Thursday, February 28, 2013

4 Things That You Need To Know about the "Special Expense" Item in BPI UITFs

In one of his recent comments, reader Ken has mentioned a "special" charge of 2,000 pesos per year for BPI UITFs. It was unclear what this expense was for, and how it was applied. To get some answers, I looked at some publicly-available documents and sought the help of BPI Asset Management (BPI AM) representatives. Here are what I found out.

1. The item "special expense" started appearing in BPI's monthly fund reports in December 2010 (after I published my comparisons here and here).

Screencap from BPI Equity UITF November 2010 Report
Screencap from BPI Equity UITF December 2010 Report

I checked the BPI Short Term, Premium Bond, and Balanced Funds and saw the same change in the December 2010 reports.

2. There is no such item in reports of other UITFs. I checked with RCBC, and they have confirmed this. And the latest report for BDO's equity UITF does not show this item.

Screencap from BDO Equity UITF January 2013 Report

Now before anyone panics or makes hasty conclusions, there are many possible reasons for this difference. It may be that by disclosing this expense, BPI AM just wants to be more transparent to its clients.

3. Just as the footnote says, the expense is for "publication" purposes. According to a BPI AM representative, the expense is for the publication of a BPI UITF's NAVPUs in relevant publications (such as Business Mirror). Based on this, it goes without saying that other UITFs that publish NAVPUs in periodicals should incur a comparable cost.

4. 2000 pesos is charged against a fund's net asset value or NAV (not to be confused with net asset value per unit) every year, not per account and not per investor. Based on BPI Equity UITF's latest NAV of around 3.75 billion pesos, the annual fixed expense of 2,000 pesos just amounts to 0.0000533% of the fund's value, so should not be a cause for concern for investors. Also, the expense (like all other non-sales expenses) is already reflected by the NAVPU at any given moment.

Personally, I think this "special expense" for publication is common with many other UITFs, and is really nothing new or something that we should be concerned about. How BPI AM decided to start disclosing it, how it is presented in BPI AM's reports, and how other UITFs don't disclose it, however, may cause some confusion and maybe even concern for potential investors of BPI UITFs. But regardless of whether other UITFs charge a comparable expense or not, at 2,000 pesos per year it is too small to make a difference in any fund comparison exercise.

Tuesday, February 26, 2013

Short Answers to Unanswered Questions: Revisiting Share Types and Converting from a USD to a Peso Short Term Investment


Dear Investor Juan,

I know that to be listed at the PSE there is a 10% float requirement. But for other share categories are there associated percentages required.

For example if you have an Authorized Shares (example only) 1,000,000 shares what percentage of that can you keep as Treasure Shares, For Outstanding Shares what percentage can be Restricted Shares,...and so on...

I hope my question is clear to you.


Dear Anna,

As far as I know, a firm can issue shares up to the number of authorized shares and can buy back publicly owned shares (resulting in treasury shares) up to what the minimum float requirement allows (since buying back publicly-held shares reduces the firm's float). The float percentage requirement also affects the proportion of restricted shares; in the case of the Philippines, it implies that the percentage of restricted shares relative to outstanding shares of a publicly-listed company cannot be more than 90%.


Dear Investor Juan,

Good day, I have Dollar Time Deposit in BDO. But then the % interest is not that good. (.3750%/mo.) minus the tax. I was thinking if I will move it to UITF Money Market. But since Money Market has an average yield of 3.26%/year, I really cant decide if I should continue to transfer it. Thank you very much.

Also, congratulations for making good blog about investments. This is a good sample of reference. God bless and more power. 


Dear Anonymous,

Given the higher peso interest rates and the expected further appreciation of the peso this year, I would choose investing in a peso money market fund over a USD time deposit account. That said, instead of moving your funds from the USD time deposit account to a peso money market account, you might also want to consider keeping the former and just investing in a peso money market fund in the future. Having investments in both currencies this way can protect you from future exchange rate fluctuations.

You also need to consider the currency in which you earn and consume since currency conversion entails significant costs.

Monday, February 25, 2013

Futurama Fry's Take on the Good Life

Got it from Reddit

(Three posts in four days... please indulge me this one time. Can't promise that it won't be the last, though.)

