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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.
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|
|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|
|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.
- market price
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.
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.
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.
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
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.
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 fee, and seller’s tax.
|Broker’s Commission||₱20 or 0.25%|
|VAT||12% of Commission|
|PSE Transaction Fee||0.005%|
- *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 investment||See board lot|
|Additional investment||See board lot|
Advantages of investing in FMETF
Why invest in FMETF? These are the benefits when you start buying its stock.
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?)
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 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|
|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|
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.
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.
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.
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 year||3 years||5 years||Accumulative|
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.
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
Annual 100K investment
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.