2007 Annual Report - Sun Life Financial

Reaching Greater Heights
Management Review and Outlook
Sun Life Of Canada
Prosperity Bond Fund, Inc.
2007 PERFORMANCE REVIEW. Return on Investment (ROI) for the year was 2.38%
and lagged portfolio benchmark of 2.78 %. Net Asset Value per Share (NAVPS)
closed moderately higher at Php1.9139 at yearend.
Market uncertainty prompted market players to push up bids at yearend and
this took its toll on bond asset valuations. Still, we are confident that a defensive
asset allocation strategy that is aggressively biased towards loans would pay
off in the long term. Under the current mix, the portfolio is expected to greatly
benefit from steady accrual income that would provide insulation against
heightened market volatility in the coming months.
FINANCIAL MARKEtS IN 2007 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. Massive asset write downs, corporate
downgrades and dire aversion to risky assets were
the theme staples. European markets reeled from
cooling housing markets and bad credit.
Certainly, 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. Notably, government finances
were shored up by the sale of privatized assets and
benefited from reduced borrowing costs due to a
strong currency 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
6 Prosperity Funds
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.
System liquidity remained high as ever and 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
Investment doctrine is geared towards investing in
high yield, investment grade assets with an overall
risk profile of less than average. Private lending is
restricted to prime corporate issues and collateral is
required as practicable. Bond portfolio duration was
maintained amid highly volatile market conditions
in the first nine months, and increased thereafter in
anticipation of aggressive rate cuts by the U.S. Fed.