A Byte of my 2.2-lb Brain

Just sharing stuff…

ETFs and FMETF

In December 2013, the country’s first exchange-traded fund (ETF), the First Metro Philippine Equity ETF Inc (FMETF), debuted on the Philippine Stock Exchange (PSE). What is this? What does this mean? What are ETFs? — These are just some of the questions I get with regard to FMETF, and I was hoping to briefly address those questions here. Also, I was prompted to write this post after realizing that most “young” Pinoy traders (newbies) are not aware of the FMETF. First, ETF. As the name implies, exchange traded funds are funds that can be traded on stock exchanges like the PSE. There are various types of ETFs — the Index ETFs, the Stock ETFs, and the Bond ETFs, among others. The one and only ETF that we have in the PSE, as of this writing, is the FMETF, which is an Index ETF. It is like a mutual fund that aims to track/replicate the trend of a particular index, in this case, the Philippines Stock Exchange Index or PSEi (PCOMP). You can think of FMETF as a “basket” of securities– specifically, of stocks that are included in the PSEi. Unlike mutual funds though, you yourself can trade FMETF via your chosen online trading platform (COL, BPITrade, MakeTrade, FirstMetroSec, etc.). fmetfandpse As mentioned, it reflects the performance of the PSEi. To illustrate, the figure below shows the YTD chart (rough sketch) for both FMETF and PSEi. FMETF-YTD What this means essentially is that if you want to invest in the PSEi (the index), instead of buying positions in most, if not all, of the 30 companies that compose the PSEi, you can just acquire some FMETF shares — it will definitely be much less costly.

The major benefits of buying ETFs include diversification, affordability. It is also cheaper to buy ETFs instead of mutual funds and unit investment trust funds which charge high levels of management fees. – April Lynn Tan, CFA (COLing the Shots, December 2013)
Edit: As suggested by fellow stock market enthusiasts, in my next posts, I intend to write something on the comparison between ETFs and Index Funds. Meanwhile, I point the reader to: http://www.investopedia.com/articles/mutualfund/05/etfindexfund.asp

2 comments on “ETFs and FMETF

  1. footballer
    September 13, 2014

    the problem with FMETF is it is not liquid. what if you accumulate so much and when it’s time to sell there are no buyers.

    Like

    • E
      September 13, 2014

      I hope to explore that scenario in my next post. Thanks!

      Like

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This entry was posted on September 13, 2014 by in Investing, Mutual Fund, Stock Trading and tagged , , .
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