One of the recent investment opportunities in the Philippines these days is the exchange-traded fund or ETF. The first ETF in the country is the First Metro Philippine Equity Exchange Traded Fund inc. (FMETF) managed by First Metro Asset Management Inc. (FAMI).
FAMI is a subsidiary company of the Metrobank Group which also manages several mutual funds such as Save and Learn Equity Fund, Balance Fund, Fixed Income Fund, Money Market Fund, and OWN Fund.
What is ETF?
ETF is a hybrid of stock and mutual fund. It is like a mutual fund being traded like a stock. All ETFs can be bought in the stock market.
In the Philippines, ETF was introduced in late 2013. The first ETF is called First Metro Exchange-traded Fund or FMETF which is managed by First Metro Asset Managment, Inc., a leading mutual fund company in the Philippines. Most developed countries have ETF in their stock exchange.
You can buy or sell it through a stock broker much the same as the same as you buy stocks. However, in some developing countries, ETF is not yet available may be due to the small numbers of stocks being traded. Since ETF is composed of many stocks, there should be a significant quantity of securities in a stock exchange so that ETF can be formed.
ETF has the combined characteristics of stocks and mutual funds or unit investment trust fund. It can be traded during the trading hours of the stock market or you can bought it at the end of the trading day just like mutual funds.
ETF is like a collection of stocks in a particular index. For example, FMETF is an index ETF that attempts to replicate the performance of Philippine Stock Exchange Index or PSEi.
It is not the purpose of exchange-traded fund to out perform the index of a certain market but just to replicate its performance so investors would have an easy way to invest in large collection of stocks.
Characteristics of ETF
In the beginning, ETF was formed to track the performance of an index of a stock market. It is the reason index ETF is the most common type of traded fund and the largest kind of ETF in the world.
There are many investors now are choosing exchange-traded fund because of the good features it offers like the easy diversification of the portfolio, flexibility it provides, tax efficiency and less expenses.
Types of ETF
Nowadays, there are several kinds of traded fund in the stock market. These are most common types of ETF: index, commodity, currency, bond, leveraged and actively managed ETF.
If you want a diversification of your investments in the stock market, ETF is the best choice. It has less expense ratio, lower tax, valuation features of stocks and mutual funds and easy diversification characteristic.
ETF is introduced as a way of diversification because it is invested in a pool of stocks normally the index of the stock exchange. For example, FMETF tracks and invests in Philippine Stock Exchange Index or PSEi, which is a collection of all the blue chip stocks in the Philippines like PLDT, Ayala, Jollibee and SM.
Some investors look for ways on how to diversify their investments. One form to do this is through investing in exchange-traded fund. However, you must have an online stock broker account to be able to buy ETF.
How to Invest in ETF
Exchange-traded fund is traded only in the stock market so you can buy it through your stock broker. You can open an online stock broker in the Philippines like Citiseconline, BPI Trade, or First Metro Securities.
After opening an account and funding it, you can buy ETF with the available balance you have. Normally, it is simple process, it is same as a normal stock.
You must determine the number of shares and price you want to buy. In the control panel of your account, you can type the amount and price like the one below.
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