Unit Investment Trust Funds (uitf)

[wek1012]

ask ko lng what things led to do fall of the uitf's navpu around may of last year? do you see another thing like this happening soon?

[valjean]

Just ask for a product brochure from the bank. It will have a description of which fund has a higher risk. But most bank branches are not trained with financial instruments so its difficult to ask in depth questions and get answers.

 

Watch ka na lang din sa bloomberg at msnbc :-)

[Dr_PepPeR]

ask ko lng what things led to do fall of the uitf's navpu around may of last year? do you see another thing like this happening soon?

 

MONETARY BOARD REJECTS PROPOSAL TO SUSPEND SALE, THOUGH BSP, BTr moving on UITF By Jun Vallecera Reporter

 

THE Bangko Sentral ng Pilipinas has vowed to restore order in the panic-stricken unit investment trust fund (UITF) market where investors jostle to exit from the P230-billion business as fast as their fund managers would let them

 

While conceding that intervention was an option, the central bank’s policy-setting board stopped short, though, of taking the drastic step of suspending the sale of UITFs. A senior monetary official said intervention was “an option” that, when it comes, could take the form of an open market operation (OMO) just like they do at the local currencies market. “We may do just that,” the official, requesting anonymity, said on Friday.

 

Private banking sources claimed the Bureau of Treasury had intervened on Friday, gobbling up what the market “foolishly” let go in their panic that their investments no longer yielded returns reaching as high as 21 percent only recently. National Treasurer Omar Cruz declined to comment on the matter.

 

OMO, as regulators refer to the term, essentially involves the buying or selling of government securities in this case and is one of several monetary tools at their disposal. “The BSP does not buck the market but we are sensitive to volatility,” the official said, frustrated that a well-designed product as the UITF still falls victim to stress arising from the shortsightedness of some quarters.

 

There had been calls for the BSP to take the drastic step of suspending the sale of UITFs, but the policy-making monetary board rejected the proposal. According to one official who requested anonymity, the UITF bond market is at its core a market for government securities whose main driver is the movement of interest rates. “Therefore, pricing is a function of volatility,” he noted.

 

UITFs sold like proverbial hotcakes in recent months on account of the heightening confidence in the fiscal sector and its ability to balance the budget over the near term. Bond prices went up as interest rates retreated until more recent data, particularly from the large US markets, indicated that the long party may soon be over. Indications the US Federal Open Market Committee may raise interest rates to curb inflation sparked apprehension the BSP’s seven-man monetary board may also hike its own interest rate structure. “What should have been an orderly retreat from the market became a snap-back in which UITF rates fell sharply as panicky investors sold their holdings.

 

“The selldown, which came all at the same time, caused the rates to fall even lower,” officials said. Private bank officials said now should be the time to buy what the market is selling at fire sale prices. “The market’s fundamentals have been saying prices were to fall, and so it’s a good idea to buy them now when UITF investors are being irrational. “It would have been sensible for them to hold on to their investments, to just sit tight and look at the rates again when things have quieted down,” the officials said.

 

Banco de Oro Commercial Bank owned up on Friday to having been affected by panic-driven withdrawals at its P65-billion unit investment trust fund. But its president, Nestor Tan, said the worst is over for the industry that at one point gave out yields as high as 21 percent. “We have been affected by the mass selldown but I believe the situation is now under control. There is no reason to be concerned [for] your principal,” the bank executive said Friday to assure those who still have money in UITFs.

 

Unlike regular bank deposits, UITF investments do not enjoy coverage from the Philippine Deposit Insurance Corp. and in theory at least, one could lose one’s principal investments just as much as one could enjoy returns as high as 21 percent the business gave as recently as three weeks ago. “Past performance is never an assurance of future returns,” Joey Bermudez, president of China Trust Bank, warned UITF investors weeks ago. BDO’s Tan said their UITF business accounts for roughly half the bank’s total trust fund assets of P130 billion. “There were [significant] losses in net asset value [per share] for the people who left early,” Tan noted.