Friday, February 22, 2013

"Kasambahay Bill' Finally Signed Into Law

IN THE NEWS from Interaksyon

Participants and facilitators of CARD HK and Project Be's Financial Literacy Workshop for OFWs (Batch 9) 

President Benigno Aquino III has signed into law the "Kasambahay Bill," formally Republic Act No. 10361 or “An Act Instituting Policies for the Protection and Welfare of Domestic Workers.” The law defines the labor rights of domestic household workers, increases their minimum wage, and provides regular employment benefits for them.

The new law sets the minimum wage of domestic workers to a minimum of P2,500 a month in the National Capital Region; P2,000 a month in chartered cities and first class municipalities; and P1,500 a month for those employed in other municipalities. A year after the law takes effect, the Regional Tripartite Wages and Productivity Boards are mandated to review and adjust the wages for domestic workers as needed.

Besides standardized pay, domestic workers will be entitled to other social benefits provided under existing laws and to be enrolled in the Social Security System, PhilHealth, and Pag-Ibig Fund, with premium payments shouldered by employers if the helpers receive a monthly salary below P5,000.

You can download a pdf copy of the law here.

A brief commentary

Based on the 2,500 minimum wage defined by the law, SSS, PhilHealth, and Pag-Ibig contributions amount to 260, 100, and 100 pesos, respectively. This means that an employer would have to pay at least 2,960 pesos per month for one kasambahay. If you or your family employs a kasambahay, how much do you pay her? Because as far as I can remember, the informal, "socially acceptable" wage for domestic workers in the NCR has always been 3,000 pesos.

What I would have loved to see is for the law to define a mechanism by which the minimum wage can be periodically adjusted for changes in cost of living or inflation. But hey, beggars can't be choosers.

Tuesday, February 19, 2013

5 Kinds of Stock Shares Explained


Dear Investor Juan,

Can you help me on this, i had read a lot of docs but some have contradictory content, so im really confused.

Can you discuss these terms, Im sure a lot of readers would benefit on this.

Authorized Shares 
Outstanding Shares
Restricted Shares


Dear GTT,

This is how I understand these terms.

1. Authorized shares - the maximum number of shares that a corporation can issue (e.g., sell or assign ownership to an individual or entity) without needing further approval from the Securities and Exchange Commission (SEC).

At the corporation's inception, the founders must decide on the number of authorized shares (pretty much arbitrarily) and state it in the Articles of Incorporation.

If at any point the firm wants to issue more shares beyond its number of authorized shares, it can file a request for more authorized shares with the SEC.

2. Outstanding shares - shares that are actually owned by individuals or entities. Corporations don't have to issue all their authorized shares at once, so at any given time a firm would have more authorized shares than outstanding shares.

Sometimes you'll encounter the phrase "issued and outstanding," which pretty much just means "outstanding." The qualification is important only because it distinguishes such shares from those that are "issued and not outstanding," a phrase that refers to...

3. Treasury shares - shares that were bought back by the firm, so had been issued but not owned by anyone anymore.

4. Float - is the term used for shares owned by the investing public and are traded in stock exchanges. "Minimum public float" defines the minimum percentage of outstanding shares that must be listed in the stock exchange; in the Philippines, it's 10%.

5. Restricted shares - shares that are held privately, usually by firm founders and insiders. Restricted shares cannot be sold in the stock exchange without meeting certain predefined conditions. If these conditions are met and restricted stock holders decide to sell their shares to the public, then the sold shares become part of the float.

One good recent example are the restricted shares of Facebook insiders that were only allowed to be sold some months after the Facebook IPO.

In one source, I saw restricted shares defined as outstanding minus float, which makes sense, but I would not be surprised if someone can find a differing definition.

I have come up with this simple graphic to help visualize how these different kinds stock relate to each other.

I know that it's not so clear in the graphic, but FLOAT is the area within OUTSTANDING outside of RESTRICTED.

I hope this helps.

Sunday, February 17, 2013

"In the long run..."


