EXCHANGE TRADED FUNDS. Roberto Juanchito T. Dispo, President May 23, 2013

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1 EXCHANGE TRADED FUNDS Roberto Juanchito T. Dispo, President May 23,

2 AGENDA Introduction to ETFs o What are ETFs? o Comparison: ETFs vs Mutual Funds o Global Performance of the ETFs o Key Selling Points How to invest in ETFs? The First Metro ETF 2

3 What are ETFs? In essence, ETFs are tradable mutual funds STOCK MUTUAL FUND Can be traded through an Exchange (PSE) during the day Diversified portfolio ETFs Diversified funds that can be traded through an Exchange (PSE) similar to stocks 3

4 Mutual Funds vs. ETFs Mutual Funds Buyers Cash / Expenses Mutual Fund Philippine Stock Exchange Sellers ETFs Investors interact directly with the fund when buying and selling shares. Each investor s actions impact other investors of the fund. Buyers Sellers Philippine Stock Exchange Authorized Participants ETF shares Investors buy and sell ETF shares directly from the Exchange. ETF Shares are created and redeemed by Authorized Participants and the Fund. The cost impact of each purchase or sale of shares is limited to the single transaction and does not affect other investors of the ETF. 4

5 Global Performance of ETFs Quick Stats: Asia Pacific US # of ETFs 542 1,194 ETF Assets (US$Bn) ,337.0 Top 5 Funds Asia ex-japan, ranked by AUM ETF Country Listed AUM (US$Bn) ishares FTSE A50 China Index ETF Hong Kong 7.6 Tracker Fund of Hong Kong Hong Kong 7.34 Harvest Shanghai & Shenzhen 300 China 6.52 Huatai Pinebridge CSI 300 China ABF Pan Asia Bond Index Fund Hong Kong Asia Pacific Total Net Assets and Number of ETFs in the Asia Pacific Billions of dollars, year-end, United States Total Net Assets and Number of ETFs in the US Billions of dollars, year-end,

6 Key Selling Points Liquidity ETF shares are traded like any listed company s stock, at any time the market is open Pricing is continuous throughout the day Portfolio Diversification Transparency Broad Availability Others ETFs provide immediate exposure to a basket of listed companies from different industries Underlying securities in the portfolio are shares of listed companies, therefore, the investor is given comfort on accessibility of information on the companies invested in. Investor may be able to purchase ETF shares from the 134 registered brokers of the PSE Minimum premiums/ discounts to NAV. Market price of a single ETF share usually trades close to its NAV. You don t have to BEAT the index, you re BUYING the index. Risk: As with regular stock investing, ETF investment will also be dependent on favorable market conditions and subject to market volatility. 6

7 How do you Make an ETF Investment? Open an Account with any of the 134 PSE Brokers Minimum investment o For the FMIC ETF, minimum investment is PhP 5, Once you ve satisfied the above, you can buy and sell ETFs just like a listed stock! 7

8 The First Metro ETF The ETFs will add to the funds under the advisory and management of FAMI. 8

9 The First Metro ETF First Metro aims to launch the first Philippine ETF in June/July The First Metro ETF, which aims to track the PSEi, will be marketed to both institutional and retail investors. To invest in the First Metro ETFs, one can approach any of the authorized participants. The initial investment amount, along with the other details of the investment, shall be announced once the terms and conditions have been approved by the regulators. Fund Name First Metro Philippine Equity Exchange Traded Fund, Inc. Investment Advisor, Fund Manager, and Principal Distributor First Metro Asset Management, Inc. (FAMI) Index Provider PSEi Authorized Participants First Metro Securities Brokerage Corporation (FMSBC) IGC Securities Market Maker FMSBC Timing June/July of

10 ANNEX 10

11 ANNEX: ETF Creation Process Investor Brokerage Account Cash ETF Shares ETF Market Maker and other Authorized Participants Cash Securities Capital Markets Capital Markets Creation Units * ETF Fund Manager Basket of Securities ETF Shares * Basket of Securities * * Stock Transfer Tax (0.5 of 1%) * DST (Php1 for every Php200) Custodian 11

12 ANNEX: Global Performance of ETFs Fund Name ishares MSCI Singapore Index Fund ishares MSCI EMU Index Fund ishares MSCI Hong Kong Index Fund ishares MSCI Japan Index Fund SPDR S&P 500 ETF Trust Ticker Symbol EWS EZU EWH EWJ SPY Country Singapore Europe Hong Kong Japan US Composition/ Index MSCI Singapore Index MSCI EMU Index MSCI Hong Kong Index MSCI Japan Index S&P 500 Index Closing Price (as of May 20, 2013) $14.41 $35.41 $20.80 $12.11 $ Month Average Daily Traded Volume 1.5 million 2.3 million 3.2 million 39.7 million million (in shares) YTD Return (ending May 20, 2013) 5.84% 6.22% 8.08% 25.03% 17.22% 2012 Return 29.26% 38.14% 36.02% 39.89% 30.94% 12