Investing in Philippine Dollar Bond Index Fund


Investing in Philippine Dollar Bond Index Fund

After several days of contemplation, research, and due diligence, I finally decided to invest bulk of my savings from being an Online Filipino Worker (OFW) for more than 2 years to Philippine Dollar Bond Index Fund.

If you don’t have an immediate need to convert your hard-earned US Dollars into Philippine Peso since peso is continuously appreciating, and yet you want to remain as conservative and liquid as possible with higher returns than traditional time deposits, an option is to invest it in PHILIPPINE DOLLAR BOND INDEX FUND.

What is Philippine Dollar Bond Index Fund?

Philippine Dollar Bond Index Fund is a US Dollar-Denominated Unit Investment Trust Fund (UITF) product of Bank of the Philippine Islands (BPI). It closely tracks the JP Morgan Asia Credit Index (JACI) as its benchmark.

As a bond fund, it is conservative in nature since the fund invests mostly on government and corporate bonds. However, it is considered as an ‘aggressive type’ of investment according to the risk appetite assessment of BPI since it is a long-term bond fund which requires long-term investment for it to generate nice yields. So before you will be able to invest here, you must be considered as an aggressive type of investor in their risk assessment.

UITF works much the same like a Mutual Fund with some minor differences. If you want to know the similarities and differences between a Mutual Fund and Unit Investment Trust Funds, I made an article Mutual Funds vs. UITFs.

Investment Particulars

Minimum Initial Investment: USD 500

Minimum Additional Investment: USD 200

Minimum Holding Period: None

Cut-Off Time for Investment and Redemption: 12:00 noon

Historical Yields

According to the latest available fund performance report as of this writing which is end of month July 2012, the following returns was generated by the fund:

Why Did I Invest?

Now, the biggest question you might be asking is why did I choose this kind of investment. I have several reasons why.

CONSERVATIVE. Since this involves a huge chunk of my portfolio, I want to invest in a conservative type of investment. In one of the investment prospectus that I read in another bond fund, generally NAVPUs in bond fund have a 1% chance that it will go down a maximum of 5%  in any single day. Conversely, there’s a 99% chance that it won’t go down higher than 5%.

Bonds are one of the most conservative types of investments as compared to riskier investments such as stocks and FOREX. However, being conservative does not mean that it involves no risk on the part of the investor.

Here are the some of the risks associated with investing in this fund as with any other bond funds:

Market Risk – the risk that movement in the financial markets will adversely affect the investments of the Fund. The markets will fluctuate based on many factors, such as the state of the economy, current events, corporate earnings, interest rate movements.

Interest Rate Risk -the risk that the value of the portfolio will decline as interest rates rise. Bond prices are inversely related to interest rates. That is, if interest rates fall, bonds generally rise and vice versa. Why? It is because a bond offers a fixed interest rate. We can view the following example below.

A bond is issued for Php100,000 for five years with a 3% coupon or interest rate, paid every 6 months. Let’s say that interest rates went up to 5%. If an investor wants to sell this bond, who will buy it when it is paying just 3% as compared to the market interest rate of 5%? So if he want to sell it, he will then be forced to sell it at a lower bond price.

Credit Risk – the risk that the bond issuer may not be able to pay its debt upon interest payments and maturity. The fund invests on corporate bonds with an average Moody’s credit rating of Ba2 or equivalent Standard and Poor’s credit rating of BB.

The NAVPU is based on bond prices in the fund. Thus, if bond prices drop, the NAVPU will go down as well.

GREAT RETURNS. Upon research, this is also the fund with the highest return year-to-date among US Dollar-denominated UITFs and Mutual Funds. Yes, it beat all US Dollar-denominated equity funds as of this writing!

Two other funds from the Odyssey Funds of the same bank BPI, namely Odyssey Philippine Dollar Bond Fund and Odyssey Tax Exempt Philippine Dollar  Fixed Income Fund, slightly beat the return of this fund as of this writing. Unfortunately, they do have entry fees of 1% which is deductible upon initial and additional subscriptions to the fund. In addition, both of these funds require higher minimum initial and additional investment and higher trust fees.

