Invest In Philippines Etfs: A Beginner's Guide

Exchange-Traded Funds (ETFs) are a great way to invest, especially for beginners, because they offer a wide market, affordability, liquidity, and diversification. ETFs are similar to mutual funds but are traded on the stock exchange. This means that they can be bought and sold just like stocks. In the Philippines, there are a few options for investing in ETFs, including the First Metro Exchange Trade Fund (FMETF), iShares MSCI Philippines ETF (EPHE), and Invesco QQQ ETF (QQQ). These funds offer exposure to a range of companies, from the largest in the Philippines to the top 100 non-financial companies in the US.

Understanding the basics of ETFs

Exchange-Traded Funds (ETFs) are a popular investment vehicle due to their earnings potential, affordability, liquidity, and diversification benefits. ETFs are similar to mutual funds but are traded on a stock exchange, allowing investors to buy and sell them like stocks. This provides a cost-efficient way to diversify portfolios and access a wider market at an affordable expense ratio.

ETFs are open-end investment companies that trade their shares on the stock exchange. They issue shares in blocks called "Creation Units" in exchange for a basket of securities representing a particular index. These Creation Units are typically created by institutional investors, who then break them down into smaller portions to sell to retail investors.

One of the key advantages of ETFs is their underlying index, which serves as a benchmark to measure the performance of a group of securities. For example, the Philippine Stock Exchange's (PSE) main index is the PSEi, comprising 30 of the largest and most liquid stocks.

When investing in ETFs, there are three prices to consider: Net Asset Value per Share (NAVPS), indicative Net Asset Value (iNAV), and the trading price. NAVPS is the price per share based on the book value calculated at the end of each business day. iNAV, on the other hand, provides a more real-time calculation of the price per share, updated by the minute based on the latest trading prices of the stocks in the portfolio. The trading price of an ETF is based on the bid, ask, and done trades in the secondary market.

ETFs offer professional management, instant diversification, and exposure to a portfolio of securities with lower investment costs. They are also simple to understand, making them attractive to both newbie and expert traders.

In the Philippines, there is currently only one ETF available in the market, the First Metro Philippine Equity Exchange Traded Fund, managed by First Metro Asset Management, Inc. (FAMI). This ETF aims to replicate the performance of the Philippine equities market by investing in stocks listed on the PSE index (PSEi).

How to choose an ETF

When deciding on an Exchange-Traded Fund (ETF), it is important to consider your investment goals and risk appetite. ETFs are a great way to gain exposure to a wider market, diversify your portfolio, and manage risk. Here are some key factors to keep in mind when choosing an ETF:

• Investment Objective: Determine your investment goals and risk tolerance. Are you a conservative, moderate, or aggressive investor? This will help you decide on the type of ETF that aligns with your objectives.
• Diversification: One of the benefits of ETFs is that they offer instant diversification by providing access to a basket of securities or a specific index. Consider the underlying assets and sectors represented in the ETF to ensure they match your desired level of diversification.
• Performance and Track Record: Evaluate the historical performance of the ETF and its fund manager. Look at the growth of the ETF over time and compare it to its benchmark index. Consider the fund manager's track record in successfully replicating the performance of the target index.
• Expenses and Fees: ETFs are known for their low expense ratios, but these can vary among different funds. Be sure to review the prospectus to understand the management fees, transaction costs, and any other applicable charges associated with the ETF.
• Liquidity: Assess the liquidity of the ETF by considering its trading volume and the ease of buying and selling shares during stock trading hours. Higher trading volume typically translates to better liquidity.
• Investment Theme: ETFs can be tailored to specific investment themes, sectors, or geographic regions. Decide on the type of exposure you want, whether it's investing in a particular industry, country, or a specific set of companies.
• Index Tracking: ETFs are designed to track a specific index, such as the Philippine Stock Exchange index (PSEi) or the MSCI Philippines IMI 25/50 net index. Review the composition of the ETF to ensure it aligns with your desired index and investment strategy.
• Dividend Distribution: Some ETFs distribute dividends, while others reinvest profits. If dividend income is important to you, review the dividend policy and distribution schedule of the ETF before investing.
• Research and Due Diligence: Before investing in any ETF, conduct thorough research. Study the prospectus, analyse historical performance, and seek insights from reputable financial sources and advisors. Understand the specific risks associated with the ETF and ensure it aligns with your investment strategy.

When choosing an ETF, it's crucial to consider your financial situation, investment goals, and risk tolerance. Review the available ETFs in the Philippines, such as the First Metro Exchange Traded Fund (FMETF) or the iShares MSCI Philippines ETF (EPHE), and evaluate them based on the factors mentioned above. Diversification, performance, fees, and investment objectives are key aspects to consider when making your decision.

How to invest in First Metro ETF

First Metro Philippine Equity Exchange-Traded Fund, Inc. (FMETF) is the first exchange-traded fund in the Philippines. It was launched in 2013 by First Metro Investment Corporation (FMIC) and is traded on the Philippine Stock Exchange (PSE). The fund aims to provide returns that reflect the performance of the Philippine equities market by investing in a basket of securities included in the PSE Index (PSEi).

Step 1: Understand ETFs

Before investing in First Metro ETF, it is important to familiarize yourself with the concept of Exchange-Traded Funds (ETFs). ETFs are a type of investment instrument that aims to replicate the performance of a specific index, such as the PSEi. They are traded on an exchange, which means they can be bought and sold in real-time during market hours.

