Investing in FMETF: First Metro Philippine Equity ETF

Updated by in Categories:Investing, Tags:Tags

Get our latest updates and like our Facebook page. And get them straight to your inbox and enter your email address below.

Don’t you know that there’s a stock that holds stocks of other companies? It’s called FMETF or First Metro Philippine Equity Exchange Equity Traded Fund, and it’s the only exchange traded fund in the Philippines.

This article discusses an actual ETF that you can start investing to earn passive income. If this is your first time learning about it, please consider reading up the guide on ETF investing and then you can come back to this page later.

What is FMETF?

FMETF stands for First Metro Philippine Equity Exchange Traded Fund. It is the only exchange traded fund in the market today, and it is engaged in acquiring equities. By definition, it is considered an equities index fund.

Established on January 15, 2013, it was launched by the First Metro Investment Corporation (FMIC), a wholly-owned subsidiary of the Metrobank Group. The First Metro Asset Management, Inc., a company which also sells mutual funds, is its fund manager and principal distributor.

Like mutual funds, UITFs, Personal Equity and Retirement Account (PERA) and variable universal life (VUL), it holds a basket of shares of companies.

The difference is that you have to deal and subscribe to the investment funds directly from mutual fund companies, trust companies offering UITFs and PERA, and insurance companies offering VUL,

With FMETF, the only way to invest is by buying its stocks on the Philippine Stock Exchange. In short, it is a fund whose shares are being traded on the stock market.

Investment goal of FMETF

Its goal is to simply match the return of the stock index. The stock index is composed of the blue chip or Philippine top 30 companies, which are collectively called the Philippine Stock Exchange index (PSEi).

FMETF achieves this by buying only these companies. Not only that, it also tries to match the proportion of each company to the index as closely as possible.

See the table below for comparison between the composition of the fund and PSEi.

Security NamePSEi %FMETF %
SM INVESTMENTS CORPORATION13.1413.04
AYALA LAND, INC.9.949.8
SM PRIME HOLDINGS, INC.98.97
BDO UNIBANK, INC.7.097.1
AYALA CORPORATION6.656.81
JG SUMMIT HOLDINGS, INC.5.185.16
BANK OF THE PHILIPPINE ISLANDS4.34.31
UNIVERSAL ROBINA CORPORATION4.294.22
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC.3.73.67
ABOITIZ EQUITY VENTURES, INC.3.673.68
METROPOLITAN BANK & TRUST COMPANY3.533.51
JOLLIBEE FOODS CORPORATION3.433.52
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY “Common”2.752.99
MANILA ELECTRIC COMPANY2.292.23
GT CAPITAL HOLDINGS, INC.2.031.9
SECURITY BANK CORPORATION1.951.87
MEGAWORLD CORPORATION1.671.65
GLOBE TELECOM, INC.1.611.81
METRO PACIFIC INVESTMENTS CORPORATION1.611.6
SAN MIGUEL CORPORATION1.581.6
ROBINSONS LAND CORPORATION1.371.33
ABOITIZ POWER CORP.1.31.22
ALLIANCE GLOBAL GROUP, INC.1.171.15
BLOOMBERRY RESORTS CORPORATION1.121.14
LT Group, Inc.1.111.17
PUREGOLD PRICE CLUB, INC.1.11.14
ROBINSONS RETAIL HOLDINGS INC.1.061.04
DMCI HOLDINGS, INC.0.940.92
FIRST GEN CORPORATION0.790.9
SEMIRARA MINING AND POWER CORPORATION0.640.57

The composition of the fund is adjusted periodically. PSE reviews the companies that make up the index every six months, and may either stick to the current list or update it.

Features of FMETF

Now that you have a basic understanding of how the fund works, it’s time to discuss some of its finer details. The following are some of its common features.

  • NAVPS
  • market price
  • arbitrage

NAVPS

Just like a mutual fund, the net asset value per share is the the fund’s assets minus liabilities, and then divided by the number of outstanding shares. It indicates how much value each share holds. With FMETF, this is computed every minute during trading hours.

Market price

The market price is what investors are willing to buy or sell for each FMETF. It varies as frequently as there is a trade that is occurring at any given moment.

In a perfect world, the market price must be equal to the NAVPS. In reality, the actual FMETF market price differs from its true value.

Arbitrage

That’s because the market price is subject to demand and supply. The demand for the stock may be high or low. What people are willing to pay to buy its stock may not be the same as the NAVPS.

For example, demand for FMETF stocks may be so high that the market price might rise above its NAVPS. Conversely, the demand for it may be so low that the market price may go lower than its NAVPS.

This is where arbitrage occurs. It tries to bring the market price as close as possible to NAVPS. The fund does this by either selling shares when price and use the money to buy individual stocks from the index.

