Uy, Carol Vanessa B.

August

28,

2016
4FM5

FIN 106
HOMEWORK

1) Visit the website of any two universal banks that offer any of the ff categories of UITFs:
Bond/Fixed Income Fund; Balanced Fund; and Equity Fund
a. BDO
b. BPI
2) Download one UITF Key Information and Investment Disclosure Statement (KIIDS) from each
bank. Must be the same fund classification and month.

3) Enumerate at least 10 information that can be found in the KIIDS and describe each in one or two
sentences.
a. Fund Facts these are the basic pieces of information about the fund. It includes the
classification of the fund, the launch date, minimum investment, minimum additional
investment, minimum holding period, net asset value per unit, total fund net asset value,
dealing period, redemption settlement, and early redemption fee.
b. Minimum Investment this is the lowest possible amount of money that can be put in the
c.

fund.
Redemption Settlement this shows how many banking days it takes after the

redemption is received.
d. Fees this shows the breakdown of the fees. It shows the percentage that goes to the
trustee fees, custodianship fees, external auditor fees, and other fees.
e. Investment Objective and Strategy this is a description which shows the aim of the fund
f.

and it states the funds benchmark.

Key Risks and Risk Management this enumerates the types of risks and their
descriptions in which the fund can be exposed to. It also states that the client should not

invest in the fund if he is not comfortable with the risks enumerated.

g. Client Suitability this states that the client must undergo a client profiling process to
guide the client if the fund is suitable for his investment objectives and risk tolerance. It
also describes what kind of clients or investors the fund is suited for.
h. Prospective Investments this shows to which among the varied securities the trustee of
i.

the fund may invest in.

Fund Performance and Statistics this is accompanied by data and tables to show the

j.

performance and statistics of the fund as compared to a benchmark.

Related Party Transactions This shows the trade transactions and outstanding

investments the trustee (the bank) has with companies related to the bank.
4) Why is there a need to disclose the related party transactions in the KIIDS?
a. There is a need to disclose the related party transactions in the KIIDS because it
promotes transparency on the part of the bank in a way that it shows to which companies
in which the funds can be invested in are related to the bank. In other words, it shows the
possible conflict of interest with the trustee bank because the bank may invest the funds
in its subsidiary or related company.
5) What is a benchmark? Here in the Philippines, what is considered as the appropriate benchmark
for an (1) equity fund; (2) fixed income fund; and a (3) balanced fund
a. A benchmark is a standard and serves as a reference for the measure of the
performance of a thing. (1) Philippine Stock Exchange Composite Index (PSEi); (2)
Markit iBoxx ALBI Philippines 1-5 (Domestic) Index (IBXXPH15); (3) 50% of Philippine
Stock Exchange Composite Index (PSEi) and 50% return of the 91-day Philippine
Treasury Bill, net of tax.
6) Why is there a need to compare a funds return vis--vis its appropriate benchmark?
a. There is a need to compare a funds return to its appropriate benchmark so that the
funds return and performance can be appropriately measured and find out if the fund
performs well or not against that standard.

7) What is the difference between a year to date (YTD) return and a year on year (YoY) return? Give
an example.
a. A year to date (YTD) return is an amount of profit earned by an investment on the first
day of the calendar year while a year on year (YoY) return takes into account each
annualized return since the birth of the investment. For example, for YTD return: a
portfolios value on January 1 is $100,000 then on August 25, the value rose to $120,000,
so its YTD return is 12%; for YoY return: a fund earned 50% last year may now have a
12% YoY return today because YoY return takes into consideration each annualized
return.
8) What are the differences money weighted return and time weighted return? Give an example.
Between the two, what can be considered as more preferable?
a. A money weighted return the same with the concept of the internal rate of return in which
it is the discount rate on which the net present value equates to 0 or the present value of
inflows equates to the present value of outflows while a time weighted return is the
compounded growth rate of $1 over the time period being measured. The time weighted
return decreases the impact of cash flows because each periods return gets the same
weight with the other returns regardless of how much money was invested. For example,
for money weighted return: a trader purchased a stock which pays $2 in dividends
annually for $50. After 2 years, the trader sold the stock for $65, thus, to make the
present value of inflows equate to the present value of outflows, it would require a money
weighted return of 17.78% to satisfy the balance between the present values of inflows
and outflows. For time weighted return, a manager returned 10% the first year and -8%
the second year, the two-year return would be 1.2% regardless of how much money was
invested each year.
For example, using the time weighted return: in the first year, a client had $5,000 with his
manager and earned 10%. The following year, the client added another $5,000, but lost
8%. At the end of the second year, the investor would have $9,660, less than the total
amount he invested. All in all, the client lost $340. However, the time weighted return
would still be 1.2%. While using the money weighted return for the same example, when
the investor lost the money, he would see that lost by -2.3%, which is a far more intuitive
return and thus can make it seem that the manager did a poor job than when the investor
sees that his money has a return of +1.2% which was calculated using the time weighted
return. Therefore, the +1.2% tells the investor how well the manager did, eliminating the
impact of the cash flow that happened in the second year while the money weighted
return shows the investor how his money actually performed. Between the two, the time
weighted return is considered more preferable because it is insensitive to contributions or
withdrawals.
9) Using the following data, compute the:

Assume today is Dec 31, 2015 and the NAVPU values above reflect that of a certain equity fund.
Compute the following:
a) Calendar Year 2014 % return = ((105/100)-1)*100 = 5%
b) Calendar Year 2015 % return = ((121/105)-1)*100 = 15.24%
c) 2 Year Cumulative return is = (121-100)/100 = 21%
d) 2 Year Annualized return or CAGR is = ((121/100)^(1/2)) -1 = 10%