Retail investors major ETF market, says expert

Lean Santos
The introduction of the new investment product - Exchange-Traded Funds - will benefit retail investors the most, according to a financial expert

NEW ASSET PRODUCT. BDO Unibank Inc. senior vice president and chief investment officer Marvin Fausto (middle) says the introduction of Exchange-Traded Funds (ETF) will benefit retail investors the most. Photo by Lean Santos/Rappler

MANILA, Philippines – Retail investors, or individual traders, will be the major market for the soon-to-be-launched investment product Exchange-Traded Fund (ETF), a financial expert said.

Speaking at an asset forum sponsored by the Philippine Stock Exchange (PSE) on Friday, June 28, Sy-led BDO Unibank Inc. senior vice president and chief investment officer Marvin Fausto said retail investors will likely drive ETF growth in the country.

“ETFs are highly attractive to individual investors, particularly retail, since they can participate in the market at a low cost and enjoy market returns at the same time,” he said.

An ETF is an investment fund similar to an index fund composed of underlying assets. It tracks the main exchange index or other market indices and replicates their performances.

Unlike a mutual fund, which calculates its price or net asset value at the end of the day, an ETF experiences price changes throughout the day. It trades like a stock on an exchange.

PSE chief operating officer Atty. Roel Refran said the introduction of the new product is beneficial especially to those who are just starting to invest in stocks.

“I think, essentially, members of the exchange and participants will need new asset products (such as the ETF). In the past, people did not participate enough in the stock market. Maybe this time, with the growing market, more people will join as need for more asset classes is apparent,” he said.

Benefits of ETF

Hoping to lure more individuals to join the market, Refran explained the benefits of ETFs.

He highlighted 3 major benefits. These are:

1. Fast profit opportunities

Since ETFs trade like stocks with changing prices throughout the day, investors can employ speculative trading strategies.

Speculative trading strategies allow investors to buy stocks, usually high-risk, at a certain price at a certain time of the day and sell them at a profit.

2. High market returns at low entry cost

ETFs cost a lot less compared to stocks of corporations.

According to Fausto, investors can buy ETF shares in the market and trade them, with an initial investment of just a few thousand pesos.

He added investors can go in and out of the market or buy and sell ETFs on the same day as there is no holding period for the new asset.

3. Diversification

Since ETFs are “baskets of assets” or underlying assets trading like stocks in an exchange, investors can create a diversified portfolio of assets.

Currently, there are at least 3 major financial firms planning to offer ETFs in the market. They are Metrobank Group’s First Metro Investment Corp. (FMIC), Sy-led BDO Unibank Inc. and Ayala-led Bank of the Philippine Islands.

The 3 firms have yet to announce the assets they will include in the ETFs that they will offer.

Development phase

Even if ETFs had been approved by securities regulators, Refran said local ETFs are still being developed.

“The idea is also to improve once it’s launched. It is still in the process of development. The learning curve is a fluid process, not static. We will be learning along the way,” he said.

“It’s been a very long pregnancy and the birth of ETF is finally here. We want to make sure, while learning along the way, the ETF will grow healthy and benefit everyone in the stock market,” Refran added.

Earlier in June, the Securities and Exchange Commission approved the final set of rules guiding the offering of ETFs.

FMIC is looking to launch its ETF by July. –

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