fund (UITF).
A bond investor who desires the safety offered by fixed
income instruments may opt for the UPBF as this fund
is entirely invested in govt. securities. The risk-free
nature of govt. securities provides some form of
protection to the investor. It must be emphasized
however, that the safety being offered by govt.
Banks initially offered simple products like an equity
fund, a bond fund or a balanced fund. Other asset
classes were later included as the market became
more familiar with the investment vehicle. These days,
UITFs come in various sizes, shapes and shades.
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securities is only in terms of default risk specifically the
payment of coupon and principal. Govt. bonds are still
subject to price risk. This means that an investor
exposed to a fund which is invested in bonds may find
the value of his investment fluctuate based on the
movement of bond prices.
Table 2.
within a bear phase. These periods of rising or
falling prices exist even when the market is
consolidating.
Given the above observations, an investor with a long
investment horizon like a young person will likely be
able to take advantage and profit from market swings.
UCMF vs. Time Deposit
In contrast, an individual with a short or limited
investment horizon may be disadvantaged if he needs
to sell in a period when the market is not moving in his
favor.
Figure 1.
PSEi (1987 – Present)
A conservative investor who wants to venture into
something more exciting may consider the UBF or
UPBF. The UBF, as the name suggests, is a fund
whose assets are invested in equities (60%) and fixed
income, mainly govt. securities (40%). The UBF is
actually a fund that combines the features of an equity
fund and a bond fund.
An aggressive investor may likewise find both UEF and
UHDF appropriate for his needs.
Meanwhile, an investor who is relatively young can
afford to be exposed in an equity fund like the UEF or
the UHDF. Both funds are 93% invested in equities
with the balance held as cash (in SDA or TD). For
UHDF, at least 70% of all investments are in common
stocks while the rest is devoted to preferred stocks.
The UHDF only invests in dividend paying common
and preferred stocks.
Seniors and retirees are certainly not barred to invest
but given the requirements of their age (e.g., liquidity),
they will have to be more prudent in the deployment of
their assets. The UCMF could be an appropriate
investment vehicle for them.
Notice: Due to the unique nature of investment needs,
it is recommended that interested individuals and
institutions first consult any Sales Officer of the Trust
Banking Group before making any investment
decision.
Equities are certainly volatile but the volatility in
investment returns can partly be addressed by a long
investment horizon.
Figure 1 below shows the movements of the PSEi in
the last 27 years. The following can be observed:

The sharp movements in equity prices are very
evident during the entire period;

There are clear and distinct market phases, e.g.,
bull, bear and sideways or consolidation phase;

A phase is not always unidirectional, e.g., there are
bear periods within a bull phase or bull periods
E
conomic News:
Bank lending continued to pick-up pace in March,
reflecting the country’s strong economic growth.
Lending by universal and commercial banks, net of
bank placements in the BSP, climbed 20% to PHP3.9
trillion in March. The growth rate has been increasing
since October last year. Together with placements in
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Power. The Court of Appeals (CA) upheld the
PHP14.32 billion settlement agreement between
Manila Electric Co. (MER) and the National Power
Corporation (NPC) that had been questioned by the
national government. The decision of the CA will
resolve the dispute between NPC and MER and will
allow the parties to implement their settlement
agreement. However, the ruling of the CA is not yet
final since the Office of the Solicitor General (OSG)
may still file a motion for reconsideration or elevate the
case to the Supreme Court.
the BSP, lending expanded 18.3% to PHP4.1 trillion
during the month.
Figure 2
Loans Growth
22.0%
20.0%
4.0
18.0%
3.5
16.0%
3.0
14.0%
Growth
Loans (in tn)
4.5
12.0%
2.5
10.0%
2.0
8.0%
J13 F
Source: BSP
M
A
M
J
RRP+NR (lh)
Prod Act. (lh)
HH Gr (rh)
J
A
S
O
N
D J14 F
M
Property. BSP Deputy Governor Diwa Guinigundo
stated that the BSP will not “hesitate” to deploy
measures to prevent any asset price bubbles forming
in the property sector amid sustained growth in real
estate credit.
