The Effect of Behavioral Factors on Investment Decision Making by Individual Investors on Uitf in the Philippines

My topic will be the effect of behavioral factors (overconfidence or herd behavior) on investment decision making by individual investors on uitf in the Philippines.

The data collected for this will be collected by a questionnaire (question would contain fundamentals affecting investment decisions). Target participants would be trust entities, person with investments in UITF and persons with similar investment to UITF. 

Also, there is a paper that i found that is similar to the topic. However, the paper pertains to many other investments and not in particular to UITF.

Introduction

Collective Investments such as Unit Investment Trust Funds (UITF) have become a popular investment vehicle in the Philippines it is, among other things, transparent, liquid and easily accessible. Growing investor knowledge, good market returns and its suitability for diversification, which minimizes risk, also contributes to its popularity. The growth in this part of the UITF industry has been so dynamic that regulation and the introduction of various new intermediary layers are constantly affecting the value that is added to the investors.

Why do investors invest? The two main motivations for investors investing are; first to save, the desire to pass money from the present to the future in anticipation of future cash needs, and second, is to increase wealth or to make our money grow as stated in the study of Goetzmann (1997). There is a trade-off for the investor between these motivations, the investor needs to assess the risk of losing money against expected returns of the investment. Also, in another study of bogle (1998) on the four dimension of investment return puts into perspective that the reality of investing is that “extra percentage points of standard deviation is meaningless, while extra percentage point of long-term return is priceless”

However, investment theory explains the way in which investors specify and measure risk and return. Generally, investors are faced by systematic and unsystematic risk, which they deal with by constructing portfolios invested in various asset classes in order to reduce risk (Marx, et al., 2003). On the other hand, Markowitz’ study on portfolio selection (1952) realized that it was not enough to look at the expected risk and return of the stock. By investing in more than one stock, an investor could reap the benefits of diversification and among them are a reduction of the risk level of the portfolio.

Investment in Collective Investment Scheme/UITF have seen a worldwide growth during the latter part of the 1990’s that continued until today. As seen in the table below (from Investment Company Institute) CIS/UITFs continue to grow. The funds were created to give chance to everyone gain access to the stock exchange without actually investing directly. As the success of this new investment vehicle grew, access was also given to other asset classes such as property, capital and money markets, as well as several kinds of financial instruments. The year 2005 was the proliferation of new trust products in the Philippine market.