Monday, November 29, 2010

Answers for Thursdee, Part 1: First Metro Save and Learn Equity Fund


First Metro Save and Learn Equity Fund, Inc.(FMSLEQT:PM, red) outperforming BDO's Equity UITF (EPCIBEQ:PM, green) and the benchmark PSEi (PCOMP:IND, orange) in the last 12 months

Dear Investor Juan,

First and foremost, let me just say how very informative your blog is to those of us who can't understand investment language.

My family has accumulated modest savings this year which we initially intended to invest in a time deposit account and a balanced fund. I've been doing my research, but sadly, my math-averse brain can only take so much information. It's so difficult for me to understand the banking world's jargon. Thankfully, I came across your blog before my math-averse brain crashed. So now, we've decided to invest 50,000 pesos in an equity fund, most probably in BDO. I still have several questions to ask though.

[questions printed below]

I do hope you'd reply to my queries to save my overworked brain from further damage. Thanks again and may you be blessed for helping us who can't afford to pay financial advisors!


Dear Thursdee,

Thanks for the compliment. I live to serve. :)

Now, on to your questions.

1. Before reading your blog, I was actually "studying" the NAVPS performance table on the Investment Company Association of the Philippines (ICAP) website. I noticed that First Metro Asset Management, Inc.'s (FAMI) First Metro Save and Learn Equity Fund has the highest percentage returns among all the other funds. And also, the funds managed by banks are not listed there. Is it advisable to invest directly with FAMI than through a bank? How do I go about doing that?

FAMI's equity fund has indeed been significantly outperforming other mutual funds in its class, and actually even UITFs and the PSEi, in the past five years.

This kind of sustained "strong" performance is rare in the fund management industry, where success is attributed to luck, as several noteworthy studies in the US show. And while I would tend to agree to the idea that past performance matters little in choosing investment funds, I may have to make an exception with FAMI's equity fund: significantly outperforming the benchmark and other funds in the same class continuously for five years does point more towards skill than luck.

And don't think FAMI does not know that.

In discussing UITFs in previous posts, we often talked about management, trust, or custodian fees that could serve as one basis in choosing a fund. While mutual funds and UITFs are basically the same, one important difference is that the former charges sales load fees on top of the basic management fee, making mutual funds more expensive than UITFs. 

Take FAMI's equity fund as an example. It charges a front-end sales load of 0.5 to 2% of the invested amount, on top of a 1.75% per year management fee. Of course that extra fee may be well worth it if the fund can give you 50% higher returns, but as I always say, nothing in making investments is certain.

The funds listed on the ICAP website are all mutual funds, and you won't find any UITFs there. UITFs are offered by banks, and mutual funds by other financial institutions like insurance companies and bank affiliates, although some funds like the ALFM funds of Ayala Life can also be purchased from BPI. Also, while UITFs may only be purchased from the bank of your choice, you can buy mutual funds also through authorized agents or sales representatives.

If you're really interested in investing in FAMI's First Metro Save and Learn Equity Fund, you would have to accomplish some forms and follow these instructions from the company's website.

By the way, if you want to compare the performance of different funds with graphs (and without the math), just like I do here, you can go to and use the site's interactive chart. You can find the "Bloomberg ticker" of the fund using the search bar at the upper right corner of the page.

Part 2 for your other two questions in my next post.

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