 

This pertains to the unit value of one’s UITF holdings at the time so called participation units were sold at panic prices two weeks ago, compared to their value at the time the original investment was made.

 

TRUST INDUSTRY TAKES ON MARKET CHALLENGES

 

By Gerard S. Dela Pena

Business World, Wednesday May 31, 2006

 

The ecnomic turnaround in the first quarter of the year has raised hopes among investors that investment channels such as trust products would provide better yields. With the economy exhibiting a better performing stock and foreign exchange, as well as a stronger domestic liquidity, it seemed like there was no other way for the trust industry to go but up.

 

Despite recent events that hurt the unit investment trust fund (UITF) business, industry players are still optimistic that the termporary aberrations in the world market can make investing in times of crisis an opportunity to reap future gains.

 

Steep Climb, Sharp Drop

The continued interest rate hikes in the United States have become a major challenge for the local UITF business. Amidst the downtrend of itnerest rates in the Philippines which bottomed out in April due to a "better-than-expected" budget gap, the local economy was not spared from the effects of the uptrend in the U.S.

 

For the past three years, the US has experienced 16 interest rate hikes due to inflationary concerns and tightened spending, creating a negative impact on the world market.

 

As expected, this steep climb of interest rates pulled down the prices of bonds and net asset values per unit (NAVPUs) of UITFs. With this, financial experts predict possible losses of 10% to 15% of principal investments in such funds.

 

Worried over the possible losses, a lot of investors pulled out their investments, making the market all the more volatile as fund managers were forced to sell of their holdings to fund withdrawals, Trust Officers Association of the Philippines (TOAP) President Ma. Lourdes T. de Vera said.

 

"It's the first time in UITF history that there was a reversal of trend (drastic drop and interest rate hike). That's the reason why people got nervous. I hope people will eventually get used to the fact that there are risks associated to the product," she said.

 

However, Ms. de Vera made it clear that an investor may minimize or regain his losses if he were to widen his investment time horizon.

 

"The key to investing is time. The longer you are investing, generally, the better your yields," Ms. de Vera said. "This (massive withdrawal) will eventually simmer down and people will realize that they should be long-term investors so that they may earn their projected gains. If you're a long-term investor, you should be risk-tolerant. You should not be alarmed if the value of your fund is going down. That is only a temporary event."

 

TOAP is planning to impose safety nets on the offerings of member institutions wherein fines will be incurred should the investor redeem his investments before the minimum holding period of a particular fund.

 

The preferred minimum holding period is six months for money market funds and one to three years for bond funds, Ms. de Vera said.

 

Growing Pains

The projected losses in principal investments in UITFs, however, are not an indication that the entrie trust industry is weakening.

 

According to September 2005 date of TOAP, other trust outlets such as employee benefit plans, personal trust, investment management accounts, and pre-need plans post yearly growth of 10.82%, 24.42%, 33.84% and 2.82%, respectively, as compared to end-2004 figures.

 

Ms. de Vera added that not all trust products are affected by market volatility, as these pertain to traditional trust arrangements.

 

And despite the crunch in the world market and its recent introduction, the UITF has posted significant gains, hitting P122.9 Billion by end-2005 compared to P26.4 Billion when it was introduced in June last year. The size of the UITF buisness is pegged at P230 Billion as of March this year.

 

"(UITF) is a new product; there are growing pains, I think, no, the customers as well as the banks know better what the important things to consider are," Ms. de Vera said,

 

Best Practices, Global Standards

But as far as UITFs are concerned, the trust industry cannot simply wait for the volatility in the market to calm down before making the right move to improve the industry.

 

One way to realize this is to create a set of uniform standards across the industry. As of the moment, TOAP has already adopted standards such as having absolute instead of annualized basis in giving quotations, and providing disclosure of detailed information to clients such as name of the fund and institution, investment portfolio, currency, fund classification, returns, minimum term, and risks, among many others.

