First Metro ETF (FMETF) is the only ETF available in the Philippine Stock Market. I’ve written previously about how FMETF compares to ETFs in Vietnam and Thailand. I’ve also noted how FMETF’s assets under management is dwarfed by BPIPEIF, a similar index tracker in UITF form.
Whenever one mentions FMETF, it is invariable described as a low-cost index tracker. Its management fee is supposed to be 0.5%. That it in itself is low by Philippine standards when comparing to mutual fund management and UITF trust fees. For a supposed passive fund, it is still high when comparing to well-established ETFs in the US like SPY and VTI.
Management fees are a percentage of the fund’s assets under management. According to one of FMETF’s quarterly reports, the “management fee is accrued over time 0.50% of average daily net asset value (NAV) of the Fund plus 12.00% value added tax (VAT)”. This makes the effective management fee equivalent to 0.56%. But the fund has other operating expenses that are not charged to the management fee. These fees include custodian and transfer agency fees, information technology expenses, regulatory and filing fees, taxes and licenses, brokers’ commissions, and directors’ and officers’ fees. How do these other fees compare to the management fee? I looked at FMETF’s last three annual reports. Using a naive assumption that the non-management fee expenses scale with the NAV in the same proportion as the management fee, I calculated the “effective expense ratio”.
|Management Fees (0.56% including VAT)||8,486,866.00 ||6,672,251.00 ||5,586,013.00
|Total Expenses (including Management Fees)||12,327,600.00 ||9,900,817.00 ||8,529,548.00
|"Effective Expense Ratio"||0.813%||0.831%||0.855%|
For the past three years, the “effective expense ratio” ranged from 0.81% to 0.85%. It’s encouraging that the number is decreasing as the fund’s NAV increases. This probably means that some of the expenses are fixed overhead costs that do not scale with the NAV.
Apart from those fees, an FMETF investor is also faced with commissions and taxes for buying and selling ETF shares. As I discussed in the costs of stock trading in the Philippines, buying fees amount to about 0.29% while selling fees including taxes amount to about 0.89%. So about 1.18% buying and selling fees are amortized over the period of owning an FMETF position. For positions shorter than two years, the sum of the fund’s expense ratio and these buying/selling fees will make the total cost closer to BPIPEIF’s fees.
Speaking of BPIPEIF, while its states trust fee is 1%, it does not include custodianship fees of 0.0166% and auditor fees of 0.0019%. Thus at the minimum BPIPEIF’s fees amount to 1.0185%. I do not know if expenses similar to the ones listed above for FMETF are charged to the trust fee. My guess is they are not. I haven’t found any BPIPEIF annual report to see how they break down their total expenses.