From my friend's Facebook post

Dear Investor Juan,

I am so lucky to have stumbled upon your blog and its very informative especially for a newbie investor like me. I was so amazed with your excel presentation regarding the amounts you needed to earn once you decide to go back to workforce and have a family.. I myself just got married, albeit no child yet.. I have a question and i hope you can share your thoughts.

I've been reading anything about investing and I always encounter the concept of delaying gratification so as to save in order to invest. Is this concept equivalent to being frugal or is it the extreme end of it? My problem is how do you remain faithful in investing for the future without necessarily sacrificing providing some sort of leisure to your wife or children? Ang hirap kasi mag budget ng pera lalo kung maliit :-) ang sweldo hehehe. I was just thinking whats the point of having lots of money many years in the future eh hindi naman natin hawak ang buhay natin, pano kung di ka na gumising bukas so hindi mo rin naenjoy ang pinaghirapan mo? Am i making sense here, I don't know please enlighten me with your wisdom.. How can I strike a balance with providing a quality life for my family in the present vis a vis securing the future? Thank you and Godbless!


Dear Anonymous,

First, thank you for asking the "right" questions, and for getting it, for seeing the "big picture."

I was just thinking whats the point of having lots of money many years in the future eh hindi naman natin hawak ang buhay natin, pano kung di ka na gumising bukas so hindi mo rin naenjoy ang pinaghirapan mo?

What's the point, indeed?

To answer this question, we need to understand what "saving" really is--postponement of spending and consumption to a later date. I mean, what else do we do with what we save now but spend it later? But why do we even have to save a portion of our earnings, why can't we just spend our money as soon as we get it? The "need" to save arises primarily because we are not sure what's going to happen in the future, both in terms of how much money we'll need and how much we'll be able to earn: a family member might get sick, we might lose our job, we might need to buy a new car. In such cases, saving becomes the easiest way to deal with uncertainty and risk.

It's easy to see how one extreme of the consumption-savings trade-off--spending all your money as soon as you earn it--has become the poster child of financial literacy advocacy. It has come to represent unflattering virtues such as conspicuous consumption, materialism, greed, and myopia. And while I'll be the first to say that indeed, it is a problem that needs to be addressed (one of the reasons why this blog exists, right?), I also say that we need to be just as concerned with the other extreme.

If you took that financial planning course from Coursera, you might remember one of the Week 1 modules saying how there's no such thing as "saver's remorse" (as opposed to "spender's remorse"). To this I say: NO, saver's remorse is real because saving involves giving something up, something that may not be very valuable to one person but worth a lot to another. We all know that it's important to be better prepared for the future and that planning, saving, and investing are some of the means to achieve that end--isn't that why we are all here for? But I think that many of us on the financial literacy bandwagon forget that it's also important to be able to live a "good" quality of life (however you want to define it) now while we're still alive. After all, the point of all that we do is to have a happy, contented, and comfortable life, not just now and not just in the future, but throughout our and our loved ones' lives. Isn't it?

My point is that living on either extreme of the consumption-savings are equally "bad," that spending your income all at once is just as bad as being a miser (there's a reason why the word shares a lot with "miserable"). The "sweet spot" then must lie somewhere in the middle; unfortunately, unless we know exactly what's going to happen in the future, it's impossible to find this perfect mix. Given the uncertainty, the best we can do is to avoid the extremes, plan with whatever information we have, and cross our fingers that the die rolls in our favor.

I've discussed some ways that can help achieve this balance throughout this blog, one of which is the financial planning post that you mentioned. Apart from these, I offer the following loose guidelines that can further help us along the way.

1. Live within your means. Choose a lifestyle that you can sustain with your earnings. In my personal experience, your chosen lifestyle can have as much impact to your "happiness" as how much you earn. If you find your credit card balance increasing from month to month, or you find it hard to reduce it by a significant amount, then you're living beyond your means. If you want a more luxurious or extravagant lifestyle, then find a better job or get an additional source of income.

2. Prioritize building your emergency fund and get insured. Get these taken care of as soon as you can; once you do, the need to save lessens dramatically.

