MANILA, Philippines – While companies overseas are cutting back on their exchange-traded fund (ETF) offerings due to intense competition, local ones are just starting to get in the game.
First Metro Investment Corp. (FMIC), the investment banking unit of George Ty-led Metrobank group, announced Monday, December 3, its board approved the creation of an ETF with initial capitalization of P250 million, subject to regulatory approvals.
FMIC joins two of the country’s largest banks — Henry Sy’s Banco de Oro and the Ayala group’s Bank of the Philippine Islands — which have expressed interest to roll out ETFs by yearend.
An ETF is a financial instrument that mirrors an index or a basket of securities, and is bought and sold like a stock on the exchange.
And because it is traded like a stock, its price stays close to its net asset value over the course of the trading day.
It is also similar to a traditional mutual fund; it allows investors to diversify their portfolio by buying a single product that represents a wide range of securities, including stocks, bonds and currencies.
ETFs are popular in financial markets in the West. However, with the growing variety of ETFs offered investors, fund companies find themselves struggling to keep market share.
In the US, for example, fund companies are in a bitter price war to grow their client base, resulting in thinner profit margins for them. What they do then is cut product offerings — maintain those that enjoy strong demand and kill those that do not, according to a Reuters report.
Since the early 2000s, the local stock exchange has been wanting to introduce ETFs, but tax issues got in the way.
It was only in October 2012 that the Securities and Exchange Commission finally issued rules on the new investment product.
Based on the approved rules, ETFs that will be put up should have a minimum capitalization of P250 million.
A reputable fund manager must also operate and administer the ETF and at least two authorized participants should handle the issuance and redemption of ETF shares.
FMIC said its unit First Metro Asset Management Inc. will manage its ETF. – Rappler.com