Time seen right to introduce ETFs in PH
The time is right to introduce in the Philippines exchange-traded funds (ETFs), a fast-growing asset class in the region that gives investors the chance to invest in liquid, index-tracking funds at a lower cost than putting money in other pooled funds, investment experts from Citigroup said.
ETFs are growing worldwide, particularly in Asia, but there’s no “one size fits all” strategy to launch an ETF, said Prasanna Jha, director and regional head of fund administration and ETF product for Citi’s Asia Pacific Transaction Services.
“It’s growing elsewhere. I don’t see why it shouldn’t grow here. As investors become more sophisticated, they will look for such kind of product,” Singapore-based Jha said in an interview with the Inquirer. “The right time is now.”
“After the deposit scheme is going away, a pool of liquidity is waiting to be invested. A new kind of asset is definitely going to help the investment horizon. Somebody has to take the first step,” said Jha, who spoke at a recent forum on ETFs organized by the Philippine Stock Exchange.
Jha was referring to the unwinding of the special deposit account (SDA), which currently locks up about P1.8 trillion in cash, representing the amount of excess liquidity in the local financial system that the Bangko Sentral ng Pilipinas has to mop up.
An ETF is an investment fund that is similar to a mutual fund that tracks a basket of assets, but it is traded on a stock exchange similar to stocks. Unlike mutual funds, the price of an ETF is quoted real time so investors immediately know how much they are buying or selling their ETF shares for.
ETF is seen to be a more cost-effective way of investing in a collective fund than unit trusts or mutual funds.
“With unit trust, you go to a distributor or channel and you’re given an application. When you buy for a hundred (unit or shares), maybe two of that go to the distributor in terms of commission. So what gets invested is a value of 98 but the number of units is less. On top of that, you keep paying every year 2 or 2.5 percent management fees, custodian fees, brokerage fees,” Jha explained.