When the demand is low and the market price goes down, the fund sells its underlying stocks and acquire more FMETF shares from the market.

Tracking error

As discussed in a separate article on index funds, the tracking error (TR) is an important factor to consider. It describes just how an index fund mirrors the stock index.

Under ideal situation, the tracking error must be zero. In reality, it is present in all of the index funds because of the fees that make it impossible for them to be perfect reflection of the index.

For FMETF, the tracking error is at 0.04%. It’s second to East West’s PSEi Tracker whose self-claimed TR is 0.03%.

How to buy FMETF stock

In investing, you would need the following.

  • Broker’s account
  • Minimum investment
  • Trading

Broker’s account

A broker is the company that executes your trade. Through them, you can buy and sell stocks. Example companies are Unicapital Securities Inc., First Metro Securities Inc., Col Financial, etc.

Minimum investment

How much is the initial capital? Actually, it is set by the Philippine Stock Exchange. Your minimum investment depends on the minimum board lot, which factors in the price of the stock.

In the table below, it shows that you need to buy at least 10 shares per transaction since the market price is about ₱120. This would suggest that the minimum investment is at least P1,200.

However, if you really want to make the most out of your investment, then it’s suggested that you invest at least P8,000 for any stocks.

PSE minimum board lot

Fees, charges, and taxes of FMETF

Once you have an account set up, you can already start trading. You should be able to see the FMETF ticker. Whenever you trade, there will be fees: broker’s commission, value added tax, PSE fee, Securities Clearing Corporation of the Philippines fee, and seller’s tax.

FeesAmount
Broker’s Commission₱20 or 0.25%
VAT 12% of Commission
PSE Transaction Fee0.005%
SCCP* Fee0.01%
(Sell) Tax**0.6%
  • *SCCP is Securities Clearing Corporation of The Philippines
  • **When you sell, you will have the same fees plus the tax of 0.6%

In addition, FMETF charges a management fee of 0.50% annually. It is currently the lowest index fund that is available in the Philippines today. As a summary, here are the summary of fees, charges, and taxes of FMETF investment.

Minimum investmentSee board lot
Additional investmentSee board lot
Entry fee0.295%
Management fee0.50%
Redemption fee0.895%

Advantages of investing in FMETF

Why invest in FMETF? These are the benefits when you start buying its stock.

Less fees

FMETF actually has the lowest management fee in the Philippines among all investment funds.

The fund is passively managed. What this means is that the fund manager’s job is relatively easy. There is not much research involved that goes into determining how many and what shares to buy because the stock index is the template.

This translates to the lowest management fee in the country’s investment funds, which is 0.50% of the total net asset value according to the disclosure.

It is however important to mention that by international standards, the 0.50% fee is still considered very expensive. Two Vanguard funds, the S&P 500 and U.S. Total Market Shares Index ETF, charge only 0.03%. And to think that the S&P 500 ETF tracks 500 companies while the US Total Market Shares Index ETF tracks over 3,600 companies.

That FMETF and the rest of the index funds charging 0.50% minimum for tracking only 30 companies is something that does not make sense, to put it mildly. (The government needs to look into this. BSP? SEC?)

Less costly

Buying its stock to participate in the earning potential of “blue chip” companies is less costly than purchasing individual shares. The table below shows the actual price of one share of each “blue chip” company and how much you’ll need if you buy the minimum number of shares (called board lot) of all of them. At this rate, you’d need to have at least ₱128,266.50.

Compare that to one exchange traded fund stock that costs ₱120 more or less, and that already contains all of these companies. (All the prices are updated as of July 11, 2019).

Security NameLast Trade PriceBoard lotTotal
ABOITIZ EQUITY VENTURES, INC.910.00109,100.00
ABOITIZ POWER CORP.56.0010560.00
ALLIANCE GLOBAL GROUP, INC.15.401001,540.00
AYALA CORPORATION51.25 10512.50
AYALA LAND, INC.36.7010367.00
BANK OF THE PHILIPPINE ISLANDS142.30101,423.00
BDO UNIBANK, INC.11.42 1001,142.00
BLOOMBERRY RESORTS CORPORATION78.5010785.00
DMCI HOLDINGS, INC.10.02 1001,002.00
FIRST GEN CORPORATION27.001002,700.00
GLOBE TELECOM, INC.2,174.00510,870.00
GT CAPITAL HOLDINGS, INC.845.00108,450.00
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC.142.5010014,250.00
JG SUMMIT HOLDINGS, INC.282.0010028,200.00
JOLLIBEE FOODS CORPORATION69.7010 697.00
LT Group, Inc.15.581001,558.00
MANILA ELECTRIC COMPANY71.5010715.00
MEGAWORLD CORPORATION6.01 100601.00
METRO PACIFIC INVESTMENTS CORPORATION383.00103,830.00
METROPOLITAN BANK & TRUST COMPANY4.8010004,800.00
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY “Common”45.501004,550.00
PUREGOLD PRICE CLUB, INC.26.65 1002,665.00
ROBINSONS LAND CORPORATION78.0010780.00
ROBINSONS RETAIL HOLDINGS INC.23.001002,300.00
SAN MIGUEL CORPORATION173.00101,730.00
SECURITY BANK CORPORATION980.00109,800.00
SEMIRARA MINING AND POWER CORPORATION174.90101,749.00
SM INVESTMENTS CORPORATION38.501003,850.00
SM PRIME HOLDINGS, INC.1,198.0055,990.00
UNIVERSAL ROBINA CORPORATION175.00101,750.00
Total128,266.50