The table below shows the differences between Philippine Dollar Bond Index Fund and these two Odyssey Funds:

 

NO HOLDING PERIOD. As of August 1, 2012, BPI took off all the minimum holding periods in their UITF line of products. This is good news because that means every investor can withdraw their money from the fund anytime they want. It also means that investors can remain as liquid as possible with higher returns compared to other conventional forms of investment.

Since this is a bond fund, the redemption period is very short unlike equity funds. In fact, when an investor orders a redemption of units before the fund’s cut-off time of 12 noon, he can already see the proceeds at the end of the same day.

ONLINE TRANSACTIONS: BPI is the only bank which offers additional UITF investment online through the internet. Investors must open a settlement account with their respective branch of account. In this case, a minimum of USD 500 is required to open a settlement account. Once they have opened an account, they can make additional investment online when they enrolled their investment accounts online.

JP MORGAN ASIA CREDIT INDEX UPGRADED. The JP Morgan Asia Credit Index (JACI) has recently been upgraded by credit rating agency Moody’s into ‘substantially investment grade.’ Since Philippine Dollar Bond Index Fund uses JACI as its benchmark in investing the funds, therefore it suffices to say that it is also substantially investment grade.

PHILIPPINE ECONOMY IS DOING WELL. Since the fund is invested mostly in Philippine Bonds issued by the Government, then it suffices to research how is the performance of the Philippine economy.

With the US and Europe currently experiencing financial crisis in their respective economies,  Asian economies in general, including the Philippines is experiencing a spur of growth. In fact the Philippines’ credit rating was upgraded just one notch below investment grade last July 4. Several positive news about the Philippines are also evident in various news sites which includes:

-> New York Times reported that the Philippines is set to become Asia’s newest bright spot with $70 billion in reserves and lower interest payments on its debt after recent credit rating upgrades. In fact, the BSP was able to extend a US$1 Billion loan to International Monetary Fund.

-> According to HSBC estimates, the Philippines is the 44th-largest economy in the world today. But if current trends hold, it can leap to the No. 16 spot by 2050. Late last year, the Philippines ousted India as the preferred hub of call center and Business Process Outsourcing (BPO) companies.

-> Bloomberg reported that hedge funds and money managers, including BlackRock, has set up their bond trading desks here in Asia as Asian bonds remained attractive to foreign investors.

-> UBS Securities says  that the Philippine economy is seen to remain most promising in South East Asia.

There you have it! My next article is about my investment on Variable Unit Life (VUL) Insurance as I become a licensed part-time Financial Advisor in one of the most trusted insurance company.


Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

46 responses on “Investing in Philippine Dollar Bond Index Fund

  1. Hi Sir Tyrone,
    Is it a good strategy if i’ll convert my peso to dollar and invest here in Philippine Dollar Bond Index Fund? And by the way, your blog is so great! I’ve learned alot since the time I read your blogs regarding financial literacy. Keep up the good work sir Tyrone. You’re such a blessing to those people who doesn’t know how to manage there money properly.

    • Hi Mark,

      If you have ‘excess’ peso funds, you can convert it to dollar to take advantage of the strong peso right now. Excess meaning you don’t have immediate needs for your peso, and you have a buffer peso-fund which you can use in your day-to-day expenses or even in emergency uses.

      Thanks for the compliments! 🙂

  2. Hi Mark,

    I heard that the US economy will not do well until 2016 and so the USD may continue to weaken. Is it a good time to buy USD considering that its value will be continually less? This is investment wise of course. For those who import in USD, the situation is more beneficial for them.

  3. Hi Tyrone,

    I heard that the US economy will not do well until 2016 and so the USD may continue to weaken. Is it a good time to buy USD considering that its value will be continually less? This is investment wise of course. For those who import in USD, the situation is more beneficial for them.

    • Hi JR, no one really knows until when will the USD continue to weaken. I suggest invest only your extra money. If you’re earning in peso, you can either buy USD or invest it in equity funds if you have an appetite for risk.

  4. Hi tyrone,

    Great article by the way. I saw your guesting in ANC a few days back via YT. That’s how I knew of your blog site. Anyway, will the depreciating value of the US dollar affect, in a way, the performance of this type of Fund? Let’s say, dollars plummets to P38.00, how will this affect the performance of this fund? Thanks.

