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Category: Personal Finance

Philippine Stock Exchange (PSE) Index Funds Comparison

Unit Investment Trust Funds (UITF) are open-ended investment fund pools operated by a trustee (usually a bank) where investors can participate by buying units at the Net Asset Value per Unit (NAVPU) for the day. Mutual Funds (MF), on the other hand, are corporations whose purpose is to invest the fund pool. Investors can participate by buying shares of the corporation at the Net Asset Value per Share (NAVPS). Finally, Exchange-Traded Funds (ETF) are funds traded on the stock exchange (with its own ticker symbol); the ETF itself is invested by the issuer into underlying securities. Investors can participate by buying shares of the ETF on the stock exchange.

Some UITFs and MFs are invested in the money market, some in bonds, and others in equities. In particular, index funds are passive funds which seek to replicate the Philippine Stock Exchange Index (PSEi), which is a basket of 30 common stocks in the PSE. One would then expect the returns to also mimic the PSEi. There are some UITFs and MFs which are index funds. In the Philippines, there is only one ETF at the moment, and it is also an index fund.

This article seeks to explore: are all PSEi index funds created equal? Which ones follow the PSEi most faithfully? When price appreciation and dividends of underlying stocks are taken into account, are UITFs / MFs / ETFs still good value for your money?

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Index Funds in the Philippines

There are a lot of equity Unit Investment Trust Funds (UITF), Mutual Funds (MF), and Exchange-Traded Funds (ETF) in the Philippines, but only a handful of equity index funds. I classified UITFs, MFs, and ETFs as index funds if their fund information sheet explicitly notes that they track the index by buying component stocks of the Philippine Stock Exchange Index (PSEi) with the same weight. Index funds are classified as passive funds, since the fund managers do not need to do their due diligence with each individual stock’s performance, and only have to ensure the stock weights are as close as possible to the PSEi.

In contrast, all other equity funds can be considered as “active funds” since the fund manager has the discretion to choose different weights, or different stocks altogether. In practice, many equity funds still closely mirror the PSEi (possibly due to liquidity reasons), but they may decide otherwise from time to time. There are other equity funds who focus investments on specific market sectors, dividend plays, or conviction stocks. These active funds may have higher or lower returns than the index depending on the fund managers’ skill, luck, and timing, and hence are not the focus of comparison here.

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