Matches returns of the index

It holds a basket of shares from the top 30 companies whose businesses are judged to be representative of the stock market. In the process, its returns is close to how the index performs.

5-year chart of FMETF and PSEi returns as of July 2019. (Bloomberg)

Diversified

By holding one FMETF stock, you’re exposed to a diversified portfolio of businesses across different industries. It dampens the impact when one company or an industry experiences a slowdown.

Transparent

Its stock is priced continuously unlike mutual funds and UITFs whose prices are determined at the end of the trading day. Also, its underlying assets are disclosed on the website. You can see them all on First Metro’s website.

Cons

And here are a few of the disadvantages.

  • You need to partner with a stock broker to buy the stock.
  • Its market price may be more than its value, so you’re buying an overvalued stock. Check the net asset value per share when you’re about to trade.
  • You have no control on the list of companies that make up its underlying assets.
  • If you want to get your money back, you need to wait for someone to buy your shares.
  • There may be some concerns on liquidity. The volume of trade for FMETF is quite low, and there might some difficulty buying or selling it.

What is the historical performance of FMETF?

1 year3 years5 yearsAccumulative
FMETF12.63%4.62%4.44%124.28%
PSEi9.90%0.59%3.41%118.27%

The table shows the compounded annual growth rate for 1 year, 3 years, and 5 years. For comparison, there’s a row for FMETF and the Philippine Stock Exchange index. The last column shows how much your money would’ve grown from five years ago.

Data is updated until July 2019. For more updated information, you may visit Philippine Stock Exchange, Bloomberg or Wall Street Journal.

Again, it’s worth remembering that past performance does not guarantee future returns.

If you invest, how much would you actually earn from FMETF?

There are two ways to see how much you can earn from FMETF. One is to look at the actual historical data and see how much your money would grow.

Of course, these figures already happened in the past. There’s really nothing that you and I can do about them. Besides, past performance does not guarantee future returns. So I have created a separate article for future forecasts of FMETF return on investment.

For the past historical earnings, see the table below for an initial investment of P1 million pesos made in 2014 and annual 100K investment since 2014 and their values as of July 2019.

Here are the following assumptions:

  • The management fee of 0.50% is computed into the FMETF net asset value per share (NAVPS), so it’s not included in calculation in the table below.
  • FMETF entry fee of 0.295% is included.
  • Actual FMETF and PSEi values were taken on the first trading day of January on each year.
  • The total amount under FMETF takes into account the 0.895% redemption fee.

One-time P1 million investment

YearSavingsPSEiFMETF
20141,000,000.001,000,000.001,000,000.00
20151,215,961.541,220,394.85
20161,141,898.911,162,499.34
20171,146,559.471,175,678.81
20181,457,846.081,506,930.52
20191,251,483.061,317,946.42
Total1,000,000.001,251,483.061,306,150.80

Annual 100K investment

YearSavingsPSEiFMETF
201410,000.0010,000.0010,000.00
201520,000.0022,159.6222,174.45
201630,000.0030,809.9031,092.99
201740,000.0040,935.6541,416.00
201850,000.0062,049.5363,055.61
201960,000.0063,266.2165,118.30
Total60,000.0063,266.2164,535.50

As you may already see, FMETF is slightly higher than PSEi.

Is this a good thing? Actually, yes and no. Yes because at the end you get a higher gain than the actual return of the index.

No because it means that the fund manager took higher risks and therefore deviated from the goal of plainly mirroring the stock index. You would want these two actual returns to stay as close as possible.

Again, it’s important to bear in mind that past performance does not guarantee future returns.

Dividends of FMETF

In 2018, FMETF announced that they’d give away stock dividends representing 3%. That means for every 100 stocks you own, you get 3 more stocks.

References