2007 Annual Report - Sun Life Financial

Reaching Greater Heights
Management Review and Outlook
Sun Life
Prosperity Money Market Fund, Inc.
2007 PERFORMANCE REVIEW. Return on Investments (ROI) was 2.05 % and
lagged behind the benchmark 30-day time deposit yield of 3.11 %. Due to
heightened volatility in the bond and equity markets, unusually high levels of
cash were maintained in overnight placements to support increased liquidity
requirements that consequently dragged down returns.
Virtually all earnings came from short-term cash deposits. No short-term
commercial debt issues were purchased due to liquidity concerns.
FINANCIAL MARKEtS IN REVIEW
The year 2007 was a rousing period for global
financial markets. The deflation of the housing
bubble in the United States and the ensuing capital
and funding crises threatened to throw the country
into recession.
To be sure, the Philippine financial markets were not
spared from the global credit rout. The resulting sell
down of Emerging Market assets indicated that these
regions have not decoupled enough to be immune to
the broad re-pricing of credit risk. Overall, markets
remained reasonably resilient as the appreciating
peso, benign inflation, robust OFW remittances and
increased government spending on developmental
and social services underpinned an unprecedented
consumption boom. Government coffers got a boost
from the sale of privatized assets. It also benefited
from reduced borrowing costs due to a strong
currency, high market liquidity and low interest
rates.
For a while, the scandal over the alleged
involvement of the First Family in the overpriced
national broadband network project threatened to
eclipse the country’s favourable economic gains.
However, renewed attempts to unseat President
Arroyo were nipped in the bud due to the ruling
coalition’s overwhelming control of the lower house.
14 Prosperity Funds
Local financial markets remained liquid even as
interest rates traded along a steeper yield curve. The
average 91-day Treasury bill slid to 4.19% from 5.24%
in 2007, while yields in the 7-year belly went flat.
In contrast, the longer dated 20-year tenor rose to
8.33% compared to 7.77% in end-2006. The spate of
U.S. Fed rate cuts in the 2nd half encouraged similar
cuts by local monetary authorities albeit in a lesser
magnitude.
INVEStMENt APPROACh
Under existing investment guidelines for accrual
type funds, investments are restricted to assets with
a term to maturity not exceeding one year.
LONG tERM PERFORMANCE REVIEW
As the country makes headway towards fiscal
balance in 2009, further fiscal consolidation would
translate into fewer borrowings and could keep
down interest rates. Conceivably, a credit upgrade in
2008 is possible if fiscal reforms are sustained.
Lower returns should be expected for the year
although the drop in yields should not be as acute as
in 2006. Interest income from government securities
will remain as the main source of revenues.