Goodbye dollars, hello euros

this story was taken from www.inq7money.net

Goodbye dollars, hello euros
Posted: 6:52 AM Feb. 26, 2006
Doris C. Dumlao`
Inquirer

(Published on page B2 of the February 26, 2006 issue of the Philippine Daily Inquirer)

PABLO Yambot, a yuppie in his early 30s, has long wanted to convert a portion of his savings in euros or in financial instruments denominated in Europe's unified currency.

This systems manager for global business services at Procter & Gamble Asia Pte. Ltd. isn't really an active portfolio investor but he's well-read, well-travelled, fairly attuned to global financial trends and has excess cash outside of his household's cookie jar. His interest was kindled upon noticing that the US dollar has been weakening against major global currencies while the euro has held its ground.

Yambot's mindset reflects what many central banks across the globe are now doing—shifting some of their foreign reserves to euros. And there's an increasing supply of high-yielding securities in this currency as many emerging markets, including the Philippines, have issued new euro-denominated bonds primarily to diversify their currency risks.

In the past, it wouldn't have been easy for a domestic retail investor like Yambot to find a euro-denominated financial instrument that would earn more than what's offered by foreign currency deposit units or dollar accounts. For instance, the Philippine government sold 500 million euro bonds early this year (as part of a $2.1-billion fresh global bond foray) and Yambot would have eagerly bought some if he had the chance.

The Ayalas' Bank of the Philippine Islands now makes it possible for resident investors to participate in a fund that invests in those euro-denominated securities. Its ALFM Euro Bond Fund, created in March last year but offered to the public only recently, is the Philippines' first and only mutual fund denominated in euros.

"The euro has come of age," says Romeo Bernardo, chair of the ALFM Euro Bond.

European Union's Ambassador to the Philippines Jan De Kok who graced the new fund's launch says the euro, introduced in 1999 only as a paper currency, has gone past birth pains to emerge as a major global currency.

"This fund is yet another confirmation that the euro has arrived in the Philippines," De Kok says.

Euro banknotes and coins have been in circulation since January 2002 and are now a part of daily life for over 300 million Europeans living in the eurozone, being the single currency used by 12 European Union countries: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland.

"It's an alternative for investors to allow them to spread their risk and therefore reduce their losses and increase their gains with another international currency, the euro," De Kok notes with pride.

"The economic fundamentals in the eurozone have gotten better and better and that shall underpin the strength of the euro, allowing investors to make larger profits while having to take less risks," he says.

A mutual fund is an investment entity that pools shareholder or unitholder funds and invests them in various securities. The units or shares are redeemable by the fund on demand by the investor. The value of the underlying assets of the fund influences the current price of units.

In the case of the ALFM Euro, about 98 percent is currently invested in Philippine euro-denominated sovereign bonds but the mutual fund plans to shift a portion to other Asian sovereign debt issues.

Dojo Sison, president of BPI Asset Management Inc., says the stable interest rate regime in the euro-zone, as opposed to the monetary tightening cycle in the United States, is providing a good opportunity for bond investors. In 2005, for instance, the ALFM Eurobond Fund had outperformed US bonds. Sison says the euro has more room to appreciate this year, providing investors in euro-denominated assets with opportunity to lock in further gains.

The mutual fund is benchmarked against one-year German Treasury bills and has likewise overperformed it so far this year. From year to date, ALFM Euro has posted an annualized return of 9.17 percent versus the 2.72 percent from the comparative German treasury. For the past 30 days, it has yielded 3.53 percent versus the 2.47 percent German benchmark.

The ALFM Euro aims for steady income with returns and inflows derived out of investments in primarily foreign currency-denominated instruments and securities issued by local and foreign entities, with its base currency in euros.

Minimum investment in the new mutual fund is 1,000 euros while minimum additional investment is 200 euros. It is distributed by BPI Capital Corp., BPI Securities Corp. and BPI Investment Management Inc. This year, ALFM Euro is targeted to grow its size by about 20 percent, leveraging on BPI's leadership in the country's growing mutual fund business.

BPI officials say the mutual fund will also target European expats in the Philippines with excess euros which are kept only in bank deposits and would like to invest in Philippine euro-denominated debt papers.