For this installment of the 2016 Outlook, it is both an honor and a privilege to present the views of one of the most respected fund managers of the country. 

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The 2016 Outlook of Marvin Fausto

2015 was quite a challenging year for the investing public given the volatilities of the markets both for the bonds and equities. In fact, the best asset class that performed last year was deposit or money market funds since the market values of bond funds and equity funds were down as of year-end compared to the start of the year. Returns of these investments were negative on average. Many economists and analysts point to figures that trended below expectations. GDP growth for one is turning out to end 2015 near the 6% level, a full notch below Government’s forecasts of above 7%. Interest rates increased much faster that affected bond returns while earnings of stock exchange listed companies went through a series of downgrades throughout the year giving disappointing growth rates that caused much stock market selling towards the latter part of the year.

I mentioned in my report to Randell’s column last year that investments will be data dependent and that should numbers disappoint, such as the country’s GDP growth, investors will move accordingly.

“…the premium that investors give to the Philippines may be given a second look and will be adjusted accordingly”.

For the stock market, my view on investment strategy was more of a trading opportunity.

“With valuations remaining above historical levels and as trading volumes decline, stock market traders should remain selective and increase positions during market downturns and reduce holdings during market rallies”.

2016 will be a continuation, in my view. As the great unwind unfolds – that is, when the largest economy as the USA reverse the 7-year-long liquidity push stemming from near zero interest rates to spur economic activity – markets will react accordingly. The asset price excesses brought about by investors’ search for higher yields outside of the US is now reversing back home as the US dollar strengthens and the rest of the world, including China, currencies weaken. As we go through this period of reversal, higher than historical volatility is to be expected. Human behavior, particularly of those that have only experienced a bull market (or investors only since 2009), may undergo a long drawn phase of anger and denial until the point of indifference. For the Philippines, the added uncertainties brought about by election results and the potential weakening of OFW remittances will not help stabilize confidence. Even as the economy is expected to remain resilient at above the 6% GDP growth rate, confidence on the bond market as well as the stock market will remain cautious.

At this point, investors are well advised to take a step back and not lose sight of why they are investing in the first place. Investing should first and foremost be for a purpose, for a reason, and for a need. Markets go up and down. That is how it works. Match goals with risk appetite and horizon, implement your strategy, and let the markets run its course.

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Marvin V. Fausto is President of the IFE Financial Advisers, Inc.. He was the former 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 P700 Billion under the BDO Trust Banking Group. He recently took his early retirement having worked for over 30 years in the fund management industry and is now embarking on a new venture as a consultant to COL Financial to launch the first fund supermarket in the country making funds available online and easily accessible to everyone.

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 Board adviser of the Fund Managers Association of the Philippines. He is also a member of the Board of Advisers of the CFA Society of the Phils.

The Philippine Stock Market took a heavy beating yesterday, August 24, 2015 due to external factors. The fundamentals of the Philippine market has not changed but the bearish sentiments since March has made many investors jittery, to say the least. Last Friday’s major decline in the U.S. markets had a domino effect in the whole world, coupled by issues in China.

The result? The Philippine Stock Exchange Index (PSEi) drops by 487.97 points or a retraction of 6.70% to 6,791.01 in just one day.

I recently started a MoneyTalks Viber group and quite a number of people have been active in that group because of the stock market decline. It’s nice to see that there are a lot of people who are learning much from the interactions with the experts and with each other. If you want to be part of this very active group, send your Viber number to my assistant, [email protected]

While I will never downplay what has happened yesterday, I wish to remind many that the stock market is the way it was because that is it’s nature. It is said that the stock market can be overly optimistic or severely pessimistic and the later was what has been prevailing lately and especially yesterday. The stock market cannot defy gravity – what goes up most ultimately come down… but what goes down will also go up eventually. Despite the fears, I still believe that the stock market is a great way to grow your money but you must understand that it pays to think long-term when it comes to this kind of investing. This hold true whether you are buying individual stocks or investing through equity pooled funds (Mutual fund, UITF, VUL).

If you look at the how the stock market has behaved in one month, it really will scare you.

However, if you view the stock market from a long-term perspective, you will see a different picture.

I have asked my stock market expert friends of their advise to investors with regard to what’s happening in the market recently. You will find their advices insightful, helpful although they can have conflicting opinions.