    • Hi Heston,

      Thanks. I think the FOREX is in not in anyway related to the performance of this fund. It will however, of course, devalue the value of the fund when you’re converting it back to peso.

      The performance of Philippine Dollar Bond Index Fund is more closely tied up with:

      1. Investor Sentiment. Investors sometimes shift to equities especially if stocks are performing really well. Stocks are known to give higher returns than bonds.

      2. Profit-taking. The fund will go down when prices of government bonds fall when profit-taking among investors were observed.

      3. Philippine economy. Expect an increase in the NAVPU of the fund when things are getting better in the Philippines. Sample are credit rating upgrade and higher than expected Gross Domestic Product (GDP).

      4. BSP rate cuts. Rate cuts of BSP are favorable to the fund. This is one of the measures being held by BSP to control dollar inflow so that peso won’t appreciate that quick hurting exporters, OFWs, and BPO companies.

    • Thanks Tyrone for the prompt reply. I am interested in investing in this type of fund. However, I would like to ask if it is necessary or mandatory to put an additional investment on a regular basis? Do I need to open an account with BPI and enroll to RSP? Thanks for the help.

  5. Dear Tyrone:

    Finally, someone who can speak from his own experience.

    Tell me, what is the latest condition of your dollar bond uitf, has it grown or has it gone smaller?

    Have you redeemed it?

    In brief, have you made money from it, or you are still waiting for it to grow bigger?

    Considering that there is no holding period, you can redeem it anytime you want; so have you redeemed it because it has gained in volume?

    Marius de Jess

    • Hi Marius,

      Although this type of investment is considered conservative since the fund has no investment in equities, I am still strictly monitoring it because I invested bulk of my savings here.

      As of this writing, the latest condition of my investment, is up by USD 86.88. It went up as much as USD 1,200 before but I did not withdraw. After that, it went below as much as negative USD 300+ affecting the principal but good thing bond prices increased again.

      Yes, I did redeemed it once before. When I redeemed, I had a locked in profit of USD 2,164 after 48 days. Within that period, it went up as much as USD 3,400. Days after redemption, I re-invested again.

      Considering the good economic outlook of the Philippines this year 2013, this investment is advisable, most especially because our country has been upgraded to positive with a view of getting an investment grade credit rating for the next 12 to 18 months.

      I hope this helps. 🙂

    • “Yes, I did redeemed it once before. When I redeemed, I had a locked in profit of USD 2,164 after 48 days. Within that period, it went up as much as USD 3,400. Days after redemption, I re-invested again.”

      That is very impressive and most encouraging for people to also go into the Bpi Dollar Bond Index Fund.

      Do you mean in 48 days you made USD 2,164, which you redeemed and left the capital still inside?

      Forgive me, you said you decided to put the bulk of your USD saving, in round figures how much was that?

      So that I can compute the percentage of gain in 48 day time.

      Mariud de Jess

    • I’m sorry Marius but I think the round figures you’re asking is confidential already. The percentage gain was less than 2%.

      I redeemed the whole amount with the profit. Then left the profit on savings and re-invested the capital again.

  6. Yes, I can understand that, it is confidential; I myself also would prefer to keep that as private information.

    But it is really most encouraging, the dollar bond index fund of Bpi.

    The system seems to be that if one has time and some excess money, to put it in mutual funds or in uitf funds, and it will produce more money.

    The thing is to aim for an increase which in time will outpace inflation, otherwise there is no net gain; but any gain is better than nothing even though no net gain when we factor in inflation, because then it will weaken the ravage of inflation, and our saving will last longer.

    So, if one has time and some excess money, mutual funds and uitf funds are the investments to go into.

    Marius de Jess

    • For the benefit of new investors, please tell us what is $ROP?

      Forgive me, but does it mean “US$ return on placement”?

      Suggestion to Tyrone: Please set up a glossary of words and abbreviations.

    • In my opinion, the pros of investing in a fund invested in USD ROP outweighs the cons of investing DIRECTLY on USD ROP.

