The true costs of FMETF

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
Total Expenses (including Management Fees)12,327,600.00
"Effective Expense Ratio"

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.

6 thoughts on “The true costs of FMETF

  1. Would you still recommend FMETF over index funds such as Philequity’s? I know the fees of Philequity (XPEIF) are higher (at 1% p.a.) but it’s also easier to buy into it especially if I do small amounts monthly and I’m doing long-term investing. I can invest whole amounts per month. Would appreciate your thoughts. Thanks!

    1. hello, have you made any decision in choosing which one of the two? been reading a lot kasi na mas prefer nila yung FMETF, pero at the same time illiquid daw yun so mahihirapan ma withdraw yung money in the future while sa XPEIF I think required nila bilhin yung total of shares mo(?) huhu im not sure still researching more about this.

      1. FMETF is illiquid if and only if you are buying/selling a million worth of shares or more, meaning you have a lot of cash/shares and there are no available buyer/seller in the market. But if you’re a small investor and new from investing, then you can buy/sell shares and be done in a few seconds with FMETF. FMETF is better for small investors in my opinion because of this and aside from that, it has lower fees compare to mutual funds and the redemptions of mutual funds are generally slower, it takes around T+3 more or less, meaning if you redeem today, you will get your cash after 3 days (more or less).

  2. Thank you! Really appreciate the info/analysis on the “actual” costs of FMETF. Do you have any posts on taxes for UITF/ETF/MFs? I would also want to know the impact of the different tax rates on the income generated by these different investment funds.

  3. For smaller lot investors, I recommend BPIPEIF over FM ETF. Let us say you just invest 1,000 pesos monthly. Each time you buy FMETF, you are charged by your stock broker platform around 22-24 pesos (This will increase depending on the amount you invest). In one year, that is 264 – 288 pesos which is 2.2 – 2.4 % of the total amount you would have investment for the year (1,000pesos x 12months = 12,000pesos). BPIPEIF has no sales load and exit fee. You just pay the 1% + 0118% other fees. Have I got it right? Let me know if I missed anything.

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