“Today wasn’t a mere correction, it was more like major psychological and technical breakdown by the market. We advise investors not to catch a falling knife and to allow the market to signal an intermediate bottom first. Looking at the peso-dollar rate vs. this 7% one-day historical drop by the PSEi, we are not convinced that this is a structural exit away from PHL assets. Most likely we just had to adjust to regional peers which have come down much against us but had more modest corrections today.” – Tony Herbosa, Chairman of Philstocks and founder of Traders Apprentice Pilipinas (TAP)

Investors should understand that markets do not go up on a straight line and market declines happen. But it is during these drops when better opportunities are presented. For as long as you do not lose sight of the big picture of why you invest, there is nothing to worry about and continue with your investing journey to be financial free. Investing during these times is not just for the brave– it is for everyone. – Marvin Fausto, President of IFE Management Advisers Inc. & former Chief Investment Officer of BDO Universal Bank

While the severe drop in global stocks show critical issues and concerns on valuation, it is the pervasive negative sentiment that makes things worse. Times like these represent opportunities to take positions in companies that present good value, more so given the lower prices. The important thing to consider is one’s investment horizon, and staying power is key amidst the volatility. – Rex Mendoza, President of Rampver Financials and former CEO of Philamlife

Everyone should treat this market situation as like a major earthquake happening. A strong earthquake will have repercussions that take time. Those who are inside should not insist on going out in panic. Those outside should not go in. There will be aftershocks. Those inside should treat their stocks for the long term. Let the dusts settle before making any decision. –Dr. Alvin Ang, PhD, economist of Ateneo de Manila

The drop is an effect of price movement due to what’s happening globally. If you look at it, the rest of Asia and most of the developed world is down. When you look at the fundamentals of our country I don’t think locally there’s anything compelling that should be a cause of alarm. However, given that we are trading and investing in stocks. There’s such a thing as expensive and a bear market. Our fundamentals are good but we are still expensive which would cause buyers to want to wait out until we become cheaper. Our fundamentals are good but we have been in a downtrend since April and will continue to do so until proven otherwise. My suggestion is for each investor to follow their buy/sell plan. It would be great though if they could wait to see until selling subsides and forms a support before they buy. It’s great to buy cheaper but not when everyone else is selling. – Marvin Germo, stock market investing advocate and best-selling author.

Always invest according to your investment objective, time frame and they must be consistent with your risk tolerance. The stock market is not for the faint of heart but we should also not be afraid of stock investing. Learn as much as you can about stock investing and always invest according to the 3 factors I mentioned and don’t forget to diversify and you should be fine.

Kicking off this 2015 Outlook series is the views of one the country’s most respected investment expert, Marvin V. Fausto. Mr. Fausto was formerly the Chief Investment Officer of the Philippine’s largest bank and also the largest funds. His decades long experience in fund management makes his investment views sought after. He and his wife Rose Fres Fausto has also embarked an advocacy with financial education for families.

The 2015 Outlook of Marvin V. Fausto

2014 turned out to be quite within people’s expectations with the general trend of the economy growing above historical averages and the financial instruments behaving towards the path most analysts expect. GDP growth should end above 6%, interest rates inched up while the stock market did not disappoint exceeding expectations with the PSEi increasing by more than 22%.

2015 however may bring in mixed expectations. Despite general positive long term outlook both in the domestic and the now growing positive sentiment in the global environment, the bottlenecks in stimulus spending experienced by government towards the latter part of 2014 and the coming Philippine elections in 2016 may keep investors’ on the sidelines waiting for how the economic variables pan out before deploying the increasing liquidity in peoples bank accounts.

Investment deployment will be data dependent and market sensitive. Should the economy falter and bring in below average GDP growth, the premium that investors give to the Philippines may be given a second look and will be adjusted accordingly.

On the other hand, the extent of the effects of the decline in oil prices in commodity raw material inputs that may keep inflation within the BSP’s expectations could leave interest rates steady despite the increasing expectations of higher US interest rates.

Domestic bond investors therefore may have better opportunities this year than during the last with government and corporate bond prices moving within a range given the favorable benign inflation expectations. The stock market, on the other hand, will present investment opportunities both for trading and long-term investing. With valuations remaining above historical levels and as trading volumes decline, stock market traders should remain selective and increase positions during market downturns and reduce holdings during market rallies. Long-term investors may well deploy heavier on declines and buy consistently and regularly using the cost averaging method as the stock market rise.

2015 should present opportunities with investors cognizant of the events that unfold. As we enter the demographic sweet spot this year that many are anticipating to be the start of a long period of above average growth for the Philippines, people should deploy their cash wisely and invest prudently. With information available faster through the internet, people should continue doing their research and reserve some attention to set aside funds more specifically with targeted objectives for emergencies, for future financial goals, and even for retirement. Apportion tactical positions for each goal matching risk appetite with investment instruments horizon.

Let 2015 be the year goals are set and wisely implemented. Happy investing!

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Marvin V. Fausto is the former 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 P700 Billion under the BDO Trust Banking Group. He recently took his early retirement having worked for over 30 years in the fund management industry and is now embarking on a new venture as a consultant to COL Financial to launch the first fund supermarket in the country making funds available online and easily accessible to everyone.

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 Board adviser of the Fund Managers Association of the Philippines. He is also a member of the Board of Advisers of the CFA Society of the Phils.