The Key to Capturing More Investing Opportunities

Funds are a cornerstone of modern investing, offering a convenient way for individuals to access financial markets. While most investors are familiar with their well-known benefits—such as diversification and professional management—there are several underrated features that deserve more attention. These often-overlooked aspects make funds a compelling choice for both beginner and seasoned investors.

Liquidity: Buy as much as you want and access your money when you need it

One of the less discussed advantages of funds is their liquidity. Unlike direct investments in real estate or time deposits, most funds allow you to redeem your investment on any business day, with crediting of proceeds going to your account in just 2 - 5 business days, depending on the fund. This ease of access makes them a great option for emergency funds or financial goals with uncertain timelines.

In the Philippine setting, where financial markets are less developed, the liquidity feature is also a large convenience especially on the buying side. High net worth and institutional clients may experience difficulty in executing even a blue chip stock, such as SM or AEV at the price they want, given today's thinly traded market environment. Funds allow investors to buy as much as they want of the fund at the fund’s prevailing price (Net Asset Value Per Share) of the day.

Essentially, a client can execute both on the buy and the sell side for all their volume at one price, without the fear of the trade not getting done.

Affordable: Cost Efficiency through Economies of Scale

Many investors assume funds are expensive due to management fees, but the opposite is often true. Because funds pool money from numerous investors, they can spread operational costs across a large base, reducing per-unit expenses. Moreover, passively managed funds like index funds often have low expense ratios.

With the recent SEC removal of the minimum commissions brokers can charge their customers, many funds, given their institutional nature, are able to avail of lower, negotiated commission rates with their friendly brokers. Whereas a retail client may still pay 25 basis points on the gross value of each transaction, funds pay a fraction of that, likely in the 8 - 15 bps range.

This matters in the long run, as such cost advantage translates into better net returns over time, especially when compared to DIY portfolios with frequent trading costs.

Tax Advantages

Speaking of lower costs, funds are also able to enjoy a tax advantage that the average client is unable to. In particular, retail clients are taxed a dividend withholding rate of 10% in the Philippines, vs. 0% for funds, which are set-up as corporations. This tax benefit gets passed on to the individual investor as there aren't government taxes to pay at redemption. I believe this relative tax advantage is part of the strong reason why dividend-based funds have actually outperformed in the Philippines over the past 5 years, when general market had a sideways-to-down bias.

Tailored Risk Management Through Fund Categories and Combinations

Funds come in a variety of types, ranging from conservative money market funds to higher-risk equity funds. This spectrum allows investors to align their portfolio with their specific risk tolerance, time horizon, and financial goals.

Investors seeking to fulfill short-term goals can consider bond funds. Those seeking long-term wealth building can do balanced or equity funds... While those who even feel that the Philippines will continue with its malaise can go international and invest in global funds altogether.

The added beauty given these options is it empowers retail investors to build macro asset allocations in a single portfolio. From just having a portfolio of stocks that tend to correlate in movement (e.g. when SM, BDO, SMPH are down, it's highly probable AC, BPI, and ALI are too), clients can now have a diverse basket of assets with different sensitivities to the current market or economic cycle, to ensure performance whatever the season. In short, these options allow the retail investor to build all-weather portfolios, tailored according to their specific risk tolerances and goals.

This level of customization across various instruments through funds helps investors stay focused on the big picture. As a starting point, COL Fund Source provides a quarterly recommendation on the appropriate asset weightings depending on an investor’s risk tolerance.

Go Global

Building off the previous point, for a Philippine investor–where financial markets lack the degree of sophistication seen in more developed markets–funds also present the most accessible gateway to invest globally. Funds allow the retail investor to bypass the minimum high net worth requirement imposed by traditional banks and access assets that have, quite frankly, outperformed the Philippines over the past several years.

Instead of being stuck with just reaping the PSEi’s returns, local investors can now invest in the S&P500 or the Nasdaq, US benchmarks which are home to the forefront of technological innovation.

Funds make it easy, as a good number also allow entry through the Peso currency, instead of having to convert to dollars. Of course, the fear of not knowing which particular security to buy in a particular country is also reduced, because that is precisely the role of the fund managers of these foreign funds the investor is buying.

Automatic Rebalancing

Market conditions are always shifting, which can throw a portfolio out of alignment with its original investment strategy. Funds handle this through automatic rebalancing. Fund managers continually adjust holdings to maintain and meet the fund’s stated objectives.

You save time and effort while ensuring your investments remain on track without needing to manually rebalance. You need not worry that your broker was unable to include you in a trade, or that you forgot to participate in the next tender offer.

In the case of one of the funds we manage, the COL Strategic Growth Fund (CSG), we do everything for the client with the goal of delivering risk-balanced returns over the long term. We go beyond just tracking a sector, or index. Instead, we take profits on positions, become aggressive when we see the opportunity, and position according to themes we believe will outperform on a year to year, quarter to quarter basis, so that the client can rest assured their portfolio is taken care of for the long term.

Conclusion

Funds and UITFs are much more than just a convenient way to invest. Their liquidity, cost efficiency, tailored risk options, and built-in professional management make them a versatile tool for achieving financial goals. Whether you're just starting out or are a seasoned investor, taking full advantage of these underrated features can help you maximize the value of your investments.

Next time you're evaluating your financial strategy, consider how these overlooked benefits of fund investing can work in your favor. You might just find that they’re the key to unlocking your portfolio’s full potential.