These mutual funds are members of the Investment Company Association of the Philippines (ICAP) which was organised in 1995 for the purposes of increasing public awareness in the Philippines about mutual funds as an investment alternative; helping develop further the domestic capital market; establishing a more efficient and effective vehicle for funds mobilisation and utilisation; and upholding the highest levels of ethical conduct among its member funds.
Of the 22 funds, ten (10) are balanced funds, of which one is denominated in dollars; six (6) are bond funds, of which two are denominated in dollars; four (4) are equity funds; one (1) is a money market fund; and one (1) is an index fund.
The six bond funds comprised the bulk, or 92.6%, of the Philippine mutual fund industry as of June 30, 2003, an indication of the investing public's conservative nature and preference for steady returns. On the other hand, the ten balanced funds comprised a much smaller 4.16% of the industry while the four equity funds and one index fund comprised an even smaller 3.23%.
The weak appetite of Philippine investors for equity funds or balanced funds, for that matter, is partly explained by the performance of the Philippine Stock Exchange Composite Index (or "PHISIX"). The PHISIX grew only modestly by 5.75%, from 1,156.35 as of June 30, 2002 to 1,222.80 as of June 30, 2003, not enough, given the risks of stock market investing, to attract the equity investors.
A growing sector in the industry consists of $-denominated funds. As of June 30, 2003, there were three (3) such funds with total assets in the amount of $ 137.82 Mn., compared to only two (2) funds the previous year with total assets in the amount of $ 16.85 Mn., representing an astounding 718% growth rate. This phenomenon may be attributable to the increasing penchant of Philippine investors to hedge their investments due mainly to the threat of continuing depreciation of the local currency versus the U.S. dollar.
The Philippine mutual fund industry looks bright and continues to grow, reaching a new high of $ 663.62 Mn. as of July 31, 2003, an increase of 4.08% over the previous month.
STATISTICAL SITUATION AND TRENDS
1. Stock Funds
There were twenty-two (22) mutual fund members in the Investment Company Association of the Philippines (ICAP) as of June 30, 2003, of which four (4) were stock funds with total assets in the amount of $ 14.95 Million, accounting for 2.34% of the industry. This represents a decline of 43.3% compared to the six (6) stock funds with total assets in the amount of $ 26.39 Mn. as of June 30, 2002.
During the year, one stock fund converted to a balanced fund and another converted to an index fund. Excluding these two funds, the stock funds sector declined by 4.1% during the year.
2. Bond Funds
Bond funds are the most popular type of fund in the Philippines, accounting for an overwhelming 92.6% of the industry. There were six (6) bond funds as of June 30, 2003 with total assets in the amount of $ 590.5 Million, representing an impressive growth rate of 91.7% compared to $ 308.0 Mn. as of June 30, 2002 with also six (6) bond funds. This growth rate is reflective of Philippine investors' conservative nature and preference for steady returns.
3. Money Market Funds
Money market funds are still in the infancy stage in the Philippines. There is only one (1) money market fund with an insignificant $ 40K in total assets as of June 30, 2003. The underdevelopment of this sector is, perhaps, due to the liquidity feature of the bond funds which allow investors relative ease in redeeming their shareholdings.
4. Balanced Funds
In terms of number, the balanced funds category has the most, with ten (10) funds as of June 30, 2003 comprising 4.16% of the mutual fund industry. The balanced funds' total assets stood at $ 26.52 Million, compared to $ 29.27 Mn. as of June 30, 2002 with eight (8) funds. During the year, one stock fund converted to a balanced fund and one newly-registered balanced fund was offered to the public.
5. Index Funds
During the year, one stock fund converted to an index fund, the only one of its kind in the industry. This fund invests exclusively in issues comprising the Philippine Stock Exchange Composite Index (or "PHISIX") with approximately the same weightings. Its total assets stood at $ 5.63 Mn. as of June 30, 2003, representing a miniscule 0.88% of the mutual fund industry.
INTERNATIONAL INVESTMENT FUNDS: International investment funds are required to be registered with the Securities and Exchange Commission (S.E.C.) of the Philippines if they will be sold or offered for sale to the public within the Philippines. At present, there are no such funds registered with the Philippine S.E.C.
===================================================
June 30, 2002 June 30, 2003 Growth
===================================================
PhP Funds $ 347.40 Mn $ 499.77 Mn 43.9%
$ Funds $ 16.85 Mn $ 137.82 Mn 717.9%
Total $ 364.25 Mn $ 637.59 Mn 75.0%
===================================================
LEGAL AND REGULATORY DEVELOPMENTS
1. Regulatory News Concerning Investment Funds
There is a pending bill in the Philippine Congress, the Revised Investment Company Act (or "RICA") which augers well for the industry. RICA has been thoroughly deliberated upon and is an amendment and improvement of the decades-old Investment Company Act of 1960. Aside from ensuring a fair, orderly and efficient capital market, the RICA seeks to protect investors and provide the private and public sectors access to funds that are vital to the development of the country's economy. The bill seeks to ascertain that mutual funds will continue to play a vital role in the Philippines' economic growth and development in the foreseeable future.
The Philippine S.E.C. is also in the midst of proposing amendments to the Implementing Rules and Regulations of the Securities Regulation Code of 2000. The amendments seek to broaden the coverage and regulatory powers of the S.E.C. in pursuit of the state policy to "establish a socially conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratisation of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, and minimise if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market."
2. New Tax Regulations
Under the Tax Reform Act of 1997 (Republic Act No. 8424), gains from the sale of mutual fund shares are tax-exempt to the registered holder thereof.
CROSS BORDER DISTRIBUTION: At present, none of the twenty-two (22) mutual funds under the umbrella of the Investment Company Association of the Philippines (ICAP) are registered in jurisdictions outside the Philippines. In like manner, no international mutual funds are currently registered with the Philippine S.E.C.
OUTLOOK: The prospects for the Philippine mutual fund industry remain bright, especially with the current rebound in both the Philippine and global capital markets. The passage of the Tax Reform Act of 1997 as well as updated and timely regulations in the form of the forthcoming Revised Investment Company Act and amendments to the Implementing Rules and Regulations of the Securities Regulation Code auger well for the industry as they seek to ensure more investor protection in a fair, orderly and efficient capital market.
Note: Exchange rates of Philippine Pesos (PhP) to $1.00 used in this report are:
=========================================
Depreciation
June 30, 2002: PhP 50.541
June 30, 2003: PhP 53.522 5.90%
June 31, 2003: PhP 54.734 2.26%
=========================================
-Courtesy: MUFAP