FMETF First Metro Philippine Equity ETF
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 NAME | PSEI % | FMETF % |
|---|---|---|
| SM INVESTMENTS CORPORATION | 13.14 | 13.04 |
| AYALA LAND, INC. | 9.94 | 9.8 |
| SM PRIME HOLDINGS, INC. | 9 | 8.97 |
| BDO UNIBANK, INC. | 7.09 | 7.1 |
| AYALA CORPORATION | 6.65 | 6.81 |
| JG SUMMIT HOLDINGS, INC. | 5.18 | 5.16 |
| BANK OF THE PHILIPPINE ISLANDS | 4.3 | 4.31 |
| UNIVERSAL ROBINA CORPORATION | 4.29 | 4.22 |
| INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. | 3.7 | 3.67 |
| ABOITIZ EQUITY VENTURES, INC. | 3.67 | 3.68 |
| METROPOLITAN BANK & TRUST COMPANY | 3.53 | 3.51 |
| JOLLIBEE FOODS CORPORATION | 3.43 | 3.52 |
| PHILIPPINE LONG DISTANCE TELEPHONE COMPANY “Common” | 2.75 | 2.99 |
| MANILA ELECTRIC COMPANY | 2.29 | 2.23 |
| GT CAPITAL HOLDINGS, INC. | 2.03 | 1.9 |
| SECURITY BANK CORPORATION | 1.95 | 1.87 |
| MEGAWORLD CORPORATION | 1.67 | 1.65 |
| GLOBE TELECOM, INC. | 1.61 | 1.81 |
| METRO PACIFIC INVESTMENTS CORPORATION | 1.61 | 1.6 |
| SAN MIGUEL CORPORATION | 1.58 | 1.6 |
| ROBINSONS LAND CORPORATION | 1.37 | 1.33 |
| ABOITIZ POWER CORP. | 1.3 | 1.22 |
| ALLIANCE GLOBAL GROUP, INC. | 1.17 | 1.15 |
| BLOOMBERRY RESORTS CORPORATION | 1.12 | 1.14 |
| LT Group, Inc. | 1.11 | 1.17 |
| PUREGOLD PRICE CLUB, INC. | 1.1 | 1.14 |
| ROBINSONS RETAIL HOLDINGS INC. | 1.06 | 1.04 |
| DMCI HOLDINGS, INC. | 0.94 | 0.92 |
| FIRST GEN CORPORATION | 0.79 | 0.9 |
| SEMIRARA MINING AND POWER CORPORATION | 0.64 | 0.57 |
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. 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
So how can you acquire FMETF shares? You can actually buy them directly from the PSE. You would need the following three things for you to get started.
- Broker’s account
- Minimum investment
- Trading
Broker’s account
A stock broker is a company that acts as mediator between you and the market. When you want to buy or sell any shares, you would give the instruction to the broker who would then execute it on your behalf. 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.
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 (SCCP) fee, and seller’s tax.
| FEES | AMOUNT |
|---|---|
| Broker’s Commission | ₱20 or 0.25% |
| VAT | 12% of Commission |
| PSE Transaction Fee | 0.005% |
| SCCP* Fee | 0.01% |
| (Sell) Tax** | 0.6% |
In addition, FMETF charges a management fee of 0.50% annually, which is already computed into the price. 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 investment | See board lot |
| Additional investment | See board lot |
| Entry fee | 0.295% |
| Management fee | 0.50% |
| Redemption fee | 0.895% |
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 NAME | LAST TRADE PRICE | BOARD LOT | TOTAL |
|---|---|---|---|
| ABOITIZ EQUITY VENTURES, INC. | 910.00 | 10 | 9,100.00 |
| ABOITIZ POWER CORP. | 56.00 | 10 | 560.00 |
| ALLIANCE GLOBAL GROUP, INC. | 15.40 | 100 | 1,540.00 |
| AYALA CORPORATION | 51.25 | 10 | 512.50 |
| AYALA LAND, INC. | 36.70 | 10 | 367.00 |
| BANK OF THE PHILIPPINE ISLANDS | 142.30 | 10 | 1,423.00 |
| BDO UNIBANK, INC. | 11.42 | 100 | 1,142.00 |
| BLOOMBERRY RESORTS CORPORATION | 78.50 | 10 | 785.00 |
| DMCI HOLDINGS, INC. | 10.02 | 100 | 1,002.00 |
| FIRST GEN CORPORATION | 27.00 | 100 | 2,700.00 |
| GLOBE TELECOM, INC. | 2,174.00 | 5 | 10,870.00 |
| GT CAPITAL HOLDINGS, INC. | 845.00 | 10 | 8,450.00 |
| INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. | 142.50 | 100 | 14,250.00 |
| JG SUMMIT HOLDINGS, INC. | 282.00 | 100 | 28,200.00 |