      Pros:
      1. UITFs or Mutual Funds invested on USD ROPs only requires a lower minimum capital and lower additional investments. When investing directly on USD ROPs, it usually requires huge amount of capital.

      2. The nature of UITFs or Mutual Funds being a pooled fund from investors diversifies the money of the investors. Since it is a pooled fund, they fund managers can invest it in a basket of USD ROPs with different maturity dates. Unlike if you invest directly on USD ROPs, usually your money can buy only a few because it involves a huge amount of capital depending on the maturity dates.

      Cons:

      1. Investing directly on USD ROPs provides a fixed return depending on the coupon rate of the bond whereas investing on UITFs invested on USD ROPs, the return depends on the movement of Nest Asset Value Per Unit or NAVPU.

  7. The navpu of BPI Dollar Bond Index Fund has been on a continually downward trend since December 2012. What do you think is the prospect of this fund for 2013? I have invested part of my savings in it so it’s a bit disheartening to know that instead of gaining, I am losing my investment.

    • Hi Ann,

      We share the same sentiment. I am losing my investment as well but only on paper. My advise is DO NOT PULL OUT or redeem at a loss. Because only then your ‘paper loss’ will be realized as a real loss.

      Everyone is looking forward for the much awaited investment-grade credit rating from any of the three rating agencies Fitch, S&P, and Moody’s. Once the Philippines gets it, bond prices will surge as investors’ money will come in. That means an increase in NAVPU in this fund. Stay put because a lot of news that I’ve been reading lately are good ones and are pointing towards that goal.

    • Thank you for the encouraging words. I would also like to ask your opinion about BPI’s ALFM Peso Bond fund and FAMI’s Save and Learn Equity Fund. They are both mutual funds, I know, but can you please make a comparison? In all aspects, which do you think is better?

    • They are both mutual fund but they are very different from each other – one is a bond fund and the other is an equity fund.

      I think it is better if you chose FAMI Save and Learn Equity Fund. Although it has a sales load of 0.50% (for 2M and up capital) up to 2% (for 1,000 to 99,999 capital) which is deductible upfront plus another exit fee of 1% if you redeemed within the first 6 months upon investment, the potential return is greater as compared to ALFM’s Peso Bond Fund especially the fact that we are expecting an investment grade credit rating within the year. However, take note that the higher the return, the higher the risk. ALFM’s Peso Bond Fund is a mutual fund with no sales load and is stable BUT it has low returns as compared to FAMI’s Save and Learn Equity Fund.

      If you want to invest in mutual fund that is invested in equities, I can suggest BPI’s Philippine Stock Index Fund. This is also a mutual fund but it has no sales load. In fact, all BPI’s mutual funds have no sales load. That’s what I liked most about them aside from the fact they are the only bank which enables their investors to add subsequent investments hassle-free through their portal. Other banks require you to visit them to sign off paper documents.

  8. The forecast for 2013 is that exchange rate will dive to 37.50 to the dollar. Will this in any way add to the downward trend of the philippine dollar bond index fund?

    • Hi Ann,

      To tell you honestly, I am also concerned with my investment here because as you have said, it is currently on the downward slope. I don’t know how much are you currently losing on paper but for me, I am losing USD 2,746 already which is pretty big. But again, it would only remain as ‘paper loss’ not until you pulled out your investment.

      For your question, I think the answer is ‘no’. The government bonds where the funds were invested are Philippine sovereign bonds which are issued in US dollars. This means that it won’t undergo any conversion along the way. It’s like buying a debt in dollars and the payment is also in dollars. In contrast, I think that Peso-denominated government debts may have been affected by the peso’s appreciation. This is because the government pays in a synthetic way – they issue the debts in peso but they pay in dollars. In this way, the government reduces payment on its debt due to strong peso but the buyer of the debt receives lesser. This is just my view and opinion, I don’t know if I am correct or wrong.

      It could also be noted that the BSP is trying its best to contain the rapid appreciation of peso. This is because a huge portion of our GDP is contributed by dollar earners such as OFWs, BPO sector, and exports. A stronger peso would definitely hurt their earnings.

      I also read before that in some instances that the Philippine sovereign bonds track the US Treasury yields. So a good US economy somehow contributes to the attractiveness of the fund among foreign investors.