HH Cons (lh)
PA Gr (rh)
Total Loans Gr (rh)
Budget deficit. The government’s budget shortfall
rose by more than a quarter in 1Q14 on the back of
accelerated spending on infrastructure projects mainly
in areas affected by Super Typhoon “Yolanda.” For
March, the government’s deficit rose by 14% to
PHP40.5 billion, bringing the 1Q14 shortfall to
PHP84.1 billion, up 26% yoy. Net of interest
payments, the country registered a primary surplus of
PHP19.0 billion, down 39.8% yoy (Table 3).
Property. State-owned Bases Conversion and
Development Authority (BCDA) is set to bid out the
lease and development of the Lawton Corporate
Center lot (5,000 sqm) in the Bonifacio South area in
Taguig City. The property is located between the
National Mapping and Resource Information Authority
and McKinley West (an existing joint venture project of
BCDA and Megaworld Corp. (MEG). BCDA plans to
start the public bidding process by the first or second
week of May.
Table 3
C
orporate News:
International Container Terminal Services, Inc.
(ICT), together with China’s Cosco Group and three
other investors have expressed interest in a majority
stake in Piraeus Port (OLP), the largest port in Greece.
Piraeus is one of the busiest passenger ports in
Europe and one of the top cargo ports in the
Mediterranean. Cargo traffic rose 15% to 3.1 million
twenty-foot equivalent units in 2013. The deadline for
non-binding bids expires on June 05.
Meanwhile, plans to sell more notes under a USD1
billion debt facility launched last year in order to help
fund 2014 capital expenditures (capex). ICT has
issued a total of USD650 million worth of bonds, so far,
under this facility, and the latest planned USD75 million
tranche will be used to help finance its 2014 capex.
ICT estimates 2014 capex at USD310 million – 43%
lower than in 2013.
Cement industry. Total cement industry volume grew
8.6% to 5.2 metric tons in 1Q14 from last year’s 4.8
metric tons based on data from the Cement
Manufacturers Association of the Philippines (CEMAP).
The higher sales were attributed to the hike in
infrastructure spending by the government and
continued spending and confidence shown by the
private sector.
A unit of Manila Electric Co. (MER), Meralco Energy
Services Corp., is set to sign a leasing contract to fast
food chains Jollibee Foods Corp. (JFC) and
McDonald’s to replace their gas-fired motorcycle
delivery fleet with electric tricycles.
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Marcventures Mining and Dev. Corp. (MARC)
disclosed that contrary to Mines and Geosciences
Bureau’s (MGB) claim, MARC has validly obtained all
the necessary permits from MGB and its current mine
operations in Carrascal are within the approved mining
area.
R
eference Tables:
Table 4.
PDST-F Rates
Table 5.
SDA Rates
Metro Pacific Holdings Inc. (MPHI) may increase its
interest in Victorias Milling Co. Inc. (VMC) after
acquiring a 5.78% stake in April. The increase in
shareholdings is hinged on the availability of shares.
MPHI bought 34% of interest in Roxas Holdings, Inc.
(ROX) last year. MPHI owns 55% of Metro Pacific
Investments Corp. (MPI).
The Philippine Bank of Communications (PBCOM) is
set to acquire a majority stake in Banco Dipolog, Inc.
(BDI) to strengthen its presence in Mindanao. BDI, a
multi-branch rural bank headquartered in Dipolog City,
Zamboanga del Norte, has 11 branches and 7 other
banking offices located in Mindanao and the Visayas.
The acquisition will also give BDI’s client base an
expanded suite of products and services that PBCOM
offers as a commercial bank.
SM Investments Corporation’s (SM) retail arm is
putting up at least 20 Savemore and Hypermarket
stores outside Metro Manila this year with an estimated
investment of PHP2 billion. To increase
competitiveness, SM Retail is also studying the viability
of going into the convenience store format through a
foreign brand.
Table 6.
Travellers International Hotel Group, Inc. (RWM)
has obtained PAGCOR’s approval for additional
gaming capacity. Total gaming capacity is now 420
tables and 4,418 gaming machines. In 2H13,
PAGCOR amended the computation for gaming
capacity. The change effectively results in more
capacity for the licensees. As of end-2013, RWM had
287 tables, 1,822 slot machines, and 210 electronic
table games (ETGs). With the new limit, RWM can
effectively raise table capacity by 46% and gaming
machine capacity by 100% (from end-2013 levels).