 

"It took four years to put up BSP Circular 447 which governs the UITF because it has to be of global standard," Ms. de Vera said.

 

In addition, she mentioned a number of practices that can be adopted by trust entities to improve the business.

 

She said that keeping abreast of technology will enable one to be updated on the movements in the world market, allowing a trust entity to act accordingly.

 

She added that keeping tabs on regulations may enable a trust institution to see how it can improve its business and operations in accordance with the new rules imposed by the government.

 

Opportunities

While the industry still has to wait for the volatility in the market to calm down and see the business pick up again, Ms. de Vera said that such challenging times may provide opportunities for investors.

 

"Things do not permanently go up. They have to come down at some time. As of now NAVPUs are down and interest rates are high, so its's practically a good time to get in. I hope the real investors realize that opportunity. The industry will surely come off better after all these events, after all the dust have settled," she said.

Edited April 10, 2007 by Dr_PepPeR

[RealEstateMan]

I have been reading this thread recently. Currently I am involved in Real Estate Industry for the past two years now and would to venture on other money making schemes other than Real Estate. I am also interested in investing for my future and the problem is that I am afraid to invest in our own Stock Exchange because of the corrupt practices in the past years although the stock are performing in an uptempo mood however I am still a skeptical about this like what happened when Chinese stock go down.

 

But anyways, would like to know more on UITFs which I have been reading in the Entrepreneur Magazine Philippines and also was discussed but not to the extent on Francisco Colayco's book like Pera mo, Palaguin mo or Robert Kiyosaki's Rich Dad, Poor Dad.

Edited April 10, 2007 by RealEstateMan

[dan225]

hello everyone!

 

It's interesting to find this thread in MTC. Anyway, I am an Investment professional in one of the reputable trust institutions and a Finance professor in one of the top universities here in the country. I suggest that we get to organize something similar to Entrepreneur's "Networking Night" where people interested in investing can get together and learn more about investing and managing their personal finances.

 

What do you guys think? Those willing to participate in organizing please express your intentions through this thread or perhaps open an new thread. I am volunteering my services by providing "CONTENT" for the seminar... this will include guest speakers.

[Dirty_Harry]

hello everyone!

 

It's interesting to find this thread in MTC. Anyway, I am an Investment professional in one of the reputable trust institutions and a Finance professor in one of the top universities here in the country. I suggest that we get to organize something similar to Entrepreneur's "Networking Night" where people interested in investing can get together and learn more about investing and managing their personal finances.

 

What do you guys think? Those willing to participate in organizing please express your intentions through this thread or perhaps open an new thread. I am volunteering my services by providing "CONTENT" for the seminar... this will include guest speakers.

 

 

It's an excellent idea but still we need more MTC members to be involved in this. I am keeping my entreprenuerial spirit at high and hope that other young people like me would like to gain more knowledge this time. As i have said, I am on a Real Estate Industry and have been a professional licensed Real Estate Broker for the past years.

Edited April 10, 2007 by Dirty_Harry

[golfer697]

Dr. Pepper, I believe golfer697 mentioned Metrobank and BDO.

golfer697, I deal with several banks for their various UITFs including the banks you mentioned but I don't think it's possible to " guarantee" protection of principal in case market is really against the UITFs. If your bank returned your principal last year, even if the NAVPU was lower than the price you bought it at, Dr. Pepper is right in his observation that they guaranteed your principal, which is a no-no for UITFs. That is why I suggested that perhaps when you preterminated last year, the early redemption price was still higher than your original NAVPU, which is why you might have presumed that the penalty is on the income alone. :flowers:

 

I do hope you check with your bank again, sir, because the contact person you are talking to might have sold it incorrectly and that is a cause of concern. The only way UITFs can flourish in this country is if the banks concerned train their people well in selling the product correctly so that clients who buy the UITFs will understand the inherent risks involved but at the same time, will understand that they also have more to gain in the long run.

