Philippine Stock Market Research

Playing Defense for the First Time

October 20, 2015

The year-to-date (YTD) performance of most Philippine Stock Funds are mostly in the red.  As of this time, their average YTD return is negative 4.49%.  The best comes from United Fund Inc. with a positive 1.72% return, and the least favorable is ATRKE Alpha Opportunity Fund, Inc. with a negative 24.82% return.

The PSEi reached the 20x PER level in March 2014 and stayed there until August 2015.  This is the longest stretch since its inception in 1994.  With that, the downside was heavy, and the PSEi gave way as it fell from its all-time high of 8,137 on April 7, 2015 to 7,061 today.

Since 2010, we were all-out offensive in our recommended stock portfolios for our clients.  The margin of safety rate was high, and 100% of the funds of recommended portfolios were allocated to stocks.

This year marked the first time we had to play defense.  A US interest rate hike was looming, the PSEi PER was overheating and earnings and GDP were dwindling.  There was also a global economic slowdown and tensions between countries.  The funds’ protection was our top priority, and we were fearful when others were greedy in 1Q15.

We remembered the late Irving Kahn’s advice to value investors in uncertain times.  “Keep a good amount of liquidity.”  That’s what we did and formed the stock component of funds with a portfolio of cash dividend paying bargain stocks and stocks benefitting from the weak peso.  The results were fair as seen below.

2015 Stock Picks vs PSEi

2015 Stock Picks vs ASI

CS Fund vs PSEi

Abundance Fund vs PSEi

Despite the negative returns, the investment portfolios were more resilient than the indices.  Cash dividends spearheaded the 2015 returns rather than share price appreciation.  The investment portfolios also have a secret weapon, a bazooka if you will just like Hank Paulson’s reference during the sub-prime crisis.  The investment portfolios have huge cash components.  The first two have 50%, while the other two have 70%.  This means they have greater buying power when significant margin of safety appears again.  They will be able to recover and rise faster than the indices.

We give ourselves just a passing grade in our first time in playing defense.  What is important is that we did not put our recommended investment portfolios in peril.  The single-digit percentage paper losses are bad marks.  The deployment of the cash component when significant margin of safety returns can erase these bad marks.  We are hopefully targeting sound blue chips whose share prices will be struck down by fear in the market.


The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.