      To give you hope, here are some of the news that I gathered which says that Philippine government bonds should be attractive this year especially if we got the much awaited credit rating upgrade. Consumer spending will also increase in the first to second half of this year because of elections. This is good for Philippines as a whole.

      Consumer spending fuels Philippines

      Philippine bond market more promising in 2013

      Philippines eyes investment grade rating in 2013

      Philippines primed for investment grade status

  9. hi tyrone!
    is it a good time to invest now in dollar-denominated UITF/MF because the exchange rate is going down then cost average and cash in when dollar strengthens again? Is this the commonly employed strategy? Or should I just convert my dollars to peso and invest in local instruments?
    TIA!

    • Hi Katakat,

      Are you a dollar-earner? Do you spend in dollar or in peso?

      If you’re a dollar-earner, your strategy is good. Since peso is appreciating, your dollar loses its purchasing value. With that, it would be good to invest on dollar-denominated UITFs/ MFs.

      Take note that if you spend in peso, make sure you have buffer fund in peso to spend for your needs. Remember that investments takes time for your money to grow so expect that your dollars will be remained invested for several months before it can generate a nice return.

  10. I know most of us are down because of the current down trending of the fund but this is also a good time invest more. Remember we invest our money here for LONG-TERM growth. What I suggest is that if you still have enough $$$, you deposit your dollar monthly basis for this fund so as to cost-average the value of the fund and build your wealth.

    Happy Investing!

  11. “Tyrone Solee Reply:
    January 1st, 2013 at 4:41 pm

    Hi Marius,

    […]

    Yes, I did redeemed it once before. When I redeemed, I had a locked in profit of USD 2,164 after 48 days. Within that period, it went up as much as USD 3,400. Days after redemption, I re-invested again.

    […]”

    What is the meaning of a locked in profit, and how does it get to be locked in?

    Dear Tyrone, you are doing folks a great service, thanks a lot.

    Marius de Jess

    • Hi Marius,

      You buy a thing that has a market value. For example, a stock of a company. The value of the stock might increase or decrease depending on several market conditions.

      Suppose the price of the stock is 10 pesos. You bought 10 shares for a total amount of 100 pesos. Weeks after, the price of the stock increased to 15 pesos. With that, you have an unrealized gain of 50 pesos. That is you spent 150 – 100 = 50.

      Now, until you sold the stock, that 50 pesos will remain as unrealized gain because its price might still go up or down. If you sold that stock, then that 50 pesos would become a realized gain or in my terms, “locked in profit.”

  12. That is really easy to understand coming from you, and no sipsip either.

    Now, dear Tyrone, I hope you will take some time off to do a close look at Bpi Phil. stock index fund and Bdo peso equity fund, and tell people reading your blog, which one is earning bigger and quicker on the same money and for the same period, after deducting of course all costs and tax whatever.

    Thanks, I really learned a lot from you.

    Marius de Jess

  13. Pseif is oversubscribed. No new subcriptions are being accepted according to bpi. They’re still waiting for approval of new issues.
    Btw, i’m also holding on to peso dollar bond and it is going down. With Fitch’s upgrade, I hope that it will go up. If by next week it will still go down, then I’ll cash in.

    • Hi, yes, PSEIF is indeed oversubscribed. BPI already asked for additional authorized capital from Securities and Exchange Commission (SEC) and they are working to expedite it.

      Fitch’s upgrade of the Philippines to investment grade will surely drive the demand for ROP bonds which in turn will increase Philippine Dollar Bond Index Fund’s (PDBIF) NAVPU. There is also a direct correlation of ROP bonds to US treasuries as I observed. When the yields of US treasuries decreases, NAVPU of PDBIF tends to go down too. Anyhow, I advised you to watch it carefully since you can take advantage of buying low and selling high because the fund has no holding period.

  14. Hi Tyrone,

    I’ve been investing in Equity Fund via Philequity and I’m looking for another vehicle to invest. Is Philippine Dollar Bond Index Fund works like Equity Fund? I’d like to know specifically if your capital gets compounded once there is an increase in value per unit. Thanks

  15. We have had two credit rating upgrades already and the dollar has appreciated against the peso. Why is the philippine dollar bond index fund still on a continually downward trend for several months already? Please enlighten.

