Giant US money manager launches fund for RP stocks

It looks like foreign investors’ renewed interest in the Philippines is catching fire over a broad front. Unveiled in the US last week was a new investment fund linked to the performance of equities traded on the Philippine Stock Exchange. The fund’s rollout comes close on the heels of the government’s successful peso-denominated bond float in mid-September which attracted orders worldwide of over a dozen times the $1 billion issue. Also, stronger growth trends have been noted in the flow of both portfolio and foreign direct investments into the Philippines in recent months. The new investment fund, called “iShares MSCI Philippines Investable Market Fund (EPHE)", offers an alternative for individual or corporate investors attracted by Philippine equities but could not initiate actual placements because they lack either the means or temperament to access directly the country’s stock market. Among the stocks in the EPHE portfolio are market leaders Philippine Long Distance Telephone Co., SM Investments Corp., Ayala Land Inc., Manila Electric Co., and Bank of the Philippine Islands. These stocks are assigned different weights in the valuation of EPHE shares. EPHE was launched by New York-based BlackRock Inc., a leading player in investment management and advisory services for institutional and retail clients worldwide. With operations in 24 countries, BlackRock reported $3.15 trillion worth of assets under management — making it the world’s biggest fund manager — as of June 2010. Set up as an “exchange traded fund" or ETF, EPHE is an investment vehicle that tracks an index of selected Philippine stocks. In contrast to a mutual fund, which pools money from different investors for the purpose of investing in stocks, bonds, and money market instruments, an ETF is a share in a portfolio of corporate stocks or commodities. An ETF, whose price can move up or down like stocks, can be traded anytime during normal trading hours. There are also older investment funds, such as the First Philippine Fund set up in 1987 by New York-based fund manager Lilia Clemente, that have different investment strategies and therefore are not considered as competitors of ETFs. First introduced in 2001 by BlackRock’s iShares Funds unit, MSCI-linked ETFs are listed on the American Stock Exchange, Chicago Board of Options Exchange, Nasdaq, and NYSE Arca just like shares of a publicly held company. There are now more than 430 ETFs issued by iShares that cover a wide range of market sectors, including 18 single-country issues dedicated to developing countries. A benchmark measure According to iShares, EPHE is the first investment fund that is linked to movements in the MSCI Philippines Investable Market Index, a benchmark that measures the performance of equity securities in the top 99 percent market capitalization of stocks listed in the Philippines. The EPHE index, iShares said, has about 27 constituent securities. In terms of index weightings, the top 10 stocks in the fund’s portfolio as of Aug. 31, 2010 are: PLDT, with 12.73 percent; SM Investments, 9.68 percent; Ayala Land, 9.49 percent; Meralco, 9.01 percent; Bank of PI, 7.62 percent; Ayala Corp., 6.70 percent; SM Prime Holdings, 5.69 percent; Banco de Oro Unibank Inc., 4.07 percent; Energy Development Corp., 3.90 percent; and Metropolitan Bank & Trust, 3.88 percent. By industry sector, the index’s biggest weighting at 46.41 percent goes to financials, with the rest distributed among utilities, 17.16 percent; telecommunication services, 15.68 percent; industrials, 14.95 percent; consumer discretionary, 4.66 percent; information technology, 0.64 percent; and materials, 0.50 percent. The Philippines has been in the MSCI (Morgan Stanley Capital International) lineup of 26 emerging markets that it monitors through its widely-followed markets index. Through the EPHE, the Philippines becomes the fourth country in Southeast Asia with an iShares portfolio linked to the MSCI index. Still, reflecting the small size of its economy in the global arena, the Philippines has only a 0.50 percent weighting in the MSCI Emerging Market Index, and a smaller 0.06 percent weighting in the MSCI All World Index. If the Philippine stock market sustains the strong gains it posted in recent months, the new EPHE fund could be an attractive investment. EPHE’s underlying index, the MSCI Philippines Investable Market Index, had a one-year return of 32.06 percent as of Aug. 31, 2010, which was substantially higher than the 18.02 percent one-year return on the MSCI Emerging Markets Index, which includes the equity market performance of 26 developing countries across the globe. Over a longer time frame, illustrative annualized three-year index returns cited by iShares gave the MSCI Philippines Investable Market Index a 32.06 percent return, compared to a loss of 1.5 percent by the MSCI Emerging Markets Index. On Oct. 1, the last trading day last week, EPHE’s price closed at $25.17, a modest increase of $0.20 from the Sept. 30 launching day’s closing price. The Philippine ETF had total net assets of only $2.49 million as of Oct. 1. This was still way below the net assets value of $136.15 million posted on the same date by Indonesia’s ETF which was launched on May 5, 2010. The older iShare ETFs of other Southeast Asian countries, Malaysia which was launched in March 1996 and Thailand which was launched in March 2008, had total net assets of $983.5 million and $672.4 million, respectively, as of last weekend. If current economic growth trends continue, the encouraging capital flows from foreign investors can only be expected to gather steam. One just hopes against a repeat of Philippine political leaders’ propensity to shoot themselves in the foot in the midst of positive signals — which in the past (in the form of coup attempts, widespread corruption, cronyism, and sudden policy shifts that derailed corporate work plans) effectively stopped such investment flows dead on their tracks. —VS, GMANews.TV