Citi exec backs foreign-linked Phl ETFs

MANILA, Philippines - Citi NA is urging the country’s securities regulator to allow Philippine fund managers to launch exchange-traded funds (ETFs) indexed on regional or foreign entities outside of the Philippine capital markets.

Citi managing director and fund services head for Asia Pacific of Citi Chee-Ping Yap lauded the Philippine Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) for hurdling the operational aspect in introducing and launching the ETF market.

“But the regulators must allow fund managers to launch and sell non-Philippine products in the ETF market,” Yap told reporters.

An ETF is an investment fund traded on stock exchanges, much like stocks or equities. The fund holds assets such as stocks, commodities, or bonds, and trades close to its net asset value (NAV). It can also be traded in a secondary market. It is broad-based or it is a fund composed of various products, for example, an ETF focused on 50 leading listed companies, or major corporate debt papers, or commodities.

The Citi executive explained that majority of the Asian markets failed miserably when launching domestically-focused ETF in their respective markets.

When Indonesia introduced the first ETF in the Asean area, it languished for eight years. Thailand introduced a domestically-focused ETFs more than four years ago, but business actually took off when the Thailand local market launched six new ones.

Local fund managers should be allowed to launch ETFs indexed, for example, on S&P 500 or the HongKong equities market, aside from focusing on the local equities market such as the Philippine Stock Exchange index (PSEi).

Yap explained that local investors in these markets have a strong bias and believe that they can easily pick their stocks in their respective bourse. For example, Australian investors will buy a mining stock at their local stock market.

“The more successful markets were the ones that they launched other products outside of their influence such as a gold ETF.

India launched a series of ETFs, focused on the Hong Kong equity markets, gold, and global fixed income,” the Citi regional managing director said.

Fund managers also said that local investors do not need ETFs to invest in the PSE listed companies as there are already mutual funds, unit investment trust funds, and of course, direct trading through stock brokers for selective picking.

For the Philippine fund manager, you need to have a combination. Launch an ETF indexed on a basket of securities, or the PSEi. Then it should be followed up with the launch of another ETF on the US equity market, for example the S&P500.

In an actively-traded market such as mutual fund, it is normal to have several fund manager trading and selling similar products such as equities, fixed income or bond funds. The issue here is best performance of the funds.

“The game of ETF market, is the first mover conquers!” Yap pointed out.

ETFs are passive investment instruments tracking certain sectors or issues or equities. The first one, for example, to launch an ETF indexed on listed blue-chip companies that regularly issue high-yielding dividends, will most likely not have any serious competition.

It will likely take another fund manager three to six months to launch a similar ETF.

“In the Philippines, it is very hard for the market to buy the second product because the first player has a three to six-month head start,” he said.

Philippine fund managers serious about the ETF market should launch as many ETFs as possible.

In the US, there are already 44 financial ETFs completely different from one another, and there are over 180 ETFs indexed on different sectors. There are equity ETFs that track over a hundred listed companies in the US bourse.

The country’s first-ever ETF will be launched and managed by the First Metro Philippine Equity Exchange Traded Fund Inc. (FMETF), a subsidiary of the First Metro Investment Co. (FMIC) Group. FMIC is a member of the GT Capital Corp. of the Ty conglomerate.

The Philippine ETF will track the PSEi. Its entire authorized capital stock is P3 billion, consisting of 30 million common shares at a par value of P100 each.