Step 2: Research First Metro ETF

First Metro ETF is managed by First Metro Asset Management Inc. (FAMI) and aims to provide returns that reflect the performance of the Philippine equities market. The fund invests in a basket of securities, including stocks from some of the largest and most valuable companies in the country, such as Aboitiz Equity Ventures, Inc., SM Investments Corporation, and Ayala Corporation.

Step 3: Choose a Broker

To invest in First Metro ETF, you will need to select a reputable stockbroker in the Philippines that offers ETF trading services. Popular online brokers in the Philippines include COL Financial and BDO Securities. Consider factors such as fees, trading platform usability, customer support, and the broker's reputation when making your decision.

Step 4: Open a Brokerage Account

Once you have chosen a broker, you will need to open an account. This typically involves providing identification and other necessary documents, as well as funding the account using methods such as bank transfers or credit/debit cards. For example, to invest in First Metro ETF through First Metro Sec, you will need to provide a Metrobank account number (for existing customers), government-issued ID, and proof of address.

Step 5: Purchase First Metro ETF Shares

After your brokerage account is set up and funded, you can log in to your account's trading platform and search for First Metro ETF to make your purchase. The minimum investment will depend on the stock price at the time of trading and the minimum lot size. For example, if the price of an ETF is between PHP 5 and PHP 49.95, the minimum lot size is 100, so the minimum investment would be PHP 500 plus the broker's commission.

Step 6: Monitor Your Investments

It is important to regularly monitor your ETF investments and stay updated on market trends and news that may impact your holdings. You can enable price alerts to help you keep track of your investment's performance. Additionally, you should review and adjust your investment strategy as your goals and risk tolerance change to align with your financial objectives.

How to invest in iShares MSCI Philippines ETF

The iShares MSCI Philippines ETF is an exchange-traded fund (ETF) that offers investors exposure to a broad range of companies in the Philippines. The fund seeks to track the investment results of a broad-based index composed of Philippine equities, specifically the MSCI Philippines IMI 25/50 Index (IMI).

To invest in this ETF, you can follow these steps:

Understand the Investment Objective and Strategy:

The iShares MSCI Philippines ETF aims to provide investors with targeted access to Philippine stocks and exposure to a diverse range of companies within the country. It is designed to track the performance of the large-, mid-, and small-capitalization segments of the equity market in the Philippines.

Evaluate the Investment Risks and Potential Returns:

Before investing, carefully consider the fund's investment objectives, risk factors, and charges and expenses. International investing involves risks related to foreign currency fluctuations, limited liquidity, and the possibility of substantial volatility due to adverse political, economic, or other developments. These risks are often heightened for emerging markets like the Philippines.

Review the Fund's Performance and Fees:

As of November 25, 2024, the iShares MSCI Philippines ETF had a net asset value (NAV) of $26.26, with a 52-week range of $23.31 to $29.77. The fund had a 1-day NAV change of 0.26 (0.98%) as of November 25, 2024, and a year-to-date (YTD) NAV total return of 2.09% as of November 22, 2024. The expense ratio for this ETF is 0.59%.

Decide on Your Investment Amount and Brokerage:

Determine how much you want to invest in the iShares MSCI Philippines ETF. You can buy and sell shares of this ETF through online brokerage firms, such as Fidelity, which offers commission-free trading for iShares ETFs.

Place Your Trade:

Once you have decided on the amount and chosen your brokerage, you can place your trade during market hours. Keep in mind that shares of ETFs are bought and sold at market prices, not the net asset value (NAV), and any applicable brokerage commissions will reduce your returns.

By following these steps, you can invest in the iShares MSCI Philippines ETF and gain exposure to the Philippine stock market. Remember to always assess your risk tolerance, investment goals, and conduct thorough research before investing.

How to invest in Vanguard S&P 500 ETF

To invest in the Vanguard S&P 500 ETF in the Philippines, you can follow these steps:

• Understand the basics of ETFs: Exchange-Traded Funds (ETFs) are investment companies that trade their shares on a stock exchange. They offer instant diversification and exposure to a portfolio of securities with minimal capital outlay. ETFs are traded just like stocks, and you can buy and sell them during trading hours through trading participants or brokers.
• Research the Vanguard S&P 500 ETF: This particular ETF tracks the performance of the S&P 500 index, which is composed of 500 large-cap US companies across various sectors. It provides exposure to a broad range of US companies and is a popular way to invest in the US stock market.
• Choose a Brokerage Firm: You will need to open an account with a brokerage firm that offers access to the Philippine Stock Exchange (PSE). You can choose from various online brokerage firms or local brokers in the Philippines.
• Fund Your Account: Once you have selected a brokerage firm, you will need to deposit funds into your account. The minimum investment amount will depend on the stock price at the time of trading and the minimum lot size. For example, if the ETF price is between PHP 5 and PHP 49.95, the minimum lot size is 100, so the minimum investment would be PHP 500 plus broker's commission.
• Place a Buy Order: Log into your brokerage account and place a buy order for the Vanguard S&P 500 ETF using the ticker symbol (which is 'VOO' for this ETF). Specify the number of shares you want to purchase, and choose a purchase type (e.g., market order or limit order).
• Monitor and Manage Your Investment: After purchasing the ETF, you can monitor its performance through your brokerage account or financial news sources. Remember that investing in ETFs carries risks, and the value of your investment can go up or down. Regularly review your investment strategy and consider seeking advice from a financial advisor.

By following these steps, you can invest in the Vanguard S&P 500 ETF in the Philippines, diversifying your portfolio and gaining exposure to the US stock market. Remember to do your research, understand the risks involved, and make informed investment decisions.

Frequently asked questions