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Indicative ROP Prices
Table 7.
Table 8.
UITF Performance
Market Indicators
Annex A
Explanatory notes on our Market Indicators.
In general, market indicators are used to assess the pulse and health of our economy. It is very similar to how
doctors check our heartbeat, the color of our eyes, our cholesterol level or the sugar content of our blood to
initially assess how healthy (or unhealthy) we are.
Since we are generally concerned with investments, the appropriate measures to look at are economic and
market indicators. As investors, we want to know where these indicators are headed so we can make the
appropriate decisions. These indicators are as follows:
Peso. This is our currency and its current level and direction normally indicate the general health of the
economy.
Stocks. A strong or robust stock market reflects a strong and growing economy or vice versa. Our stock market
cannot be strong if our economy is weak. And the opposite is equally true. After all, corporate earnings and
prospects reflect the overall outlook of the economy. The index we are using is the Phil. Stock Exchange Index
(PSEi).
3-month PDSTF Rate. This is the indicator we use for domestic interest rates. It used to be the 90-day
Treasury Bill rate but this instrument has lost its appeal since it is not very liquid and may not truly reflect market
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levels. PDSTF rates are better indicators of where interest rates are since these are based on actual rates of
highly liquid instruments.
Peso Bonds. The HSBC Local Bond Index (Phil.) tracks the average price movements of local bonds and is a
good indicator of how expensive (or cheap) bonds are. The index should also provide an indication of where
bond yields are headed since bond prices and bond yields move in the opposite direction.
3-month USD LIBOR. This is the US dollar counterpart of the 3-month PDSTF rate. LIBOR means London
Interbank Offer Rate, the rate at which banks lend to each other and used as a benchmark for commercial
lending.
USD Bonds (ROPs). This index tracks the price movements of Phil. bonds denominated in US dollars. The
index we are using is the JPMorgan Asia Credit Index (Phil.).
Since the indices we use for stocks, peso bonds and USD bonds (ROPs) are based on price movements, the
higher the level of the index, the better it is for investors.
Crude Oil. At least in our lifetime, oil will always be one of the most important economic indicators since it is a
basic feedstock of economies worldwide. The benchmark that we are using is the West Texas Intermediate
(WTI) as it is the most common and widely used crude oil index.
Gold. This is our proxy for uncertainty. The price of gold normally goes up during uncertain or difficult times.
This is because gold is the ultimate store of value. Paper currencies could lose their value but gold will always
retain its value whether as an ornament or as a unit of exchange.
DXY. It is a spot index of the USD based on a basket of six currencies, Euro (57.6%), Japanese Yen (13.6%),
British Pound Sterling (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%). The
DXY does not reflect the trade position of the US in the global economy. It is being used for convenience as its
value is updated on a daily basis.
ADXY. It is a spot index of emerging Asian currencies versus the USD. It is composed of ten currencies,
Renminbi (38.66%), South Korean Won (13.00%), Hong Kong Dollar (10.48%), Singapore Dollar (10.27%),
Taiwan Dollar (5.11%), Indian Rupee (8.57%), Malaysian Ringgit (4.60%), Thai Baht (4.98%), Indonesian Rupiah
(2.69%) and Phil. Peso (1.64%). The index is constructed based on two considerations, trade performance
(75%) and liquidity (25%).
VIX. The Chicago Options Exchange Volatility Index reflects a market estimate of future volatility. The value of
this index normally rises whenever uncertainty is high.
Finally, note that there will always be a speculative element in the movement of these indicators. But speculation
is not their main driver. The most important driver that normally sustains the movement of an indicator over the
long-run is its fundamentals. For example the movement of the peso is dictated, among others, by the following
fundamental factors: (a) the health of our economy; (b) the amount of US dollars remitted by Filipinos working
and living abroad; (c) the level of our exports; and (d) the amount of foreign direct investments we receive.
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The information and data contained herein are confidential and may not be divulged to any person or entity, reproduced, disseminated or
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