How Much Money Can You Earn Investing In FMETF
FMETF or First Metro Philippine Equity Exchange Traded Fund is the first and only exchange traded fund in the Philippines. While it is organized like a mutual fund company, you and I can invest in it by buying its stocks from the stock exchange.
And so the question you might be asking is, how much can you expect to earn from investing in FMETF? In this article, I’m going to discuss the earning potential of this investment.
FMETF benchmark: PSEi
Let me start by saying that earnings that you may obtain from FMETF investing is going to reflect the earnings from the Philippine Stock Exchange index or PSEi. The PSEi is composed of blue chip stocks, which are top 30 Philippine corporation.
This is because this ETF is managed in a way that mirrors the companies that make up the stock index. It is also the reason why FMETF is considered an index fund.
If the PSEi rises in value, it’s expected that FMETF also rises. If the PSEi goes down, then FMETF is expected to go down in value as well.
See the past performance of the index since 1988.
FMETF past historical performance
Remember however that there will be a slight difference between their returns. The difference is attributed to the tracking error, which is a measure of how much FMETF differs from the actual stock index returns.
See table below for the comparison of FMETF and PSEi past historical performance. Data is updated until July 2019. For more updated information, visit PSE or any stock aggregator sites like Bloomberg or Wall Street Journal.
| 1 YEAR | 3 YEARS | 5 YEARS | ACCUMULATIVE | |
|---|---|---|---|---|
| FMETF | 12.63% | 4.62% | 4.44% | 124.28% |
| PSEi | 9.90% | 0.59% | 3.41% | 118.27% |
FMETF versus PSEi earnings forecast
But I am not going to use past historical data in estimating future earning.
The reason is that there is no guarantee that they would perform the same way in the future.
Besides, for investment funds in general, a more relevant information to analyze is how the fees would impact earnings.
Fees, charges, and taxes are things that need to be considered. They make the act of investing more expensive and in turn lessens the potential growth of money over time.
See below a summary of FMETF fees.
| Minimum investment | See board lot |
| Additional investment | See board lot |
| Entry fee | 0.295% |
| Management fee | 0.50% |
| Redemption fee | 0.895% |
Thus the first comparison is between FMETF and a zero-fee fund. And the forecast would look into two possible scenarios: one-time ₱1 million pesos and an annual ₱10,000 investment.
Here are the following assumptions.
- Rate of return is 10%.
- Time horizon is 30 years.
- FMETF’s entry and management fees are computed.
- Total amount of FMETF includes the redemption fee.
- Redemption occurs at the end of the time horizon.
- Zero-fee fund column assumes a fund that does not have any fee, which of course is not possible in reality. Consider this as our benchmark.
FMETF forecast: one-time investment
| YEAR | SAVINGS | ZERO-FEE | FMETF |
|---|---|---|---|
| 1 | 1,000,000 | 1,100,000 | 1,091,271 |
| 2 | 1,210,000 | 1,194,396 | |
| 3 | 1,331,000 | 1,307,267 | |
| 4 | 1,464,100 | 1,430,804 | |
| 5 | 1,610,510 | 1,566,014 | |
| 10 | 2,593,742 | 2,459,657 | |
| 15 | 4,177,248 | 3,863,255 | |
| 20 | 6,727,500 | 6,067,814 | |
| 25 | 10,834,706 | 9,530,399 | |
| 30 | 17,449,402 | 14,968,901 | |
| Total | 1,000,000 | 17,449,402 | 14,834,929 |
FMETF forecast: annual 10k investment
As you may see, the fees, charges, and taxes chip away the total gains at the end of three decades.
| YEAR | SAVINGS | ZERO-FEE | FMETF |
|---|---|---|---|
| 1 | 10,000 | 11,000 | 10,913 |
| 2 | 20,000 | 23,100 | 22,857 |
| 3 | 30,000 | 36,410 | 35,929 |
| 4 | 40,000 | 51,051 | 50,237 |
| 5 | 50,000 | 67,156 | 65,898 |
| 10 | 100,000 | 175,312 | 169,399 |
| 15 | 150,000 | 349,497 | 331,964 |
| 20 | 200,000 | 630,025 | 587,296 |
| 25 | 250,000 | 1,081,818 | 988,333 |
| 30 | 300,000 | 1,809,434 | 1,618,221 |
| Total | 300,000 | 1,809,434 | 1,603,738 |
FMETF forecast: Varying returns
The above actually is a way to assess the impact of fees in the growth of your investment over time.