3. Allocate some of your resources for leisure and other "life-enjoyment" activities. As soon as you are sufficiently protected from risk (see Number 2 above), you now have more freedom to use you excess earnings as you wish. In past posts such as this one, I've talked about how at this point you can now afford to invest in riskier assets with the promise of boosting your income. What I failed to emphasize is that you should use some of your excess income to give yourself and your family a good quality of life.

I end with two things from John Maynard Keynes. First, if you have time you might want to read his 1930 essay "Economic Possibilities for our Grandchildren" where he discusses the importance of leisure and the quest for the "good life." And second, I quote something from Keynes, what I think he would have told you if you asked him your questions:

"In the long run, we are all dead."

Monday, February 11, 2013

Feeding the Frenzy: HSBC Analyst Talks about the Philippine Economy in 2013


In this video from Bloomberg, Rishaad Salamat and HSBC's Trinh Nguyen discuss the outlook for economic growth in the Philippines for 2013.

Some highlights:
  • Indonesia is already investment grade and the Philippines is only expected to achieve investment grade at the second half of the year. Despite this, right now bond yields in Indonesia are higher than in the Philippines, implying that the credit rating upgrade is already "priced in" Philippine bonds and bond yields and prices won't be affected any further ("upgrade doesn't matter anymore"). The analyst, however, offers that the impending credit rating upgrade will affect the Philippine economy positively in other ways (e.g., lower borrowing costs for the Philippine government).
  • The Philippines' Consumption-driven economy and booming demographics will allow it to have another strong year. Remittances at 20 billion USD will continue to drive local consumption. Other important sectors such as the BPO sector will continue to support the economy.
  • HSBC predicts a 5% GDP growth in 2013. They also expect the Philippine peso to appreciate to 39.5 (to 1 USD) by the end of 2013.
Many of the factors that lead to the growth of the economy in the past year or so will continue to hold. So can the Philippines sustain growth in 2013? According to HSBC, YES.

Tuesday, February 5, 2013

Refinancing Credit Card Debt


Dear Investor Juan,

I recently made a major purchase which I charged to my credit card. I have the money to pay for the full amount charged. But I came across an offer of BPI that I can do a balance transfer at 0.59% and would be pay roughly Php2800.00 for 18 months where I would end up paying an interest of around Php4800.00.

I am leaning toward on transferring the balance to BPI and just invest my money on a UITF. Is this a good idea? Thinking that I would not be losing any money and would end up earning the interest I paid for or earn even more for 18 months.

Thank you in advance.


Dear Investor Juan,

Anonymous inquiry made me think as well. Hope to here from you soon on your take on this. Because I will also spend a large amount next month and if this is a wise choice to take.

Having a quick look at BDO's Balance Fund performance for the last 18 months an 80K investment yielded more than 20K. If I do a balance transfer I would be paying a total interest of around 8500 and will be paying roughly 5k a month. It seems a wise choice a first glance but would really like an experts advise.

Follow up on my inquiry above. Below is the computation for the balance transfer:

Php 80000/18months = Php 4444.45

Php 80000 x .0059 = Php 472.00
Total Monthly Amort. Php 4916.45

Total to be paid for 18 months
Php 4916.45 x 18 = Php 88496.10

Total Interest for 18 months.
Php 88496.10 - Php 80000.00 = Php 8496.10


Dear Anonymous and Anthony,

So basically, the issue is whether to accept BPI's offer to "refinance" your credit card debt or just stick with your default credit card. To make a sound decision, you would have to compare the costs of the two alternatives: at first glance, BPI's offer seems to be the better choice, hands down, because 0.59% is significantly lower than the 3 to 3.5% monthly interest credit cards usually charge. But from from Anthony's example, the quoted 0.59% refinancing charge is actually a monthly add-on interest rate, which if you recall this past post about the topic, can lead to bad and costly decisions if interpreted and used incorrectly.

To make a "correct" comparison, we can convert the add on rate into a monthly compounded (or "effective") rate, which we can then compare to the rate often quoted by credit card companies. Using the same procedure described in the "Add On Interest" post, the monthly compounded equivalent of BPI's offer is 1.08%, which is still lower than the usual monthly financial charge of credit cards.

So there, it's pretty clear that BPI's offer is actually a good one--at least better that what your credit card would otherwise charge.

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