How to Invest in INDEX FUNDS in the Philippines - The Thrifty Pinay

How to Invest in INDEX FUNDS in the Philippines:

How does one Invest in Index Funds in the Philippines? Before anything else, here’s a quick story of how I got myself to invest in Index Funds.

Coming to terms with the fact that my stock portfolio was painted in red a.k.a. losses, I found myself losing my stoic mindset and fearing if I will ever be regaining my initial investment capital. So when I got on lurker mode, searching for an alternative to investing in stocks, I found an article about Index Funds. And voila! Here I am, invested in it for the long haul while happily writing a blog post about it.

1. How to Invest in Index Funds in the Philippines?

When you start reading investment forums, netizens tend to gush over how they have invested in index funds. And I can’t blame them. Index funds are a diversified, hassle-free, no-fuss and a low-cost means of investing in the Stock market. This was the very reason why I started investing in these babies ever since my stocks portfolio got painted in bloody red.

Simply put, when you invest in INDEX FUNDS, you are automatically invested in the Philippines’ TOP 30 Companies whose shares are traded in the Philippine Stock Exchange (PSE).

 Its main goal is to “mirror” the PSE index (PSEi)

 

So what is the Philippines Stock Exchange Index (PSEI) composed of? These companies are also called blue chip companies. You may already know some of them such as Jollibee Foods Corp, Puregold and San Miguel Corp.

2. PSEI Stocks Latest List 2022

In case you’re wondering, here’s the complete list of the PSEI as of Jan 5, 2022:

S.No.Company NameTicker
1Ayala CorporationAC
2AC Energy CorporationACEN
3Aboitiz Equity Ventures, Inc.AEV
4Alliance Global Group, Inc.AGI
5Ayala Land, Inc.ALI
6Aboitiz Power CorporationAP
7BDO Unibank, Inc.BDO
8Bloomberry Resorts CorporationBLOOM
9Bank of the Philippine IslandsBPI
10Converge Information and Communications Technology Solutions, Inc.CNVRG
11Globe Telecom, Inc.GLO
12GT Capital Holdings, Inc.GTCAP
13International Container Terminal Services, Inc.ICT
14Jollibee Foods CorporationJFC
15JG Summit Holdings, Inc.JGS
16LT Group, Inc.LTG
17Metropolitan Bank & Trust CompanyMBT
18Megaworld CorporationMEG
19Manila Electric CompanyMER
20Metro Pacific Investments CorporationMPI
21Puregold Price Club, Inc.PGOLD
22Robinsons Land CorporationRLC
23Robinsons Retail Holdings, Inc.RRHI
24Security Bank CorporationSECB
25SM Investments CorporationSM
26San Miguel CorporationSMC
27SM Prime Holdings, Inc.SMPH
28PLDT Inc.TEL
29Universal Robina CorporationURC
30Wilcon Depot, Inc.WLCON

Source: topforeignstocks.com

How awesome would that be? If you invest in an Index Fund, then you are already invested in the country’s 30 crème of the crops’ stocks. Moreover, if it’s a Gold Index Fund, for example, the majority of its underlying funds are made up of gold-related investments. Other indexes focus on bonds, oil, precious metals—and more.

3. The reality of Filipinos Investing in the Philippines

On average, not a lot of people are willing to do their homework and create a decent investment portfolio by studying the market. There are just too many factors involved that would entail you to have the drive to study stock trading, market trends, and complex analysis which only a small percentage of the population is willing to learn. Since we are already exposed to UITFs and Mutual Funds and a lot are wanting to diversify their portfolio, this is where Index Funds shine.

So, how big of a difference is it

in Investing in an Index Fund versus the Stock Market?

4. Investing in the Stock Market versus Index Funds in the Philippines

Investing in a Stock market:

  • The requirement is that you would need to have the expertise to know when to buy and sell, as well as the capital to buy all of the index.
  • You will have to invest in stocks of the 30 companies in the list, INDIVIDUALLY. But that’s something not a lot of people can do. And honestly, if you really are eager to buy stocks from all, it would require you a huge capital. When you are just starting to test the stock market, this move isn’t really advisable.
  • When you own stocks, you become part of the business. You get to enjoy dividends, voting rights, and an invitation to annual stockholders meeting.
How to Invest in INDEX FUNDS in the Philippines

Investing in Index Funds

  • When you invest in an index fund, you get a nice, well-rounded selection of many stocks in one fund without the need to buy each individually.
  • Requires only minimal effort and monitoring in the investors part. It is safe to say that it can be an additional stream of passive income.
  • If you decide to invest in Index Funds, you have the following options:

– Unit investment trust funds (UITF)

Mutual funds

-PERA account

First Metro Philippine Equity Exchange Traded Fund (FMETF)

-Variable universal life (VUL) plan

However, do note that Index Funds are not necessarily better than stocks, nor is it the other way around. Each type has its own place in an investment strategy.

