Diary Of An Investment Fund (Part Three: A Good Start)
13 January 2008“The four most dangerous words in investing are: 'This time it's different.'”
- Sir John Templeton
Starting Point - December 2006
"2006 was A Good Year" states the ING Manager's Report. And good it was. The PSE Index ended the last 12 months up 42.29%, its highest annual gain in the bull run since 2002. The fund beats the index and ends the year with a NAVPU gain of 54.67%, quite a feat considering the fund's size. The rosy outlook for the period is summed up by the Manager's comments: "Prospects are quite positive with fiscal improvements leading to record-low interest rates and a strong Peso, which in turn lay the ground work for a stronger recovery in overall demand and profits."
The fund's sectoral holdings are consistent with their outlook: heavy weightings on Communications, Banking, Power, and Holding firms–which are essentially bets on the health of the general economy and consumer demand.
The fund's top picks are also reflective of this stance, with telecom companies (TEL, PLTL, DGTL) and Banks (MBT, RCB) taking center. Notable also is the fund's holdings of geothermal power company EDC, which just did its debut in that month. Along with FGEN, MER and FPH, this reflects the fund's confidence on the Power sector.
January 2007
The manager writes "Philippine Stocks were off to a strong start." The PSE index gains an impressive 8.61% in the first month of 2007. The fund continues to lead the index, gaining 9.17%. Philippine macro news was positive: better budget deficit, GDP growth at 5.4%, inflation at the low end. 90-day T-bill rates fell 167bps to a record low of 3.17%.
RCB shares rose after announcing new management and a 2PO. Lopez firms BPC, FPH, and MER surged a second month following a favorable Supreme Court ruling. EEI rose after it announced a stock-rights offer.
The fund's positions showed increases in Banking (RCB play), and Holding Firms (BPC, FPH play), and modest increases along its other core positions.
February 2007
Earlier in the month, foreign investment fund, Calpers, upgraded the Philippine country ranking by 4 notches, propelling a surge in domestic shares. T-bill rates continued to fall as the peso continued its uptrend to Php48.5/USD and OFW remittances rose to a record USD1.3B in December.
On the last day of the month, news from China about market regulators implementing stricter rules to curb speculation triggered a global sell-off in equities. Large caps TEL, ALI, AC, and GLO led decliners. However ICT soared after disclosing higher FY06 profits and a recent acquisition in China while property stocks MEG and RLC drew buyers as credit rates continued to fall and the latter released strong 1Q numbers.
The PSE Index lost 5.3% for the month and its YTD 2007 return dropped to 2.85%. The fund managed still managed to retain its YTD yield, which grew slightly to 10%. "Our long-term view remains intact" says the manager.
The fund's Food positions grew in the month as did its cash, indicating some profit-taking and a refusal to make new commitments.
March 2007
Following the "Shanghai Surprise" in Feb, the first 3 weeks of March were volatile for all global stock markets. "Risk-aversion slowly subsided as investors cautiously resumed bargain hunting" says the manager. The PSE Index gained 4.4% in the month bringing its YTD return to 7.4% while the fund increased its YTD gains to 12.6%.
The market picked up defensive stocks: FGEN outperformed after announcing better than expected profits. ABS and JFC drew interest ahead of the upcoming elections as well as Construction. RCB and ICT fell after the recent 2POs which raised concerns of overhang supply.
The fund deployed its cash this month, bolstering across all its core positions. Food stocks SMC and JFC are a larger presence in its holdings and one new stock appears in its top 10: PX.
April 2007
"Philippine stocks continued to surge from the depths of a February sell-off" writes the manager. Market daily turnover improved to USD104M, with net foreign buying of US138M. The BSP monetary board keeps rates unchanged but opens a special deposit facility (SDA) to manage excess liquidity. National Treasurer Omar Cruz resigns, and 90day Tbill rates rose slightly to 3.04%.
Utilities and Mining stocks outperformed. AT surged as China began importing local nickel ore and metal prices look to break out. MWC rose after recording better than expected volume growth and rate hike speculation. EDC bucked the uptrend, losing after news that its Mindanao plant will be delayed until 2009. Property was mixed: SM soared after an 800% growth in earnings while RLC fell after sister URC failed to declare an anticipated cash dividend.
The fund continued to deploy its cash and rebalanced its holdings: paring down Bank (RCB) and Property (RLC) positions and buying into Holding Firms (AC) and Mining (PX). The manager writes:
"We continue to take advantage of this volatility, cautiously accumulating favored stocks on weakness, with expectations that administration bets will remain dominant in Congress, preventing opposition from gaining enough seats to elevate impeachment complaints to the Senate."
Next: Turbulence
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