During the last quarter of 2010, we have seen some very significant gains in the stock market, mutual funds, and probably in all financial channels. In the stock exchange for example, SMC went up from around 80 to as high as 180 in just 2 months, around 125% growth in just 2 months. The NAVPS (net asset value per share) in mutual funds also went up as well.
However, as soon as the market started to go bearish early in 2011, the NAVPS in mutual funds also went down as well. I firmly believe that a bulk of investments made by professional fund managers in mutual funds are placed in stocks (and FOREX as well) so the performance of mutual fund companies are strongly affected by the performance of the market thus if the PHISIX signifies something bearish, NAVPS goes down with it.
For more than a month (January to mid-February 2011), PHISIX went down from around 4200 points to as low as 3700, even threatening to go down and challenge the 3600 support level. PHISIX has found support at 3700 and was considered to be in the consolidation stage.
Consolidation normally signifies a change in trend thus after a bearish (values declining) start, PHISIX will pick up some bullish (values increasing) momentum real soon. Personally, I think that the consolidation stage is already long overdue and an uptrend is just waiting around the corner. So knowing where the market will most probably head next, this is a great opportunity to buy shares in either stocks or mutual funds.
For the last 2 years, the performance of mutual funds were superb coming off from the so called economic meltdown. First Metro Asset gained 53% in 2009 and 62.51% in 2010, PhilEquity gained 65.05% in 2009 and 54.18% in 2010 and both are continuing to do well.
Aside from the fact that the value of NAVPS will start to go back up again, here are some reasons why today is the right time to invest in mutual funds.
1.) Bargain prices of NAVPS. First Metro Asset Management's (FAMI) NAVPS is currently only at P3.33 per share while PhilEquity's NAVPS is at 19.18. The good thing about cheap NAVPS is that they've got a bigger room to grow considering their past performances. Also take note that PHISIX is projected to reach a high of 4600 before 2011 ends so expect mutual funds NAVPS to follow suit as well. My bold prediction of FAMI is that it will break the P4 and probably even reach P4.50. PhilEquity will make it past 25.
2.) Cheap means more. Since the NAVPS are cheap, we could buy more shares and more shares means bigger gains. To further explain the point, here's an example. Assuming you invested P5000 at P5 per share, you get 1000 shares. On the other hand, assuming that you invested the same amount but at NAVPS of only P4.50, you get 1111 shares. After a year, the NAVPS went up to P7 thus at NAVPS of P5 you only gain P2,000 while at NAVPS of P4.5 you gain P2,777. What if you invested P100,000 at the same NAVPS prices? After a year, you'll gain P40,000 at NAVPS of P5 while you gain P55,554 at NAVPS of P4.50. Cheaper NAVPS doesn't really matter much for small investments but for bigger investments or bigger gains, the difference really shows. Timing is crucial.
3.) Economic recovery still hasn't peaked. Economists are saying that the Philippine economy still has a long way to go so that means that PHISIX also has a very long way to go. Knowing that mutual funds are strongly affected by PHISIX, that also means that there is a very big room for growth in mutual funds. Since mutual funds are highly advised for long term, right now is the right time because values are cheap and indicators are telling that it is heading in the right direction.
Financial experts are saying that March is the right time to buy shares either in stocks and mutual funds. Their forecast held true as the downtrend stopped and the market consolidated. However, the consolidation seems to take so long (probably because of the problems in Libya and Japan) and the uptrend is already impatiently waiting at the corner.
