Financial Blog

2022 was a year for the books for all the wrong reasons. In fact, 2022 was the worst year for both the stock and bond markets since 1871. The traditional 60-40 portfolio suffered huge losses last year, as both asset classes got hammered.

In previous years, bonds vis-a-vis stocks usually offer a good hedge for your investment risks unfortunately though, this was not the case last year. Global inflation was the biggest factor that prompted Central Banks worldwide to aggressively raise rates. Hence, the financial markets saw extreme amounts of volatility as well, which gave investors a lot of sleepless nights.

As current market sentiment hopes for a less hard landing in 2023, it could be ideal to adapt a “Back to Basics” approach as we all grapple with the aftermath of one of the biggest bear markets in the past decade.

Going Back to Basics

Oftentimes, after a year of extreme market volatility, going back to basics or focusing at the fundamentals is the first step to regaining our bearings and rebuilding the confidence that were lost after incurring losses. It is true that 2023 presents a lot of investment opportunities and potential, but one cannot truly eliminate possible headwinds such as the global recession fears on top of another wave of inflation related concerns.

Perhaps, a rather secure investment outlet that one can consider in implementing this strategy is looking into very short-term investments like Money Market Funds or Cash Management Funds.

These Funds generated positive returns in 2022 compared to medium and long term fixed income funds that yielded negative returns. On average, Money Market funds generated 1.50%-1.75% full year returns in 2022, and this year presents a great opportunity to re-park excess short-term cash or emergency cash in Money Market funds to reap better yields for the Conservative appetite as rates appear to peak sooner rather than later.

The Bangko Sentral ng Pilipinas (BSP) is set to continue raising rates this year by 25-50bps. This figure is miniscule if one is to compare it to the 350 bps rate hike the Central Bank implemented in 2022. After seeing Treasury Bill rates close to near 0% at the height of the CoVid-19 pandemic, the 365-day Treasury Bills are now showing yields of 5.375%-5.50% over the past few auctions. As inflation outlook seems to be promising this year and will see a declining trend, the local bond curve has flattened massively with the current 10Y paper trading sub 6.0% (~5.90%-6.0%) from a high of 8% whereas short-dated instruments have yet to adjust lower.

If you take things just at face value, it will become apparent that short term money market instruments are sensible investment outlets as the lag by yields of shorter maturities to move lower should also end as soon as central banks stop raising rates. Another positive point for short-term portfolios is the BSP’s  Bills auction, which is one of the investment options of our SB Money Market Fund.

In the most recent auction of this instrument, we saw 1-Month tenor reach a high range of 6.0%-6.30%, with the lower range just 10 bps shy of the liquid 20Year RPGB (FXTN 2025). Healthy and decent short-term rates are one of the few certainties in a market that  can still be faced with  headwinds continuing from last year.

SB Money Market and Cash Management Funds

Twenty five days into 2023,  the SB Money Market and Cash Management Funds have generated returns of  0.26% and 0.24% respectively, which if annualized, can potentially provide better than  last year’s full year returns. Though the past three weeks’ performance cannot assure future returns, from a money market perspective, both Fund investment outlets look very promising as a short term and less volatile investment. With short-term rates looking to remain elevated amidst growth and inflation concerns, both the SB Money Market and Cash Management Funds can be a good starting point to dip our feet anew in order to regain our confidence to swim back into the deeper waters once again.

To learn more about our Money Market UITFs, you may go to:

SB Peso Money Market Fund: https://www.securitybank.com/personal/investments/unit-investment-trust-funds/sb-peso-money-market-fund/

SB Peso Cash Management Fund: https://www.securitybank.com/personal/investments/unit-investment-trust-funds/sb-peso-cash-management-fund/