In a circular to brokers, PSE president Ernest Leung said the Exchange is currently studying the marketing and possible listing of more mutual funds or managed investment funds, which at present is limited to the locally-listed Filipino Fund Inc. and the New York-traded First Philippine Fund.
Leung said Sun Life Asset Management Co. Inc., a unit of the listed insurance giant Sun Life of Canada, has manifested its interest in marketing mutual funds through the Exchange. This will be coursed through the trading participants initially as distributors of mutual funds and ultimately as traders upon listing with the Exchange.
"This interim arrangement is in preparation for the eventual listing and trading of managed investment funds to broaden the range of securities being traded in the Exchange," Leung said.
He added this will also provide another source of income to the brokers through distribution fees or trading commissions. However, Leung said the brokers or trading participants will first need to pass an examination and obtain a license from the Securities and Exchange Commission (SEC) before they can enter into a distribution agreement with the mutual fund company to sell and offer the mutual funds to clients.
A mutual fund is an investment company or a special purpose investment vehicle that pools money from shareholders for investments in a portfolio of securities. Mutual funds can be categorized in three basic categories: a bond fund which invests primarily in debt securities or bond issues; an equity or stock fund which deals in equities or shares of stocks; and a balanced fund which mixes the debt and equity component depending on market conditions.
Leung said offering mutual funds will not allow the brokers to expand their product line but also broaden their client-base as it attracts new investors and deepen their business relationship with existing clients.
He emphasized that investors will find mutual funds more convenient and easier to track than investing in a number of securities; provide less cost in transaction due to the consolidation of investments; expose them to minimal risks due to the diversified portfolio of securities; and are handled by professional fund managers whose main job is to optimize the return of the fund investments.
For the domestic capital market, Leung pointed out the expansion of mutual fund offering will ultimately boost liquidity as more investors buy shares of mutual funds and investment managers increase their capital for investments in securities.
During the PSE roadhow last month, Leung said the local bourse will be introducing new products to give more choice to investors. Among these products in the pipeline are real estate investment trust, the Exchange-traded funds and a dollar board.
At present, the PSE deals only in a limited number of securities which include common stocks, preferred stocks, warrants, depository receipts, the small-denominated Treasury bonds (SDT) and Treasury bills (T-bills).
There are about 20 mutual fund companies in the Philippines, almost equally divided into bond funds, equity funds and balanced funds. These include Philam Bond, Philam Strategic Growth Fund, PhilEquity Fund, Sunlife’s own SLC Prosperity Philippine Equity Fund, United Fund, the GSIS Kabuhayan Fund, First Galleon Fund, Citisec Growth and Income Fund, All Asia Fund and the Ayala Life Fixed Income Fund.