    • Hi Ann,

      The Philippine Dollar Bond Index Fund is being hammered mainly because of the talks about the FED tapering its 3rd round of Quantitative Easing or QE3. The QE3 was implemented last year to increase liquidity in the US to prop up their economy. The FED is buying 85 billion US dollars of mortgage bonds and government months monthly.

      This QE3 has caused stock prices and bond prices to shoot up last year together with the other quantitative easing or stimulus implemented by other central banks. However, this has caused the balance sheet of the FED to balloon up to 3.65 trillion dollars which means they have increased their debt up to that amount already. The FED is doing a balancing act to improve the US economy but at the same time increasing their debts.

      Lately, various figures from different government sectors show that the US is showing some signs of recovery. And since the FED QE is detrimental to the balance sheet of the FED, taper talks has started. Taper means they will decrease the amount of monthly buying of bonds and eventually stop it as soon as the projected figures of the FED have reached.

      Now, this FED taper talks has been confirmed in the latest FED meeting where most governors of the FED agree that they should indeed start tapering it off. This has caused the PSE to decline 5.96% last Tuesday when the market re-opened after a long 3-day break from the typhoon and holiday. This is also the one causing the ROP bonds to decrease their prices where Philippine Dollar Bond Index Fund is mostly invested with.

      Right now is the best time to invest in stocks and in ROP bonds. In fact, I started investing again. I pulled out all my holdings last June when the FED taper talks started. The Philippines has still an upside being one of the best resilient countries in Asia having one of the highest GDP figures. In addition, we still have a pending investment grade credit upgrade from Moody’s. BUT take note that the market for both stocks and bonds would still be very volatile brought by the FED taper off issue.

      Since the Philippine Dollar Bond Index Fund has NO HOLDING PERIOD, which means you can invest now and pull it out the next day (you can see the proceeds of your investment in your settlement account the next day agad, ganun kabilis), you can take advantage of the volatility of the market by reading news about what’s happening in the US. Invest when it is low and pull it out when it’s high to realize gains.

  16. Hi i just thought asking, now that FED has tapered the Q3… what could be the effect on Philippine Bond dollar bond fund? Are you still invested in this kind of uITF? is it still best to invest now?

  17. Hi there, i was following this write ups and very interested in investing in Philippine Dollar Bond Index Fund. It is now 2015, and the time this was first published was 2012. My concern is: is it still viable to investing in Philippine Dollar Bond Index Fund?

    • You might want to explore the BPI European Equity Feeder Fund. That is where I have been investing lately. European Central Bank has implemented a huge quantitative easing and this might help stock prices to go up. However, please be reminded that being an equity fund, this is more volatile than the BPI Philippine Dollar Bond Index Fund. Volatile means that there is a large movement on its NAVPU on a daily basis, which can bring either a big gain or a big loss to your investment. However, I think if you stay in the fund for long, it will be a gain. But don’t take my word for it. That is just my thought.

    • Hi Tedd,

      Currently, I am no longer invested in this fund. I already withdrew my investment in this fund. From the way I see it, I think it is still a good investment as of now. As you can see, the NAVPU of this fund is very near it’s all time high. This fund I think will continue to go up but it will be very slow depending on the movement of interest rates by the monetary board of BSP. In the US, FED has started increasing interest rates. There is an inverse relationship between interest rates and bond prices. That is if interest rates go up, bond prices will fall. Since the US FED has started increasing rates, time will tell if our own BSP will follow. If BSP increase rates, then expect that the NAVPU of this fund will start to fall.

    • Hi sir, thanks for the feedback.
      I’m delaying subscribing to any bond fund for the reason you mentioned, that is we are in a rising interest rate environment.

    • Hello Sir Tyrone, how about the BPI U.S. Dollar Short Term Fund? Could you kindly share your thoughts? Thanks in advance!

  18. Hi Sir Tyrone,

    I’m planning to invest in USD, and I check, it is BDO Developed Markets Property Index Feeder Fund ranks no. 1 at the moment. Should I invest now?

    Thanks!

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