 

 

I think we have a misunderstanding here!! I believe what I said was that the banks penalizes me on the income, 50% of the income on pretermination, to be exact!! If there is no income on pretermination or if there was a loss then the banks don't charge me anything!! It'll be great if they would share 50% of the loss hehe! BUT I NEVER SAID ANYTHING ABOUT THE BANKS GUARANTEEING MY PRINCIPAL PLACEMENT!!! NOR PROTECTION OF PRINCIPAL!! THAT AS WE ALL KNOW IS NOT THE NORM IN UITFs!! NEITHER DID I SAY THAT THE BANKS RETURNED MY PRINCIPAL!!! What I said was that they multiplied the prevailing NAVPU for the day to my number of units and they didn't deduct anything else. Of course I lost a little cause the navpu went down. But there was no pretermination charge on the principal. I think there is a miscommunication here somewhere. I was reacting to a post regarding a PENALTY ON THE PRINCIPAL in case of pretermination. This I understand to be an ADDITIONAL PENALTY over & above your trading losses based on your navpu. If by PENALTY you meant the trading losses based on the navpu then those aren't penalties at all since if you made money & preterminated, then you lose half of your income over & above your principal. That would be a penalty. What I understood was aside from my trading losses in the navpu, they would charge me a penalty percentage on my principal. Which didn't happen at all. So far all the banks I've talked to give me the same explanation. And I do go in & out of the different UITFs with no problem at all. What do you mean by "dealing with several banks with their various uitfs"?

[golfer697]

Perhaps you can check with your bank again since I don't think it's possible to charge penalties on the "income" alone . The concept of UITFs is you buy a number of units at a certain price. After a certain period, you redeem it at the prevailing market price or NAVPU . Whatever is the difference of both prices is your "gain" or "loss". If you redeem it before the end of the holding period, the price they will normally use will be a bit lower than the NAVPU for the day. Using this lower price, you can see it you gained or lost in the transaction ( based on the original NAVPU you bought the UITF at).

 

Perhaps in your case when you redeemed early, the price set is still higher than the price you bought it at so you would presume the penalty is just on the " income" alone.

 

Please correct me, Dr. Pepper, if I may be wrong in my understanding....

 

>>>>> Perhaps you can check with your bank again since I don't think it's possible to charge penalties on the "income" alone . The concept of UITFs is you buy a number of units at a certain price. >>>> Correct...

 

>>>>> After a certain period, you redeem it at the prevailing market price or NAVPU . Whatever is the difference of both prices is your "gain" or "loss". >>>>> Correct...

 

>>>>> If you redeem it before the end of the holding period, the price they will normally use will be a bit lower than the NAVPU for the day. Using this lower price, you can see it you gained or lost in the transaction ( based on the original NAVPU you bought the UITF at). >>>>> WRONG. They used the same navpu for me as for everybody else. Checked it on the website.

 

>>>>> Perhaps in your case when you redeemed early, the price set is still higher than the price you bought it at so you would presume the penalty is just on the " income" alone. >>>>> No dearie, I actually lost money. But my # of units multiplied by the day's navpu was what I got. They didn't deduct anything else. No penalties. You mean other banks would still deduct something else or as you said use a lower navpu???

[golfer697]

So they gave you back the initial amount you placed with them? If that is true, and if the NAVPU when you preterminated was lower than when you came in, in effect they guaranteed your principal. As far as I know, that is a no-no for trust and UITFs in particular. I forget, which bank is this sir?

 

 

No Dr Pep. They gave me back my # of units multiplied by day's navpu >>>>> I preterminated and all they did was to give me back my placement based on the day's prevailing NAVPU since I preterminated at a loss!!

 

No additional penalties were charged aside from my loss based on the navpu. My loss is not considered a penalty or is it? >>>>> No penalties were charged since I lost!! Their penalty fee is 50% of income!! It would be horrendous to think that they will charge me 50% of my placement!!!

