To start the 2014 outlook series, it is both an honor and a privilege to be featuring the views of the Chief Investment Officer of the country’s largest bank, BDO – Marvin V. Fausto. Marvin is one of the most respected and most admired fund managers of the country and he also steers perhaps the largest investment funds in the Philippines. A marathon runner, husband to Rose Fausto (also a finance advocate) and father of the now famous Fausto Boys, the often featured young investors.

The 2014 Outlook of Marvin V. Fausto

2014 will be mixed given the developments we have seen in 2013. While the macro fundamentals of the economy continue to perform above historic trends, our financial markets have priced in much of the gains and may just undergo a period of consolidation with a downward bias this year. Interest rates are expected to pick up and thus may affect bond prices while the stock market continues to trade at a premium versus other markets and thus may just trade within a narrow range for most part of the year. These expectations, however, can change should external markets react differently given the winding down of the quantitative easing from the US.

More importantly however, the macro positives have yet to be felt in a more meaningful way by majority of the Filipino population. Poverty figures remain elevated having more than one fourth of our population considered poor with unemployment relatively high. Even with the employed and those with sufficient source of living, they continue to grind just to live by and survive, as they have done in the past. The challenge then is to break that vicious cycle and uplift the general public to a higher level in achieving the prosperity that all Filipinos deserve.  After all, the only way the country can be prosperous is for each and every Filipino to be prosperous. With the low interest rates expected to be prevalent for some time, my view is for more and more Filipinos becoming aware of the investment instruments available to them and eventually participate in a more meaningful way to lift their financial well being over the long term.

So as we move to the new year in 2014, there is much hope that things will improve for the better. The economic growth is projected to remain at above trend of 6-7% with inflation be within controllable levels. Government has generated sufficient funds to stimulate growth through infrastructure spending and government consumption that are expected to pump prime economic activity. This is coming at a time when theorists believe will happen at a most ideal time to prepare the country to stimulate improving demographics where majority of the Filipinos will reach their most productive age when more than 65% will reach ages from 15 to 65 years old that is projected to start in 2015 and will run in the next 20 to 30 years.. These were levels when other countries as well reached their most productive growth cycle in their economic history such as Japan, Malaysia, China, and Indonesia.

This year should therefore be the time to seriously plan for the future by investing in ourselves and in financial instruments that will greatly benefit them in the future. Even with challenging market views, opportunities abound and will reward those disciplined enough to participate.

Marvin V. Fausto is the Senior Vice President and Chief Investment Officer of the country’s largest bank, BDO Universal Bank and in charge of the Investments unit managing over P600 Billion under the BDO Trust Banking Group.

Prior to this, he held the position as head of the Trust Banking Group of Equitable PCI Bank from 2002 to 2007 primarily responsible for its overall business and operations. He also held the position of Vice President and Investments Head at Citytrust Banking Corporation. He started his career as an analyst at the former Far East Bank & Trust Co.

After having served as President and director, Mr. Fausto is currently a Board Adviser to the Trust Officers Association of the Philippines, the umbrella organization of the Trust Industry. He was also the Founding President and current Director of the Fund Managers Association of the Philippines.

The year is almost over and this has been a whirlwind of a year for the Philippine Stock Markets. The start of the year saw a tremendous surge of the market pushing the Philippine Stock Index beyond the 7000 mark. Towards the middle of the year, massive correction and decline was seen as foreign funds took profits but our market seems to be more resilient than ever. Some recovery was seen pushing the market up again and refusing to enter a bearish market. Our market has yet to go back to the 7000 mark but many analysts are confident we will be back to those levels sooner than later, perhaps early next year?

For those who invested in equity pooled funds like mutual funds or Unit Investment Trust Funds (UITF), it is good to know that there continues to be good returns although not as substantial as 2012. I have collated the 1 year returns of the top 8 equity funds, both mutual funds and UITFs. On the mutual funds side, the 2 index funds rose to be the top performers for the 1 year period lead by the Philippine Stock Index Fund and the Philequity PSE Index Fund. Customarily, managed funds outperforms the index, but that’s not the case for this 1 year period. On the other hand, some UITFs performed better than the index funds and 5 of those UITFs registered above 20% returns for 1 year led by Union Bank, Metro Bank and BDO and BPI. The UITF equity funds seems to be performing better than their mutual fund counterparts for the 1 year period.

Let me repost what I earlier said in an earlier post: “I need to caution readers, however, that returns are not the sole factor if selecting a fund. Aside from fees, it will be good to check on how volatile the funds are, experience of the fund manager and size of fund. Bigger funds are usually less volatile but may not have the best performance. Further, equity funds that are more diversified and having more variety in the fund is generally less risky.”

Mutual Funds are available through Mutual Funds Companies and are regulated by the SEC. UITFs are available through banks and are regulated by the BSP.

The equity market has been declining and virtually wiping out gains for the year. The argument by many is index funds perform better than manage funds but it seems that argument does not hold true for the Philippine situation.

Despite the massive decline of the market, 6 out of the top 10 equity UITFs was still able to post beyond 5% growth in their year-to-date performances, as of August 27, 2013.

The following are the year-t0-date results of the the top 10 Equity UITFs: