P30-B SDA funds could go into new ETF facility

MANILA, Philippines - About P30 billion worth of funds expected to exit from the special deposit account (SDA) of the Bangko Sentral ng Pilipinas (BSP) this month may find their way into the new exchange traded fund (ETF) facility, an industry official said.

First Metro Investment Corp. president and CEO Roberto Juanchito Dispo, in an interview yesterday on the sidelines of the Philippine ETF Investment Convention, said around 10 percent of the P300-billion SDA funds that would be freed this month could go to ETFs.

The BSP has directed banks to reduce their SDA exposure by 30 percent by the end of July.

It was noted that a large portion of the SDA funds, currently placed at P1.8 trillion, is being invested in banks’ money market of short-term unit investment trust funds (UITFs) and deposits.

By the end of November, the next deadline for the SDA phase-out, the BSP expects another P1 trillion to move to trust funds, including ETFs.

FMIC is taking the lead in the ETF issuance, committing to list about P3 billion worth of such funds in the country’s local bourse by September this year.

Dispo said they expect to initially offer between P1 billion to P2 billion.

Another P1 billion, he said, would be offered as “cushion if in case demand is strong.”

The FMIC chief is projecting a positive market response for ETF. “There may be a need for us (to offer more),” he said.

He said they even expect their ETF offering to match their existing mutual fund base.

Dispo said strong demand would likely come from “anchor investors, institutional investors-- insurance companies and retail investors as well.”

FMIC, he said, is set to launch its ETF on Sept. 2-4 with listing “preferably on September.”

“There is one-month market education but we are playing it by ear. If there is need for us to educate some more, we may extend it for another one month, two months,” he said.

He said the prevailing volatility in the financial market would not affect the ETF offering.

“Volatility is now muted. Tapering is not tightening. Flows are now back. We are underpinned by strong economic fundamentals, nothing had changed.”

ETFs are seen to offer several advantages and investment options to investors including liquidity, especially for those who cannot directly access specific sectors in the market due to a country’s specific regulatory environment.