However, we still don’t have any idea on the range of potential earnings that we can possibly get. The rate of return—that is, how much it is growing every year—is set at 10%, and that in itself limits the forecast.
We know from experience that investing in stocks does not give guaranteed gains. Instead, return depends on actual gain or loss.
Thus the forecast below tracks the return on investment (ROI) of FMETF in varying rates: 4%, 8% and 12%. These values are taken from proposals routinely issued by investment and insurance companies.
Again, two scenarios are considered: a one-time ₱1 million pesos and an annual ₱10,000 investment.
Here are the assumptions:
- Time horizon is 30 years.
- Redemption occurs at the end of the time horizon.
- FMETF’s entry is computed.
- Management fee is assumed that it is already included in the NAVPS as the goal here is simply to provide a guide. Consider for example if there is a claim that the fund earned “x” percent in 5 years. The table below would serve as a way to compare the claim and the forecast. The management fee computation only comes in handy when assessing fees in comparison with a benchmark or some other fund.
- Total amount of FMETF includes the redemption fee.
FMETF forecast: one-time investment in varying returns
Below tracks the growth of money over a period of three decades according to different yearly rate of return.
| YEAR | SAVINGS | 4% | 8% | 12% |
|---|---|---|---|---|
| 1 | 1,000,000 | 1,036,932 | 1,076,814 | 1,116,696 |
| 2 | 1,078,409 | 1,162,959 | 1,250,700 | |
| 3 | 1,121,546 | 1,255,996 | 1,400,783 | |
| 4 | 1,166,407 | 1,356,476 | 1,568,877 | |
| 5 | 1,213,064 | 1,464,994 | 1,757,143 | |
| 10 | 1,475,878 | 2,152,556 | 3,096,686 | |
| 15 | 1,795,631 | 3,162,811 | 5,457,419 | |
| 20 | 2,184,659 | 4,647,207 | 9,617,837 | |
| 25 | 2,657,972 | 6,828,272 | 16,949,914 | |
| 30 | 3,233,829 | 10,032,972 | 29,871,540 | |
| Total | 1,000,000 | 3,204,887 | 9,943,177 | 29,604,190 |
FMETF forecast: annual 10k investment in varying returns
And here is the second forecast for FMETF stocks worth 10K purchased yearly at different ROI rate.
| YEAR | SAVINGS | 4% | 8% | 12% |
|---|---|---|---|---|
| 1 | 10,000 | 10,369 | 10,768 | 11,167 |
| 2 | 20,000 | 21,153 | 22,398 | 23,674 |
| 3 | 30,000 | 32,369 | 34,958 | 37,682 |
| 4 | 40,000 | 44,033 | 48,522 | 53,371 |
| 5 | 50,000 | 56,164 | 63,172 | 70,942 |
| 10 | 100,000 | 124,495 | 155,993 | 195,966 |
| 15 | 150,000 | 207,631 | 292,378 | 416,301 |
| 20 | 200,000 | 308,778 | 492,771 | 804,607 |
| 25 | 250,000 | 431,840 | 787,215 | 1,488,934 |
| 30 | 300,000 | 581,563 | 1,219,849 | 2,694,952 |
| Total | 300,000 | 576,358 | 1,208,932 | 2,670,833 |
It’s worth repeating that forecasts like the ones you see above are estimates. And as estimates, they may or may not match actual figures. Their purpose is to at least provide an idea of what’s going to happen to your money should you decide to invest in FMETF and set expectations in the process.