assessment of the asset management industry ... - cfa …

ASSESSMENT OF THEASSET MANAGEMENTINDUSTRY IN THEPHILIPPINESThe Case of the Unit Investment Trust Fund(UITF) Sector

ARLENE GUTIERREZ

EXECUTIVE SUMMARYArlene C. GutierrezResearch Consultant

Gov. Jose B. Fernandez, Jr. Center for Sustainable FinanceAsian Institute of Management

�is report was conducted independently byCenter for Sustainable Finance Asian Institute of Management, but was made possible

through the sponsorship of CFA Society Philippines.

© 2020 CFA Society Philippines. All rights reserved.


Asian Institute of Management, in partnership with CFA Society Philippines, explored the asset management industry of Philippines in 2019, focusing on unit investment trust funds (UITF). �e Central Bank of the Philippines defines a UITF as “an open-ended pooled trust fund denominated in pesos or any acceptable currency, which is operated and administered by a trust entity and made available by participation.” Despite attractiveness of UITF as an investment avenue for consumers, no study has been conducted on the status, problems and prospects of the industry. �us, it is worthwhile to look at the sector much closely from the perspective of the players within the industry as well as from the retail investors’ point of view.

�e general objective of the research is to assess the status, problems and prospects of the UITF Sector in the Philippines. Specifically, the research aimed to assess the supply and demand sides of the sector by examining the market landscape through the industry participants, determining the current problems faced by the key players, assessing the profile of the UITF investors in the Philippines, evaluating the level of awareness and perception among Filipino investors on UITF and recommending strategies to address and challenges of the sector.

Analytical Framework

�e data was gathered through primary and secondary data collection. With the objective of assessing the supply side of the industry, a survey was developed and distributed among the 25 trust entities with UITF operations. Among the 25 trust entities, 20 financial institutions returned the survey questionnaire, generating a response rate of 80%. �e survey focused on their current status, performance and problems experienced. Data on Asset-under-Management (AUM) were collected from the Key Information and Investment Disclosure Statement (KIIDS) as of the second quarter of 2019.

Assessment of the Asset Management Industry in the Philippines

1

Macroeconomic Factors

Supply Side

• Current Performance

• Strategies • Clients • Problems

Encountered

UITF Sector in the Philippines

Regulations

Demand Side

• Level of Awareness • Perception • Attitude


In addition, in order to analyze the demand side of the UITF sector, a survey among 211 respondents focusing on the awareness, perception and attitude of Filipino retail investors was conducted.

Results indicated that the industry is being dominated by three large players, namely, BDO Unibank, BPI Asset Management and Trust Corporation and Metropolitan Bank and Trust Corp. Furthermore, money market fund has the largest share in the total Asset-under-Management for both domestic and foreign denominated UITF.

Breakdown of Peso-Denominated UITF Asset-under-Management

In terms of historical performance, the UITF industry in the Philippines across the different types of funds, exhibited fluctuating performance from 2013 to 2018.


2


End of the Year AUM of PhP-Denominated UITF (2013-2018)

In terms of AUM composition, the Money Market Fund remained as the preferred fund among investors, with an average share of 71.2% over the same period. Despite the decline in performance, the number of accounts still grew by 15.1% annually from 2013 to 2018. �e highest contributor of growth in the number of accounts were the Money Market Fund, with an average year-on-year growth of 26.1% and followed by the Equity Fund, with an average year-on-year growth of 17.2%.

Breakdown of the Total AUM of Peso-Denominated UITFs (2013-2018)

Among the bank respondents, 60% of them cited that the most common problems that they have experienced with their clients include limited knowledge or understanding about the UITF products. Since the clients do not fully understand the products, they are not satisfied with the returns especially if these do not exceed their expected returns.In addition, the respondents cited some of the skill gaps with their current UITF Marketing Personnel.


3

�ese include awareness in the direct competitors’ offerings, deeper understanding on risk appetites of clients, knowledge in financial instruments, deeper understanding on the features of the different UITF product offerings especially the risk characteristics of these products. Among these skill gaps, 55% respondents agreed that the most common among their marketing personnel is the lack of knowledge of the technicalities of the UITF products.

Common Problems Encountered with the Clients

From the demand side, the low awareness among the Filipino retail investors towards the various UITF products is evident especially among the young population. �e low awareness translates to low penetration or usage rate among this group of respondents. Furthermore, this is the result of limited knowledge among the young population towards investment in general and the perception that big capital is needed in order to start investing. �is is also consistent with the low level of financial literacy among Filipinos.

Level of Awareness towards UITF among the Respondent Groups

In order to address the current challenges in the industry, the players must focus on increasing the awareness of retail investors through the following strategies: (1) information and education drive on UITFs; (2) utilizing the digital platform to make UITFs more accessible to retail investors; (3) expanding the distribution channel to reach a wider segment of the market; (4) improving relationships between the UITF marketing personnel and retail investors; (5) product differentiation to address competition among UITF providers; and (6) an improved incentive system in order to increase the motivation among UITF marketing personnel to understand the products as well as relate to clients better.

Lastly, the support of the regulatory bodies is paramount to the success of UITFs in the Philippine capital market. An open architecture that will allow UITFs to be offered in various platforms would help the sector to increase the awareness and eventually investments among Filipino investors.


4

Level of Awareness

College Student Entrepreneur

Graduate Student Unemployed

Working Professionals

Grand Total

Not aware 80.30% 20.00% 33.33% 33.33% 36.75% 49.29% Have heard of the term "UITF" but do not understand what it is and how it works 16.67% 40.00% 33.33% 66.67% 28.21% 26.54% Understand what a "UITF" is and how it works 3.03% 20.00% 25.00% 0.00% 17.95% 13.27% Understand how "UITF" works and I have invested/currently investing on UITF 0.00% 20.00% 8.33% 0.00% 17.09% 10.90% Grand Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Problems Encountered Percentage Lack of understanding on the UITF products 60.0% Complaints on returns 20.0% System related Problems 20.0%


assessment of the asset management industry ... - cfa …

Documents