An investor from the Philippines who wants to put money in U.S. ETFs can either choose from a limited menu of locally available feeder funds with U.S. ETF target funds, or directly open an international brokerage account and buy ETF shares directly. Down below is a simple calculator to determine whether it would be worth going through the hassle of opening an international brokerage account to directly invest in U.S. ETFs.
Feeder Funds
Local banks offer a variety of feeder funds. The ones I think are worth considering are the BPI Invest US Equity Index Feeder Fund with target fund SPY (SPDR S&P 500) and the Security Bank US Equity Feeder with target fund VTI (Vanguard Total Stock Market).
International Brokerage Account
The most direct way to invest in ETFs is by opening an international brokerage account. I personally use Charles Schwab.
Wire transfer fees
The primary additional cost in directly investing in ETFs using an international brokerage account is the cost of transferring money from your bank account to your brokerage account. Your investment amount, schedule and time horizon will determine whether it will be worth it to go through the direct investment route.
Feeder fund fees and ETF expense ratios
U.S. ETFs are pretty transparent about their expense ratio. For example, the SPY ETF (SPDR S&P 500) has an expense ratio of 0.095%. This ETF is the target fund of the BPI Invest US Equity Index Feeder Fund whose fees are listed below:
| fEE tYPE | FEE |
|---|---|
| Trust Fee | 0.75% |
| Custodianship Fee | 0.0151% |
| External Auditor Fee | 0.0082% |
| Broker’s Fee | 0.0300% |
| Total | 0.8033% |
Note that there may be other feeder fund expenses that that are not included in these fees. In the calculator below, I combined the feeder fund fees and the ETF expense ratio into the minimum feeder fund expense ratio. Obviously, the fund fees in investing in a feeder fund is a lot higher compared to directly investing in the target ETF.
The expense ratio for SPY and the fund fees for the BPI Invest US Equity Index Feeder fund are preloaded into the calculator.
Annual return
The calculator below assumes the same annual return for the ETF and the feeder fund. This is probably not true, particularly since the feeder fund holds some assets in cash, time deposits and money market funds. It is assumed that the annual return includes dividends and that the dividends are reinvested into the fund.
Taxes
This calculator does not directly consider tax complications in investing in U.S. ETFs. For more on this topic, please consider the following posts:
Hey, this is insightful and I appreciate the calculator. Apart from the wire transfer fee, is there also a currency conversion fee if we wire transfer fund from our peso account to our us brokerage? Thanks!
I don’t think there would be an itemized currency conversion fee. The bank will make money by applying an exchange rate that is slightly worse than the published BSP rate.