THE market for unit investment trust funds (UITF), representing the pooling of retail investments seeking to earn money from government- and privately-= issued securities, was significantly larger than originally reported, at some P300 billion at end-April from its end-March level of just P230 billion.
But banking sources said the massive selldown was far less in magnitude than bank runs in the recent past when entire institutions keeled over.
For prospective investors, Bangko Sentral Gov. Amando Tetangco Jr. said the smart ones “carefully read the [investment] contract” before putting their money.
“Please study the contract carefully before signing,” Tetangco said over lunch with the chairmen of the joint House and Senate Committee on Economic Affairs, which he hosted at the central bank office.
He said the mass selldown was a consequence of global developments in which investments shifted from emerging markets like the Philippines, to more developed economies, particularly the United States.
Lakas Rep. Joey Salceda of Albay, chairman of the House economic affairs committee and who also advises President Arroyo on economic matters, noted that the UITF investors got so used to initially very high returns on investment they panicked when the rates moved down.
“Nasanay lang silang umakyat [They were just so used only to climbing]” he said in Tagalog.
Salceda asked Tetangco to send a letter to President Arroyo explaining the UITF mess.
Reports that the US Federal Open Market Committee may continue to raise US policy rates instead of pausing for a while after the short-term US rate hit 5 percent fueled the shift.
“Now that US short-term funds are at 5 percent, people are no longer certain and so the shift to the US.
“People also shifted out of equities so the stock markets are also down,” Tetangco noted.
He said as equity and debt issues move down, so do UITF yields, as both are the main investment outlets of UITFs in the country.
There was a time when UITFs paid 21 percent or better, but they now pay only a fraction of that.
Some UITFs also allow participation for as little as P10,000, but apparently some investors were not told that loss of principal was a possibility.
“It [UITF investment] is not a deposit or a money market instrument. It can give you high returns but there is no protection for the principal.
“So if prices go down, this could impact on the principal,” Tetangco said.
But as a product, he stressed that UITFs are superior to common trust funds the industry had been forced to wind down.
Both are pooled investment schemes but UITFs differ in that a participant always knows the value of his investment as the pooled assets are marked daily.
Marking to market means losses or gains are determined daily, allowing participants always to know the net asset value per share at any given time, Tetangco said. J. Vallecera
http://www.businessmirror.com.ph/0601/front03.php
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