Stock Market: Invest in UITFs/MFs or Direct Stocks? All-In or Diversified Portfolio?
Updated: Mar 30, 2018
Invest in UITFs/MFs or Direct Stocks? All-In or Diversified Portfolio? Here’s a Stress Free Way to Invest Your Money
The Philippines has been in a bull market the past eight years, the longest in our market’s young history. We’ve benefited a lot from the global liquidity injections by the world’s largest central banks with cheap money and investors chasing yields under a zero interest rate environment.
If you are one of the brave few souls who jumped in at the “once in a lifetime” opportunity at the tail end of the Global Financial Crisis in 2009 and invested in any mutual fund or unit investment trust funds that tracked the PSE Composite Index, your investment would have enjoyed a compounded annual growth rate of 20 percent. On the other hand, if you only started investing in 2013, the compounded annual growth rate would be at a low single digit and you would have little to nothing to show for your stock investment. You see, while the Philippine stock market is still technically in a bull market, it has just been trading in a wide range between 5678 and 8,100 the past four years. It’s no small wonder retail investors have turned to investing directly in stocks where potential growth is much higher.
Unfortunately, the experience of Filipino retail investors has been mixed. Some have been extremely lucky and have caught monster trades like DNL, Double Dragon, Puregold, Xurpas (at one point), and many others. But this is not the common experience. Majority of Filipinos are still trying to learn by doing and failing along the way. Worse still, a good number were victimized by hype in 2015 and 2016. Unsurprisingly, these victims are still nursing losses despite better market conditions in 2016 and 2017. There are just too many retail investors still struggling with their stock investment.
On the one hand, MFs/UITFs have failed to live up to the promise of generating returns for their clients. On the other hand, retail investors just can’t figure out how to trade fast enough to benefit from the opportunities of the stock market. Lately, we’ve seen the fast-rising popularity market gurus that provide stock tips but the results continue to be mixed with posers still worryingly prevalent in various online trading communities.
We believe there’s a better way.
The better way mixes elements of trade ideas and best practices used by professional portfolio managers. Instead of providing stock tips, our Trading by Portfolio approach tracks down stocks with the highest quality momentum and assign weights to arrive at a well-designed quant-based model portfolio.
To cater to the different risk appetite of users, we’ve designed two types of model portfolios: a momentum-driven portfolio and a low volatility portfolio. The portfolios hold eleven (11) names each and are fully-invested at all times. Re-balancing is every three weeks with components ranked according to their performance during the period. Typically, the bottom 20% are removed and replaced with new ones with portfolio weights reconfigured to reflect the new overall design.
Since we launched the models in 31 January 2017, both the BOH Momentum (BOHMOM) and BOH Low Volatility (BOHLOWVOL) Portfolios have significantly outperformed the PCOMP index. The momentum weighted BOHMOM portfolio is up +37.2% in six months versus +8.8% return by the PCOMP Index. This is a 2,834 basis points outperformance from holding eleven names with minimal draw down and acceptable daily portfolio volatility. What this also means is that our BOHMOM is on pace to hit +86% return by January next year.
What are the Lessons?
Today, our users understand that stock selection is more important than stock picks; that having exposure to stock picks is more important than market timing; that your first constructed portfolio will always be wrong but that you can fix this through regular re-balancing; that stock weights matter; that you don’t need to do all-in to make spectacular returns in the stock market — all it takes to grow one’s portfolio are the right processes and the right mindset in order to consistently make the right bets.
We’ve simplified stock selection for retail traders who wish to trade Philippine stocks. We provide trading notes and trading ranges for guidance daily. For our users, it’s just a matter of applying best trading practices such as tranche buying and selling, beating VWAP, and believing in the process. As a result, our clients sleep better, perform better at work, and get to spend time with their family, stress-free.
We have no intentions of managing other people’s money. The good results produced by our clients are theirs and were borne out of their hard work. Our clients are just taking advantage of our modeling of the stocks listed in the Philippine stock market. This is as stress-free as it can be.