Question: I wanted to ask more about pooled funds, specifically equities and balanced funds. I would also like to know if I can invest in these with small amounts on a regular basis.—Val Baguios, International Organization for Migration (IOM) staff

Answer: In my last column, I gave a general introduction of pooled funds, particularly bonds or fixed income funds. I will now discuss other general funds—equities and balance funds.

Equity funds, sometimes referred to as growth funds, are pooled funds invested primarily in equities via the stock market. The bulk of the investments made, say 90 percent, is invested in stocks that are traded by the investment manager. In the Philippines, nearly all of the equity funds are invested in blue chip stocks, or those that are considered premium, seasoned and resilient such as PLDT, Ayala, San Miguel, SM and several banks. The decision on where and when to invest and when to sell is left with the investment manager, who may opt to take a passive approach of buy and hold or an aggressive stance. He may also opt for a combination of the two.

Generally, the objective of an equity fund (also known as stock fund) is long-term growth through appreciation of capital, although dividends may also be an important source of returns. It is believed that the stock market will give the most growth in investment provided there is enough time for stocks to appreciate and that proper trading of stocks are being executed. However, equity funds may also be the most volatile among pooled fund categories, as they mirror the gyration of the stock market.  Equity funds are the most risky among the pooled funds in the Philippines.

The Philippine Stock Market Index or Phisix is the benchmark when it comes to equity funds. I notice that the performance of the equity funds (in UITF and mutual funds) has generally been better than Phisix, that the fund managers are doing a swell job. Equity investing is a good way to hedge against inflation as its potential return should be better than inflation. However, I also have to emphasize that it also offers the most risk.

Balanced funds are funds invested in both equities and fixed income/money market securities. According to Investopedia.com, a balanced fund is “a fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation. In other words, balanced funds are combination funds that are designed to generate moderate returns with moderate risks. The funds normally have set limits on investments in asset classes, say a 60-40 mix in favor of fixed-income instruments vs stocks. Some funds have more flexibility …

Complete text found at http://business.inquirer.net/21783/all-about-pooled-funds-part-2

Question: I attended your seminar “Steps to Financial Peace” and you mentioned about pooled funds as a good way to invest. I wanted to ask more about pooled funds but was unable to, so I’m writing you and asking you about it. I would also like to know if I can invest small amounts but on a regular basis in those funds.—Val Baguios, International Organization for Migration (IOM) staff

Answer: Val, thank you for attending my seminar and I pray that you learned much from me and the other speakers. It seems the seminar achieved its objective since you are now asking about pooled funds for your investments.

Let me start by defining what a pooled fund is, borrowing the definition from Investopedia.com: “Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs per dollar (peso) of investment, diversification and professional money management.”

It looks like the definition made it more complex than it really is. Pooled funds are investments where people put their money, with an investment manager handling the investments. To explain further, let me use this analogy: Assuming you want to invest but do not know the first thing in investing in stocks or bonds. You can join a “pool” of investors who allow an investment manager …

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