ETF launch comes at opportune time

MANILA, Philippines - The launch of the Exchange-Traded Funds (ETFs) this year comes at a time when investor confidence is high given the stock market’s ascent and the investment grade rating for the Philippines.

The timely launch of the new investment product is expected to result in more investors participating in the local capital market, industry experts said.

“While we wanted to roll this out earlier, we’re pleased that it is happening this time when the robust economy serves as a backdrop to launch these types of investment products,” said Philippine Stock Exchange president and CEO Hans Sicat.

“The launch of the ETF is exceptionally timely. This instrument will improve financial intermediation which is one of the hallmarks of long-term economic development,” said National Treasurer Rosalia de Leon.

For ETF expert Robert Tull Jr., the current momentum of the stock market serves as a good backdrop for the introduction of ETFs.

“It’s always positive when investors see the equity markets up. Another value is that the Philippines has moved to investment grade rating now, which builds a lot of investor confidence,” Tull said.

Tull, CEO of consultancy firm Robert Tull & Co., has played a leading role in the design and development of more than 300 ETF products in the past 20 years.

ETFs are securities and investment instruments that monitor a commodity of assets like an index fund but trades like a normal stock in an exchange.

Last month, the Securities and Exchange Commission approved the final set of guidelines that will allow the launch of ETFs.

Industry experts pointed to numerous benefits of the new investment scheme.

For one, it gives investors the benefit of diversification.

“I think local investors will follow this instrument and find a place for this in their portfolio,” said Augusto Cosio Jr., president of First Metro Asset Management Inc.

“An ETF product has been long in coming. But this gives investors access to our stock market without very much stock picking,” said PSE chief operating officer Roel Refran.

Since ending 2012 at 5,812.73, the benchmark Philippine Stock Exchange index has climbed 15.74 percent to 6,728 as of last week on robust economic growth, high liquidity and strong corporate earnings.

ETF is a financial innovation that would deepen the capital market, de Leon said. ETFs is also for investors who cannot directly access specific sectors in the market due to a country’s specific regulatory environment.

Frank Henze, head of Asia Pacific ETFs of State Street Global Advisors, said ETFs offer low management rate, a simple structure, high transparency and broad investment exposure.

“Like in anything, the first few movers will have a great reception in terms of market acceptance and we hope it will spur other companies to create ETFs,” Sicat said.

At least three firms, First Metro Investment Corp. of the Metrobank Group, Sy-led BDO Unibank Inc. and Bank of the Philippine Islands of the Ayala conglomerate have expressed their plan to offer ETFs.

ETFs in Japan and Hong Kong started late in the 1990s, followed by Singapore, Malaysia, Thailand and Indonesia around five to 10 years ago, Sicat said.