InvestmentsStock Market 101StocksUITF / Mutual Funds

Easier Than Stocks: How To Gain From UITF Trading(3-min read)

Caveat emptor. Aside from trading stocks, I also trade (buy-and-sell) UITF actively. Whut?
Yes, I’m into trading UITF’s. It’s actually a lot easier if Juan knows how to go about it. My special someone gave me this idea which I want to share with you.

A Bull Market by cowlet, on Flickr
Trading UITF can be less costly than actively trading stocks due to absence of trading fees every time you buy and sell. Do note though that there are management fees, taxes etc embedded in the unit prices so best to check with your bank. Likewise, some UITFs have minimum holding periods before you can sell (e.g. 1 month). It may not be as exciting as trading actual stocks in PSE but since it is less volatile and very much predictable, I’d say the potential gains outweigh the boredom and friction costs. In stocks, timing the market is risky. With UITF, timing the market is very easy.

Here’s the trick. Caveat, UITF is meant to be a long-term investment so before you turn it as a short-term trading instrument, better make sure you have the proper risk appetite and training.

Online Subscription
I’m not paid to plug for them but I use BPI ExpressOnline in my online subscriptions of their UITF. You just sign up one time in a nearby branch, meet the minimum initial investment for UITF, and you can do your additional placements or redemptions online so it’s fast and easy. Check with your favorite bank if they also have this.

Choose an Equity-based Fund
The key is to time the market to increase chances that you will gain from the trade. The secret lies in the cutoff time in buying and selling your UITF. Easiest will be to subscribe to an equity-based UITF. Some UITF mirror the PSE which makes it easier to predict the movement while some UITF equity funds just focus on 5 to 10 active PSE stocks. In either case, it is easy to research the components of the fund in the bank’s website.

If the actual stock market is green, then there is a big chance that the equity-based UITF prices to be published by end of day (~5pm to 7pm) is also green. If the stock market is down today, then equity-based UITF will likely be down as well. As such, if you buy before cut-off (in this case by 2:30pm), then you’ll be able to buy at end of day prices. Same with selling.

What I do, if the market falls big time in morning trade until after-lunch re-opening, then I buy some more UITF before cut-off, so that I will be able to buy units at lower prices. Conversely, if the market is very much up (which bodes well for my stocks portfolio), I redeem some units before cut-off so that my selling price is higher compared to previous day. No guarantees of course because sometimes fund managers of UITF outperform or underperform compared to the index but majority of the time, they move in the same direction. So the profit lies in being able to predict the unit prices (as guided by market movement) and cashing in on the easily-anticipated movements. That’s hard to do in the stock market, especially short term.

Downsides
I mentioned that it tends to be a bit boring since Juan is just taking advantage of timing differences. But then again, less excitement may mean less risks leading to more gains. Further, since the UITF tracks the index or some select stocks, daily gains may not be as big as gains of individual stocks. But then again, that also means losses may not be as big as those you lost in individual stocks. Lastly, though buying UITF reduces your investable funds immediately, proceeds from selling takes 3 banking days so replenishment of your bullets is not as quick as that of stocks trading. But if you have ample cash, then you can always buy and sell in tranches, anyway there are no transaction fees.

Again, caveat emptor.

Goodluck! This is actually good practice for beginners. Especially for the Jon Snow’s of the stock market.


Photo: A Bull Market by  cowlet 
Creative Commons Creative Commons Attribution 2.0 Generic License   

Advertisements
Advertisements
Share the richer life:

What's on your mind?

This site uses Akismet to reduce spam. Learn how your comment data is processed.