Ask Your Advisor: Sell or buy more of a high-performing UITF?
Things are going up for a client’s investment in a UITF. Should she already sell or invest more?
An investor client recently approached us with questions on her US dollar investments. She has an unrealized gain of 15% on her Metro$ US Equity Feeder Fund, which is a Unit Investment Trust Fund (UITF) that invests in the companies that make up the S&P 500 Index. She wanted to know if she should keep adding to the fund or take profit and sell her holdings. And should she sell her holdings, what other global equities may she invest in?
Members from our Pooled Funds Management Department and Multi-Asset Investments Department under Trust Banking Group had this to say: The client may continue to invest in US equities as we believe the tech sector still has room to rally and the US economy remains surprisingly strong. This is supported by a robust labor market which has consistently beaten new job estimates for 4 consecutive months. Low unemployment will continue to drive domestic consumption in the US private sector.
It is important to note that the “Magnificent 7” stocks of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla comprise about 30% of the S&P 500. The four other top sectors include financials (13%), healthcare (12%), consumer discretionary (11%), and communication (9%) as of February 29, 2024. So, while we continue to see growth opportunities in tech, we must also acknowledge the concentration risk in this sector.
Bottomline, our client may also consider taking in her gains by selling all or a portion of her US equity fund and reinvest in other growing markets.
Japan is a potential consideration
Japan is another country that our Trust Banking Group is overweight on. Inflation has finally returned to the Japanese economy, allowing corporations to hike prices and rake in greater profits. Although the Bank of Japan (BOJ) recently exited negative interest rates, the central bank stated that monetary policy will remain loose and will not be similar to the tightening cycles seen in the US and Europe.
The weak Japanese yen should also benefit Japanese exports and tourism and recent wage hikes should also help boost domestic consumption. Metrobank Trust has a dollar-denominated Japan Equity Feeder Fund where the top 5 sectors include industrials (22%), consumer discretionary (20%), information technology (16%), financials (13%), and health care (8%) as of February 29, 2024.
Diversification via Eurozone
Despite some economic headwinds and record-high interest rates, the Eurozone has also become a favorite of our Trust team because of its more diversified equities profile compared to the US’ tech-heavy S&P 500. The Eurozone is comprised of 20 member states of the European Union that have adopted the euro as their primary currency. The region recently avoided a technical recession in the 4th quarter of 2023 and economic activity is expected to normalize once the European Central Bank (ECB) starts cutting interest rates. Metrobank Trust has a dollar-denominated Eurozone Equity Feeder Fund where the top 5 sectors include financials (18%), industrials (17%), consumer discretionary (16%), information technology (14%), and consumer staples (7%).
The Metro$ US, Japan, and Eurozone Equity Feeder Funds grew by 27%, 23%, and 13%, respectively from end-February 2023 to 2024. However, it is important to note that past performance is not indicative of future results. Our Trust team has shared their personal views and opinions based on their analyses of these economies and respective key sectors. In the case of the Japan and Eurozone Equity Feeder Funds, the investor is also exposed to foreign exchange risk as the target funds are denominated in US dollars while the shares being purchased are denominated in local currency. If clients have the appetite to accept these risks, then our UITFs can provide access and flexibility to invest in the equities markets of major global economies.
EARL ANDREW “EA” AGUIRRE is a Market Strategist at Metrobank’s Financial Markets Sector and has more than 10 years of experience in foreign exchange, fixed income securities, and derivatives sales. He has a Master’s in Business Administration from the Ateneo Graduate School of Business. His interests include regularly traveling to Japan and learning its language and culture.