[Guest lene]

I think we have a misunderstanding here!! I believe what I said was that the banks penalizes me on the income, 50% of the income on pretermination, to be exact!! If there is no income on pretermination or if there was a loss then the banks don't charge me anything!! It'll be great if they would share 50% of the loss hehe! BUT I NEVER SAID ANYTHING ABOUT THE BANKS GUARANTEEING MY PRINCIPAL PLACEMENT!!! NOR PROTECTION OF PRINCIPAL!! THAT AS WE ALL KNOW IS NOT THE NORM IN UITFs!! NEITHER DID I SAY THAT THE BANKS RETURNED MY PRINCIPAL!!! What I said was that they multiplied the prevailing NAVPU for the day to my number of units and they didn't deduct anything else. Of course I lost a little cause the navpu went down. But there was no pretermination charge on the principal. I think there is a miscommunication here somewhere. I was reacting to a post regarding a PENALTY ON THE PRINCIPAL in case of pretermination. This I understand to be an ADDITIONAL PENALTY over & above your trading losses based on your navpu. If by PENALTY you meant the trading losses based on the navpu then those aren't penalties at all since if you made money & preterminated, then you lose half of your income over & above your principal. That would be a penalty. What I understood was aside from my trading losses in the navpu, they would charge me a penalty percentage on my principal. Which didn't happen at all. So far all the banks I've talked to give me the same explanation. And I do go in & out of the different UITFs with no problem at all. What do you mean by "dealing with several banks with their various uitfs"?

 

Sir, I think I see where you are coming from and I agree there might be some sort of misunderstanding here. I see the product from a certain point of view and you see the product from another point of view; the end result might still be the same. Maybe I just view the product simply so I can understand it more. For me, if I place a certain amount and after a certain period when I redeem, the amount I get is less than the amount I placed initially, then that's a loss for me. But that is just my way of viewing things I do hope, though, you don't take it personally and go ballistic on me. Natakot po ako sa all caps ninyo, sir golfer. Huwag na po kayo magalit :flowers: :flowers:

 

I do buy UITFs from several banks - some in equity, some in bond funds, some balanced. That's what I meant when I said I deal with several banks with various UITFs.

 

 

When I pulled out of a bond fund ( I believe sa BPI yun), I think the NAVPU used was lower by about .25% kasi within the holding period of 90 days. If in your case when you pulled out they still used the same NAVPU, then good for you.

 

Peace na po, sir :flowers: :flowers: :flowers:

[julz2006]

hello everyone!

 

It's interesting to find this thread in MTC. Anyway, I am an Investment professional in one of the reputable trust institutions and a Finance professor in one of the top universities here in the country. I suggest that we get to organize something similar to Entrepreneur's "Networking Night" where people interested in investing can get together and learn more about investing and managing their personal finances.

 

What do you guys think? Those willing to participate in organizing please express your intentions through this thread or perhaps open an new thread. I am volunteering my services by providing "CONTENT" for the seminar... this will include guest speakers.

 

 

..it's a wonderful idea!!..it may not amount to much but,I'm in,sir...

[Dr_PepPeR]

No Dr Pep. They gave me back my # of units multiplied by day's navpu >>>>> I preterminated and all they did was to give me back my placement based on the day's prevailing NAVPU since I preterminated at a loss!!

 

No additional penalties were charged aside from my loss based on the navpu. My loss is not considered a penalty or is it? >>>>> No penalties were charged since I lost!! Their penalty fee is 50% of income!! It would be horrendous to think that they will charge me 50% of my placement!!!

 

Thanks for the clarification. I also took a look at Metrobank's webpage and their pretermination penalty is indeed 50% of the income. I guess what happens is when you preterminate and the proceeds are higher than what you originally placed, the Bank will charge you half of the increment. This seems to be logical enough so that it would discourage the quick profit takers who just want to go in and out of the fund. If at the time you preterminate, the current NAVPU will give you equal or less than the proceeds you initially placed, then you absorb the loss and there is no penalty since you have no income. It just so happened that when you preterminated, the NAVPU for the day was not low enough to eat into your principal. But like lene said, there are UITFs that charge a fee and/or a percentage of the proceeds whichever is higher for pretermination.