5. Index Funds versus Equity Funds in the Philippines

I have invested in both of these. It make look like I’ve invested redundantly because they do have similarities. But here are a few differences worth noting:

Equity Funds invest primarily in stocks. If you don’t have the know-how of directly investing in the stock market then you can try Equity Funds. Investing in these saves you the trouble of buying and selling stocks to earn good profit. But not all equity funds are the same. They may all invest in the stock market, but each equity fund will have its own investment objective and investment strategy.

Unlike Index Funds, which is actually a type of Equity Fund, primarily invests in companies that belong to a particular index in which they try to mimic the performance of that index. Arguably, investing directly in the stock market has its advantages and can definitely reap better rewards (as long as you know how to ride the stock market rollercoaster). But see to it that investing in Index Funds has its own pros too.

6. What are the Advantages of Investing in Index Funds in the Philippines?

  • Instant Diversification– Your investment portfolio gets instantly diversified, which is the most obvious advantage. That’s because every share, stock or unit already includes the entire index.
  • Low management fees – Theoretically, they should be lower than fees of actively managed funds (more on this later)
  • Consistency– the objective of index funds is to mirror the market. So as long as your chosen market is green, your index fund is green too.
  • Low initial capital– Imagine this. If you invest directly in the stock market, how much capital will it cost you to buy a single share of every stock in the index? With just one index fund share you buy ,it already contains a portfolio of all the 30 blue chip companies.

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7. Issues regarding investing in Index Funds in the Philippines

Here’s the catch.
Index Funds should have the lowest management fees,
“theoretically” speaking nga lang.

The reality is that funds offered in the Philippines-be it index funds or other actively managed funds- are costly. Why is that so? It is totally understandable that an actively managed fund pays a professional to do the stock trading- the reason why management fees tend to be quite high. But with an Index Fund, it is worth noting that fund managers exert minimal effort since their main goal is to just copy the fund’s composition as close to the index.

An Index fund has a simple job- that is, to track the market. It no longer consumes too much time and effort on the fund manager’s end. No more complex research and analysis to de done, they only have to track the benchmark which is the 30 companies. So why do they charge high management fees ranging from 0.50% to 1.50% per year? They are just mirroring 30 companies, aren’t they?

Compare that to index funds in America. In America, Vanguard S&P 500 Index fund has an expense ratio of just 0.40%, and to think that this fund exposes you to 500 of the larget U.S-based companies. The high cost of fees in the PH may probably be due to the licensing fee imposed by PSE for index funds which is equivalent to 0.03% of the total assets under management (AUM) of such PSEi-tracking fund.

Another thing worth noting is that

some companies do not disclose all the management fees in their brochures.

Let’s use banks as an example.

As a former banker, I can honestly advise that you should not expect bank staff/officers to straightforwardly divulge these fees when you inquire. Not because they intentionally hide these finer details just to entice you more in buying a fund, but because you cannot assume that all officers have memorized all the trust fees, custodianship fees and external auditor fees of each type of UITF. Come on, give them a break! But the fact that you are reading this post is enough to raise awareness that there are underlying fees that are disclosed in the funds prospectus, which you can access in their respective websites.

8. How to choose the Best Index funds in the Philippines?

We are all faced with an overwhelming list of Index Funds. There are too many but also too risky to just choose over a game of eeny meeny miny moe. All index funds are structured similarly. But this list might help you narrow down your options:

  • Tracking Error– is the difference or how closely the fund performed as to the index it is tracking. How well did the fund copy its benchmark/index? Observe the tracking error of each fund. The lower the number of the tracking error, the better;
  • Management Fees– the cost of running the fund plus the trustee fees, custodianship fees, external auditor fees and other fees depending on the fund. Do take note that there may be redemption fees if you wish to withdraw within the holding period.

