And the best performing Philippine-invested equity fund is…
Humans love to rank things, performance and other humans for several reasons. But let us limit the discussion to Philippine-invested equity mutual funds (MFs) and unit investment trust funds (UITFs), as they are the only two of the three types of pooled funds in the country with central databases.
Why do humans love to rank? Firstly, ranking affords cognitive ease versus looking at more complex numbers like volatility, Sharpe ratio or sector allocation.
Globally, investors look at relative rather than absolute performance. However, with unsophisticated investors, absolute performance is still the name of the game.
A high rank is automatically made into an anchor to rate performance overall, even if the ranking may not capture other aspects of fund performance. A high rank is taken to mean high fund manager expertise and overall fund stability.
Conversely, a low-ranking fund means a fund is perceived to be losing out and is to be avoided simply because humans are loss-averse by nature.
When ranking is by number of investors or size of assets, herd mentality kicks in, particularly in times of uncertainty. Humans will just “go with the flow.”
Unfortunately, linear ordering creates a false sense of precision, especially when the differences in ranking are either too small or too wide. Status bias is attached to high-ranking performance.
And many times, investors forget that the ranking is just a snapshot, as too much emphasis is placed on short-term performance.
So, to avail of the benefits of ranking performance while minimizing its shortcomings, our company, the Personal Finance Advisers Philippines Corporation comes up annually with its own ranking based on the following: (Details of the ranking are found in the My PF App)
1. Annual returns are computed and then compounded versus just using the starting and ending net asset values per share or units;
2. One-year Treasury bill rate is used as the risk-free rate and is compounded just like fund returns;
3. Returns are measured over rolling five-, 10- and 15-year periods;
4. Returns are correlated with the Philippine Stock Exchange Index Total Return Index or PSEi TRI;
5. In addition to compounded annual returns, Sharpe ratio, Treynor ratio and Jensen’s alpha are generated;
6. For index trackers, tracking errors are also generated; and
7. All data are derived from pifa.com.ph and uitf.com.ph.
So as not to come across as endorsing any fund, we will avoid giving the names of thefunds with the best performance. We will just focus on the return and benchmark results.
For the rolling 15-year period, no fund outperformed the PSEi TRI’s return of 7.75 percent per annum.
But among the funds, three funds were consistently top performers based on the Sharpe ratio, Treynor ratio and Jensen’s alpha.
Still, none of the funds had at least a zero Jensen’s alpha. Two of these funds are index funds.
And the tracking error of such funds hit a maximum of 2.83 percent.
All of these funds are MFs. But please note that the performance ranking does not take into consideration entry and exit fees.
For the rolling 10-year period, 10 funds outperformed the PSEi TRI, proving that in a market like the Philippines, indexes can be beaten.
Among the funds, six are dividend funds. This is understandable given the weak performance over the same period of the stock market and, therefore, of capital appreciation funds.
Among the top five performers, ranking was more or less stable across Sharpe ratio, Treynor ratio and Jensen’s alpha (i.e., all alphas were positive). Two of these funds are mutual funds, while eight are UITFs. There were no index funds in the top five, but their tracking error hit a maximum of only 1.05 percent.
For the rolling five-year period, 28 funds outperformed the PSEi TRI with only four of them being MFs. Eight of the funds were dividend funds while there was only one index fund.
To be fair, the index fund was trying to mimic a subsector and not the PSEi TRI. Rankings changed dramatically when it came to the Sharpe ratio, Treynor ratio and Jensen’s alpha. But at least nine of the 28 outperforming funds had positive Jensen’s alpha.
And in terms of index funds, the tracking error was at a maximum of 1.65 percent (i.e., not counting the non-PSEI TRI tracking index fund).
As a final note, please remember that past performance is not a guarantee of future returns and that the best way to smooth out the volatility in investing in stocks, whether directly or through pooled funds, is to just do peso-cost averaging.
Send questions via “Ask a Friend, Ask Efren” free service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook.Efren Ll. Cruz is a registered financial planner and director of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach. To subscribe to the My PF App, email masterclass@personalfinance.ph. To learn more about personal financial planning, attend the 115th RFP Program this March 2026. Email info@rfp.ph or text 09176248110.
