UMVA has learned that a significant change has been made to the investment rules for unit investment trust funds (UITFs) in the Philippines, allowing them to increase their exposure to exchange-traded equity securities.
The Bangko Sentral ng Pilipinas (BSP) has raised the single-entity exposure limit for UITFs invested in these securities to 20% from 15%, giving them more flexibility in their investment strategies. However, this additional 5% exposure must only be composed of investments in exchange-traded equity securities of the same entity or issuer.
The central bank has also relaxed exposure restrictions for equity index-tracking UITFs, allowing them to exceed the 20% cap to match the actual benchmark weighting of the index component issuer. This move is expected to provide more investment opportunities for UITFs and help them track their benchmarks more closely.
Despite the increased exposure limit, UITFs' combined exposure to any entity and its related parties must remain at a maximum of 15% of the fund's market value. This ensures that UITFs continue to manage their risks and maintain a diversified portfolio.
UITFs are investment vehicles that pool funds from retail investors and invest them in various instruments such as securities, debt, and stocks. They are managed by trust companies or bank trust departments, which must be mindful of the aggregate investments of a UITF in any entity and its related parties.
The BSP requires trust entities to have adequate tools and controls in place to effectively manage the overall risk exposure of UITFs. They must also notify the BSP supervising department by the next banking day when an exposure limit is breached, providing details on the breach and the actions taken to restore compliance.
In cases where breaches occur due to mark-to-market investment movements, UITFs have 30 days to address the issue. However, all other types of breaches must be addressed immediately, and trust entities must inform the BSP once the breach has been corrected.