As mentioned above, the lower the percentage of management fees, the better. Low fees mean a bigger return. Bigger returns mean more money in your pocket and in your overall investment value;

  • Low Captial requirement which can go as low as P1,000. (See the matrix below of the different index funds which offer low entry capital);
  • and other factors such as convenience in account opening and customer service. I’m happy to share that banks and mutual fund companies nowadays offer account openings ONLINE. You can definitely open an index fund online without any physical appearance in their offices.

The table below shows a list of the most known Index Funds in the market. Observe each one carefully.  Notice each fund’s tracking error, fees and initial investment before you make a final decision.

Also, each fund’s prospectus is provided in the last column, for your easy access.

FUND NAME TYPE TRACKING ERRORFEESINITIAL INVESTMENTREFERENCE
EastWest PSEI Tracker FundUITF0.00007% as of Dec  27, 20190.75%p.a; Early Redemption Charges PhP500 or 0.25% of the amount withdrawn, whichever is higher; Trustee Fee:0.064440%; Custodianship Fee:0.033079%; Other Fees:0.000013%

Note: Starting March 1, 2019, EastWest PSEi Tracker Fund will be charged with Index Licensing Fee
P10,000https://www.eastwestbanker.com/info/uitf/2019December_KIIDS.pdf
First Metro Philippine Equity Exchange Traded Fund ETF0.04%0.50%P1,000
Philequity MSCI Philippine Index Fund, Inc.MF0.06%1%; Sales Load Not more than 5.00%
    Exit Fee Less than 90 days 1.00%, Annual Management Fee 1.0% p.a. of total funds under
management
P1,000https://www.philequity.net/downloadCenter.php
BPI Philippine Equity Index Fund UITF0.19% since its inception  Trustee Fees: 1.000% Custodianship Fees: 0.0169% External Auditor Fees: 0.0019% Other Fees: 0.00%P10,000https://www.bpiassetmanagement.com/upload/files/EQ_UITF_BPI%20INVEST%20PEIF_%20JAN2020(2).pdf
BDO EQUITY INDEX FUND UITF0.51% as of Jan 31, 20201.00%; Early Redemption Fee 0.50% of original participation amount; Trustee Fees: 0.0857% Custodianship Fees: 0.0013% External Auditor Fees:
0.0005% 
P10,000https://www.bdo.com.ph/sites/default/files/pdf/EQIF-latest.pdf
Metro Philippine Equity Index Tracker Fund UITF0.87% as of Jan 31, 2020management fee 1.00%; Trustee Fees: 0.086%; Redemption Fee 50% of income of redeemed amount (after 3 banking days) P10,000https://web.metrobank.com.ph/ViewImage.asp?id=3362
CTBC Bank –Sun Life Philippine Stock Index Feeder FundUITFnot disclosedTrust Fees: 0.50%; External Auditor Fees: 0.04%P10,000https://www.ctbcbank.com.ph/php/Trust/FPR.pdf
BDO PERA Equity Index Fund (PERA) PERA1.42% as of  Nov 29,2019Trustee Fees: 0.0832%; Early Redemption Fee: 1.00% of Original Participation AmountP10,000. or the minimum PERA initial contribution amount set by the PERA Administrator, whichever is lowerhttps://www.bdo.com.ph/sites/default/files/pdf/PEQIF-latest.pdf
Philequity PSE Index Fund Inc. (MF) MF1.84%-3.27% as of Jan 31, 2020Annual Management Fee 1.0% p.a. of total funds under
management; Early redemption fee 1.00%
https://www.philequity.net/downloadCenter.php
Security Bank Equity Index Fund UITFinformation ratio 2.06 as of Nov 30, 2019Trustee Fee 0.0793%; Custodianship
0.0031%; External Auditor Fee
0.0025%
P10,000https://www.securitybank.com/wp-content/uploads/2020/01/MR-SB-Philippine-Equity-Index-Fund-November-2019.pdf
UCPB Philippine Index Equity Fund UITFinformation ratio  0.04 as of Dec 31, 20190.75%; Trust Fee 0.1893%%; External auditor fees  0.0063%; early redemption fee 5% of amount redeemedP1,000https://www.ucpb.com/wp-content/uploads/2020/02/UCPB_UITF_KIIDS_UPIEF_2019_Q4.pdf
UnionBank Equity Index Fund UITFinformation ratio 0.23 as of Jan 2020Trust Fees: 1.00%; Custodianship Fees: 0.002% Audit Fees: 0.002%P50,000https://unionbankph.com/trust-and-investments/unit-investment-trust-fund/447
PNB Enhanced Phil-Index Tracker FundUITFinformation ratio 0.68 as of Dec 2019 1.00% p.a.; Trust Fees: 0.0610%  TaxationFees: 0.1707% Audit Fees: 0.00132%; Other fees 0.0010%P10,000https://www.pnb.com.ph/wp-content/uploads/docs/pnb-enhanced-phil-index-ref-equity-fund.pdf
Sun Life Prosperity Philippine Stock Index Fund, Inc. MFnot disclosedmanagement fee 1.00% ; transfer agency fee 0.15%; early redemption fee 1%P1,000https://www.sunlife.com.ph/static/ph/Investments/NAVPS/FundPDF/Fund%20Fact%20Sheets_Prosperity%20Index%20Fund_March%202019.pdf
PAMI Equity Index Fund, Inc.MFnot disclosedmanagement fee 1.50% ; sales load 0.50% to 3.00%; early redemption fee 1%P1,000https://www.philamfunds.com/en/our-products/equity/pami-equity-index-fund.html
Land Bank Equity Index Fund UITFcannot find info
Philippine Stock Index Fund Corp. MFcannot find info

