Reader Mail #17: Analyzing The BDO Peso Balanced Fund
This article is posted under Investing.
“MANROJ”, told me about his BDO Peso Balanced Fund investment and asked for advice on what he should do.
I am certainly not a certified financial analyst nor a wealth management adviser, but I hope that my take on his concern, which is purely based on personal opinion, could help in some way.
And of course, in the end, one should always seek professional help when it comes to such money matters.
With that said, let me now share what he wrote:
I invested P400k last Nov. 2007 at the BDO Peso Balanced Fund. It steadily declined as time passed and it is only now that I am starting to see satisfactory results. The NAV at that time was 2,470.47, and as of Sept. 13, 2010, the NAV of the Peso Balanced Fund is already 2,610.84. This means I already earned a little over P22K.
My question is, how do you see the trend for the BDO Peso Balanced Fund? Do you think this will steadily increase in the months to come, or should I already pull out my investment while I am still at a gain?
First of all, I would like to congratulate him for the courage and patience he’s shown in his investment. Seeing the NAV go down with each passing month can be nerve-wracking and I know some people who would have pulled out of the investment with that scenario.
With medium to high risk investments, having a long investment horizon is really important. Having the ability to “ride the market” increases your risk tolerance and it’s something that everyone should remember when going into paper investments.
Now, let me go into detail to MANROJ’s concern, without getting too technical for the benefit of those who are not familiar with how UITF’s work.
In November 2007, the NAV for the BDO Peso Balanced Fund 2,470.47. This means with P400k, he was able to buy 161 units which cost him P397,745.67.
On September 13, 2010 – the NAV is 2,610.84; if he sold those 161 units back then, he would have received P420,345.24. This means he would have earned P22,599.57 from the investment.
Because of his “bad” experience with the fund performance from the past 3 years, he is tempted to sell those units now that it has finally, earned. Do you think it’s a good idea for him to really sell now?
The very first question he needs to answer is what is his investment objective. Where is he planning to use the money? Is it to buy a car? For a vacation? Downpayment for a house?
Knowing this would really help determine if the BDO Peso Balanced Fund is the right investment to achieve those goals. And assuming that it is, then having a specific amount in mind will help in determining when to “cash out”.
For example, if his objective is capital appreciation to start a business with a determined capital of P500k, then he should cash out when the NAV reaches 3,105.60.
And that brings us to the next question, when will it reach that value?
The answer is, nobody can tell for sure, sorry. It can be in the next year, in a couple of years or more.
But in any case, let’s take a look at how the BDO Peso Balanced Fund has performed since 2004 (source):
MANROJ bought into the fund during it’s peak, perhaps after seeing that it has continuously gone up for the past years, he thought it would continuously go up. But unfortunately, the price has gone down and it was only after January 2009, that the NAV has continuously gone up again until today.
And as you can see, it is now approaching resistance to its previous high of 2,627.61 which occurred last October 2010. If the price goes higher than that, then it would most likely continue to go up.
If it doesn’t, then it will go down to around NAV 2,000.00 (green line) – afterwhich, the direction could possibly go up or down, which will largely be dependent on the “emotion” of the investors to the economy.
So what should MANROJ do?
- Define an investment objective, then possibly talk to a BDO wealth manager to determine is his objectives can be achieved by the fund.
- Assuming that the BDO Peso Balanced Fund can meet his investment objectives, then he should monitor its NAV to see if it will break 2,627.61 or if it will hold above 2,545.33.
- If it goes higher 2,627.61; then stay with the fund for it would most likely go up more.
- If it goes lower than 2,545.33; then he should pull out the fund. Why 2,545.33? Because that will give him around the same income if he just put the money in a regular savings account with 1% annual interest.
- Study peso cost averaging.
The last piece of advise is something MANROJ should consider. In my opinion, the best way to invest in paper assets is to do it little by little, on a regular basis. Putting all the 400k in one go was a bad decision (sorry).
If he invested only 10k with the BDO Peso Balanced Fund but did it every month from November 2007 until August 2010, then he would have earned more than P135k if he cash out at September 2010 with NAV 2,610.
But that’s in the past now, the lesson here is to learn from that mistake and focus on the future.
Again, I am not a technical analyst and this is just based on my opinion and a personal strategy I use to look at investment performance.
To my readers, please feel free to give your own interpretation of the graph, point out mistakes in my calculation and dispense your own advise so we can have a healthy discussion about this. Thanks!
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