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COMMENTARY FOR INFINITY PESO UNIT INVESTMENT TRUST FUND (UITF)
The Peso Trust Maximizer posted an absolute year-to-date return of .07928% and year-on-year return of 3.7747%, net of taxes and fees while the Infinity Peso Long Term Bond Fund had an absolute return of .3493% since its inception date as of end of the first quarter of 2007.
Yields for local bonds continued to remain at relatively low levels in the first quarter of the year due to low inflation, excess liquidity in the financial system and strong performance in the fiscal front. Inflation posted a record low of 2.9% for 1st quarter of the year, which is substantially lower than the Bangko Sentral ng Pilipinas (BSP) target of 4.0 – 5.0% for the year 2007. The decline in inflation was highly attributed to declining oil prices in the world market and the appreciation of the local currency (PhP) versus the US Dollar. The drop in inflation happened even at the backdrop of growth in money supply which potentially contributes, to inflationary pressures. The fiscal position of the country continued to improved as revealed in the budget deficit for 1st two months of 2007 falling to PhP 18.6 billion compared to PhP 40.4 billion level a year ago. Contributory was the government's sales of its PLDT shares booked in late February in relation to its privatization efforts.
However, despite the good fiscal performance in the 1st two months of the year by the government compared to the year 2006, the budget deficit was closed to the full year target of PhP 63B. The increase in the deficit was mainly due to the underperformance of the revenue side of the government, meaning poor tax collections. The government though is confident in maintaining its full year target for 2007 and stated the revenue streams will be contributed by efficient tax collections and sales of government assets in this year.
The money managers of the country have expressed concern on the level on interest rates relative to the inflation and the growing money in circulation, which, they say, in the long run will be contributory to inflationary pressures. Market players have taken interest rates on an upward bias with this news and are currently awaiting guidelines from the BSP on the new monetary policies that will be adopted to address such concern. The excess liquidity in the financial system gas disallowed interest rates to increase with great momentum.
Political risk premiums related to the coming elections has so far not being placed in the equation by market players, as such, not reflected in the movements of interest rates. The events leading to and the outcome of political exercise will, although, be a focus,. So far, but the risk involved is believed to benign.
The Peso Trust Maximizer and Infinity Long Bond Fund remains very liquid and will continue to be invested in short duration as we continue to be cautious in anticipation of 1) the results of the local elections and 2) the guidelines to the new set of policies that should address the growth in liquidity in the market.
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