Mutual fund values slump amid crisis

By Daxim Lucas
Philippine Daily Inquirer
First Posted 01:01:00 10/22/2008


Philippine mutual funds have been pummeled by the global financial crisis, with those of Philam Asset Management Inc. and the Government Service Insurance System (GSIS) among the hardest hit, according to an industry report.

The latest report of the Investment Company Association of the Philippines (ICAP), which tracks the performance of 40 mutual funds operating in the financial system, said the worst performer in the balanced fund category as of Oct. 20 was Philam Fund Inc., which lost 30.63 percent of its value since the start of the year.

This was followed by GSIS Mutual Fund Inc., whose value has declined by 29.66 percent for 2008, the report said.

A balanced fund starts as a pool of cash that clients entrust to fund managers to invest equally between stocks and bonds. Ideally, the nature of balanced funds protects them against sharp declines in either kind of securities.

GSIS Mutual Fund is managed by Philam fund managers according to parameters set by the GSIS, the state-run pension fund for government employees.

On a year-on-year basis, the performance of the Philam Fund and GSIS Mutual Fund are even worse, showing declines of 33.58 percent and 32.88 percent, respectively.

According to the ICAP data, however, mutual funds invested purely in the stock market showed poorer returns in both year-to-date and year-on-year performance reviews, mainly because stocks have taken the brunt of the global market meltdown.

The worst performer in this category is Philippine Stock Index Fund Corp., whose holdings follow closely the performance of the stock market. The ICAP data showed that it was down 43.03 percent since the start of the year and 45.98 percent from a year earlier.

This was followed by another Philam product—Philam Strategic Growth Fund Inc.—which has dropped 35.55 percent since the start of the year, and a total of 39.04 percent from a year earlier.

In general, funds invested in bonds, either peso- or dollar-denominated, performed better, either breaking even or showing only slight declines during the period.

The notable exceptions were Philam Dollar Bond Fund Inc., whose value dropped 10.79 percent since the start of the year, and Grepalife Dollar Bond Fund Corp., which registered a 12.33-percent decline in value.

A mutual fund official who spoke on condition of anonymity said the weak performance of mutual funds could often be aggravated by large client redemption, which forces fund managers to sell their holdings in bonds and stocks.

These “selldowns” to satisfy cash redemption further drive down the prices of remaining assets held by the funds, which in turn, results in a lower net asset value reported to the ICAP. With editing by INQUIRER.net