[Dr_PepPeR]

Sir, I think I see where you are coming from and I agree there might be some sort of misunderstanding here. I see the product from a certain point of view and you see the product from another point of view; the end result might still be the same. Maybe I just view the product simply so I can understand it more. For me, if I place a certain amount and after a certain period when I redeem, the amount I get is less than the amount I placed initially, then that's a loss for me. But that is just my way of viewing things I do hope, though, you don't take it personally and go ballistic on me. Natakot po ako sa all caps ninyo, sir golfer. Huwag na po kayo magalit :flowers: :flowers:

 

I do buy UITFs from several banks - some in equity, some in bond funds, some balanced. That's what I meant when I said I deal with several banks with various UITFs.

When I pulled out of a bond fund ( I believe sa BPI yun), I think the NAVPU used was lower by about .25% kasi within the holding period of 90 days. If in your case when you pulled out they still used the same NAVPU, then good for you.

 

Peace na po, sir :flowers: :flowers: :flowers:

 

Just a slight misunderstanding of the terms here. I think we view all things the same way, we just have different ways of expressing it. It is so easy to see why UITFs can be misunderstood, it is really not that easy to grasp. I usually advise people who are rate shoppers and compute their earnings monthly not to go into UITFs until they are fully comfortable with the concept.

[golfer697]

Sir, I think I see where you are coming from and I agree there might be some sort of misunderstanding here. I see the product from a certain point of view and you see the product from another point of view; the end result might still be the same. Maybe I just view the product simply so I can understand it more. For me, if I place a certain amount and after a certain period when I redeem, the amount I get is less than the amount I placed initially, then that's a loss for me. But that is just my way of viewing things I do hope, though, you don't take it personally and go ballistic on me. Natakot po ako sa all caps ninyo, sir golfer. Huwag na po kayo magalit :flowers: :flowers:

 

I do buy UITFs from several banks - some in equity, some in bond funds, some balanced. That's what I meant when I said I deal with several banks with various UITFs.

When I pulled out of a bond fund ( I believe sa BPI yun), I think the NAVPU used was lower by about .25% kasi within the holding period of 90 days. If in your case when you pulled out they still used the same NAVPU, then good for you.

 

Peace na po, sir :flowers: :flowers: :flowers:

 

 

He he he dearie, that's just the way I type to make a point. Hindi po ako mad i was just worried that I might not have really understood my UITF contracts. But after I checked my figures they were right naman.

 

We view losses the same way dearie. If I get back less than I placed then its a loss. More so, if I earned less than time deposit rates when I redeem, then I consider it a loss too!!!

 

What I was worried about was the pretermination penalty on the principal!!! It's good that the 2 banks I deal with don't penalize this way. Thank you for the info on BPI. I never deal with them anyway since they don't push their UITFs & are not too friendly. The last time I inquired they were saying that UITFs are too risky & tried to shift the placement to time deposits which were giving far too low returns!!

 

Yes they used the same navpu & didn't charge me anything for pretermination!!! O baka naman matakot ka pa dito sa mga exclamation points ko ha??? Hehehe. Peace too.

[golfer697]

Thanks for the clarification. I also took a look at Metrobank's webpage and their pretermination penalty is indeed 50% of the income. I guess what happens is when you preterminate and the proceeds are higher than what you originally placed, the Bank will charge you half of the increment. This seems to be logical enough so that it would discourage the quick profit takers who just want to go in and out of the fund. If at the time you preterminate, the current NAVPU will give you equal or less than the proceeds you initially placed, then you absorb the loss and there is no penalty since you have no income. It just so happened that when you preterminated, the NAVPU for the day was not low enough to eat into your principal. But like lene said, there are UITFs that charge a fee and/or a percentage of the proceeds whichever is higher for pretermination.

 

 

It did affect my principal. Lost a little but its good they didn't charge me any pretermination penalty since there was no income. Peace & Thanks!!!