Primer on Mark-To-Market Valuation

 In line with the global thrust toward standardized valuation methods and to promote more transparency in the accounting of mutual fund values, the Philippine Securities and Exchange Commission has directed all locally incorporated investment companies or mutual funds to adopt the mark-to-market method of valuation no later than October 1, 2006.

 What is Mark-To-Market Valuation Method (MTM)?

Mark-To-Market Valuation Method, or MTM is an internationally accepted investment valuation method wherein underlying investments in mutual fund portfolio are valued based on their most recent market prices. 

In an MTM scenario, the Net Asset Value per share (NAVPS) of mutual funds reflects the market value of each of the fund's underlying investment securities, thus, providing shareholders with an accurate valuation of his investment at any given time.

The Net Asset Value is computed by: 

NAVPS =     WWNet Asset Value

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TTTTYYY Fund’s outstanding shares

How is it different from the traditional “accrual valuation”? 

MTM is a more effective method of valuing long-term investments such as bonds and corporate papers. While accrual method assumes a constant value for bonds in its portfolio, an MTM method takes into consideration its current market price.

To illustrate accrual vs. MTM: 

  Accrual Method

   MTM Method

Given that scenario, will bond funds on MTM be riskier as compared to bonds on accrual?

 As in any form of investment, investors should carefully consider the risk factors before making an investment decision. Since the investments of the Fund will be valued based on current market price, the NAVPS may fluctuate over the short term. But it is important to note that whether a fund is valued based on the accrual or MTM method, a bond fund’s risk position is based on its underlying securities. In the case of MAA Dollar Fund, there would be no change in its investment parameters as it will continued to be primarily invested in sovereign issues and high grade corporate papers.  

How will it affect my investment?

 The Fund’s NAVPS might fluctuate over the short-term and this might also cause your investment’s value to fluctuate. But for as long as you hold on to the shares, the value would most likely recover and settle at par value as the bond nears maturity.

 What are new opportunities in an MTM scenario?

As a result of the conversion to the MTM valuation method, investors can look forward to more active trading. Our expert professional fund managers will constantly be on the lookout for trading opportunities which may redound to higher yields.

 What is the Fund’s portfolio allocation?

 The Fund manager proposes that the asset mix of the fund's portfolio shall be 10%-15% in savings and Time Deposits for liquidity and the balance in long-term ROP bonds.

Proposed Portfolio Allocation:

 What will be the projected return?

 Projected returns of the Fund are based on total coupon collected plus possible trading gains. For 2006, because of the improved economic outlook for the country, the Fund should yield higher than the average annual return for the last two years.