9. Tips on how to Invest in INDEX FUNDS in the Philippines

1. As of this writing, Eastwest’s PSEI Tracker Fund has the lowest tracking error which is like virtually almost 0% meaning they are consistent and are doing exceptionally well in tracking the index. But as stated in their website, they have started charging licensing fees. So, it’s up to you to weigh and see what has more bearing: a low tracking error OR a licensing fee on top of the other disclosed fees.

2. First Metro Philippine Equity Exchange Traded Fund comes second in line with the lowest tracking error of 0.04% with impressive low fees as well. Do take note that this is classified as an ETF.

3. Mutual funds have the highest fees. Notice how Sunlife Prosperity PSI, Philequity MSCI and Philequity PSE Index charge a 1.00% management fee while PAMI Equity Index charges a whopping 1.50%.

I have nothing against MFs. I am just stating facts here.

Contrary to that, they do offer the lowest minimum capital of P1,000 which may be enticing for newbies who do not have enough funds.

4. Among all the banks, the UCPB Philippine Index offers the lowest minimum capital of P1,000 – if you are opting for Index Funds through UITFs.

5. Companies that did not disclose their tracking error provided their information ratio in their prospectus. A high information ratio means that a manager has produced better returns consistently compared to the benchmark index. So far, Security Bank Equity Index has produced the highest information ratio.

10. Final Thoughts

What do you think of Index Funds? I don’t claim to be an expert in Index Funds though and I will always be open to new investing ideas. But if people ask me for investing advice, I think it’s safer to just point them to the index. Then again, no matter how impressive the historical returns are, there is no guarantee that history will repeat itself.

How to Invest In Index Funds in the Philippines

By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.

2 thoughts on “How to Invest in INDEX FUNDS in the Philippines”
  1. Hi, Ms Thrifty Pinay,

    My name is Mr. Green and I have been teaching Japanese to many Filipino technical intern trainees in Kochi, Japan.

    Some of them are interested in mutual funds, especially index funds in order to invest their precious money with less risk for their future life.

    There are many securities companies in Japan that sell various and good index fund products.

    One of the best index fund products I think of is the Vanguard S & P 500 Index Fund.

    I myself have been purchasing this product on a monthly basis for over 10 years, and the results have been excellent so far.

    Here goes my question.

    Are there any ways to buy the above Vanguard S & P 500 Index Fund in the Philippines?

    1. Hi Mr. Green. As of now, if you are residing in the Philippines, there is not yet a “direct” way to invest in Vanguard S&P 500 index. You can’t do it directly. But, what you can do is invest in either Feeder Funds that invest in ETFs following the s&p 500 index that are available in local banks (option 1) OR, you can invest in international brokers like GoTrade, Etoro, and TDA (option 2). These brokers allow PH Citizens to invest in US stocks. Thanks for your question sir. This is what I know and I hope this helps.

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