| JOLLIBEE FOODS CORPORATION | 69.70 | 10 | 697.00 |
| LT Group, Inc. | 15.58 | 100 | 1,558.00 |
| MANILA ELECTRIC COMPANY | 71.50 | 10 | 715.00 |
| MEGAWORLD CORPORATION | 6.01 | 100 | 601.00 |
| METRO PACIFIC INVESTMENTS CORPORATION | 383.00 | 10 | 3,830.00 |
| METROPOLITAN BANK & TRUST COMPANY | 4.80 | 1000 | 4,800.00 |
| PHILIPPINE LONG DISTANCE TELEPHONE COMPANY “Common” | 45.50 | 100 | 4,550.00 |
| PUREGOLD PRICE CLUB, INC. | 26.65 | 100 | 2,665.00 |
| ROBINSONS LAND CORPORATION | 78.00 | 10 | 780.00 |
| ROBINSONS RETAIL HOLDINGS INC. | 23.00 | 100 | 2,300.00 |
| SAN MIGUEL CORPORATION | 173.00 | 10 | 1,730.00 |
| SECURITY BANK CORPORATION | 980.00 | 10 | 9,800.00 |
| SEMIRARA MINING AND POWER CORPORATION | 174.90 | 10 | 1,749.00 |
| SM INVESTMENTS CORPORATION | 38.50 | 100 | 3,850.00 |
| SM PRIME HOLDINGS, INC. | 1,198.00 | 5 | 5,990.00 |
| UNIVERSAL ROBINA CORPORATION | 175.00 | 10 | 1,750.00 |
| Total | 128,266.50 |
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.
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.
Disadvantages of FMETF
What are the risks when you are investing in FMETF? Here are a few of the disadvantages.
- You need to partner with a stock broker to buy the stock. This would require that you learn how to use a new tool or platform to buy or sell the stocks and be familiar with trading practices.
- You have no control on the list of companies that make up its underlying assets.
- There may be some concerns on liquidity.
- The return that you get is the market average, which is derived from the valuation of the 30 blue chip stocks. Opportunity cost is incurred when other stocks outperform the index on a particular year.
- FMETF has a management fee, which when compared to purchasing an individual stock may come out to be costlier.
What is the historical performance of FMETF?
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. 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 FMETF P1 million investment
If you’ve put in a million pesos in 2014, the money would be worth ₱1,339,867.77. That is a cumulative gain of 33.99% in the course of six years or CAGR (compounded annual growth rate) of 4.9970%.
| YEAR | SAVINGS | PSEI | FMETF |
|---|---|---|---|
| 2014 | 1,000,000.00 | 1,208,264.68 | 1,215,217.20 |
| 2015 | 1,154,374.03 | 1,170,391.72 | |
| 2016 | 1,155,593.71 | 1,178,518.65 | |
| 2017 | 1,441,423.92 | 1,490,119.35 | |
| 2018 | 1,233,555.64 | 1,293,598.08 | |
| 2019 | 1,287,261.40 | 1,351,967.88 | |
| Total | 1,000,000.00 | 1,287,261.40 | 1,339,867.77 |
Annual FMETF 100K investment
The total savings is ₱600,000. FMETF investment would be worth ₱775,626.97, which is a cumulative gain of 29.27%.
| YEAR | SAVINGS | PSEI | FMETF |
|---|---|---|---|
| 2014 | 100,000.00 | 120,826.47 | 121,521.72 |
| 2015 | 200,000.00 | 238,014.43 | 240,552.29 |
| 2016 | 300,000.00 | 353,425.05 | 359,267.68 |
| 2017 | 400,000.00 | 495,851.12 | 507,541.65 |
| 2018 | 500,000.00 | 622,807.02 | 641,523.64 |
| 2019 | 600,000.00 | 755,691.47 | 782,631.53 |
| Total | 600,000.00 | 755,691.47 | 775,626.97 |
As you may already see, FMETF is slightly higher than PSEi. This is expected because its value increases not only according to the price of each underlying company share but also with the accumulation of dividends. Whenever dividends are released by companies, these are not issued back to investors and instead they are reflected on higher valuation of the FMETF stock. This is also referred as total return index or TRI.
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.