The Bangko Sentral ng Pilipinas (BSP) and its supervised trust entities will continue to encourage investors to invest in unit investment trust funds (UITFs) especially for small investors, said the BSP.
In a report, the central bank said that it will ensure that the combined efforts of regulator and trust units of banks as well as stand-alone trust firms to “promote and encourage” more Filipinos to open a UITF account through the offering of small-value retail UITF products will continue to yield positive results.
For the first six months of 2023, UITFs accounted for 14 percent or P834.7 billion of the total trust entities’ P3.2 trillion accountabilities. UITFs held majority of the shares of total trust accounts at 40.8 percent.
During the period, the number of UITF participants totaled 2,475,458, according to the BSP. Trust entities implemented proactive sale strategies and provided diverse product offerings to attract more UITF investors.
However despite growth in UITF investors, the total UITF placements declined by 31.9 percent year-on-year to P834.7 billion as of end-June.
The BSP said the decline was largely due to the higher redemption of principal from money market funds, which caused the drop in total contributions to P765 billion from P1.2 trillion same time in 2022.
“Money market funds were one of the key growth drivers of the trust industry from 2020 until early 2022. However, with the continuous interest rate hikes of the US Federal Reserve and the BSP, coupled with a sustained rise in prices, money market funds experienced the most amount of fund flight among UITF products," noted the BSP.
Clients reduced their risk exposures, favoring time deposit and government securities that offer better and more reliable returns than trust products, the BSP added.
Money market funds as of end-June accounted for about 58.4 percent of total UITFs with P446.5 billion from 1,169,329 investors.
The other UITF products are equity funds, bond funds, other funds, and balanced funds.
To promote UITFs, the BSP has been gradually easing UITF regulations and also streamlined UITF licensing processes.
“The availability of various types of UITFs in the market, which include sustainability-linked products, is also seen to improve the UITF participation rate,” said the BSP.
Recently, the BSP approved the guidelines on the use of benchmarks in assessing UITF returns to help investors make informed financial decisions.
BSP Circular No. 1178 issued last Aug. 9 has a one year transitory provision which should allow trust entities to have enough time to review benchmarks of all existing funds.
The review, according to the circular, will determine the benchmarks’ “propriety and validity” based on the BSP rules to “make appropriate changes to their policies, processes, procedures” particularly in their key information and investment disclosure statements to comply with the new guidelines.
Based on the circular, benchmarks allow UITF participants to fairly assess whether a fund is overperforming or underperforming against a relevant market index or a portfolio with a comparable return-risk profile.
Trust corporations and banks’ trust units have a common practice of using benchmarks in measuring the performance of their UITFs.
The guidelines in the selection of the appropriate benchmarks will aid existing UITFs, participants and respective investors in fairly assessing the performance of UITFs vis-à-vis benchmarks.
The BSP is engaging its so-called “Trust Business Model Initiative” which are policy reforms that are in two phases. This is to rationalize the operations of trust entities for a more responsive trust sector.