Five Minute Guide to Philippines ETF Investing - ETF News And Commentary
August 01 2012 - 8:25AM
Zacks
Despite uncertainty in the global economic environment, the
Philippines has continued to strive to improve its economy and
build a strong platform of growth. As a result, the economy began
2012 on a positive note after a year of lackluster performance. In
the first quarter of the year, the Philippine economy reported an
impressive GDP growth rate of 6.4% (Forget European Woes with These
Three Country ETFs).
This has largely been due to a number of events which have led
to a favorable economic environment in the country. Notably,
consumer spending has increased—which accounts for half of
GDP—inflation has been lower, and the service sector of the economy
has also held up pretty well thanks to high demand for cheap
outsourcing and the nation’s increasingly important tourism
business.
In addition, Moody's raised its credit rating for the
Philippines by one notch to Ba2 last month, which is just two
ratings below investment grade. Meanwhile, S&P had raised its
rating on Philippine credit to BB from BB- in November.
The long-term fundamentals for the economy look good in view of
the stable political situation and the popular government that
seems committed to accelerate the pace of reforms in the country
(Southeast Asia ETF Investing 101).
However, the global economic slowdown and volatility in the
market may hinder the economy in the coming quarters. Also, a sharp
uptick in oil prices may hamper trade, thereby hurting the
stability of the economy in the short term.
Additionally, exports from the country have been impacted by the
global slowdown. Philippines generally used to export to countries
like U.S, Europe, China and Japan. The last couple of years have
not been very good for developed markets like the U.S and Europe,
while emerging nations are also suffering as well (Three European
ETFs That Have Held Their Ground).
A heavy debt burden and high level of unemployment have put
pressure on the economic stability of the two regions which
impacted the demand for export goods from Philippines. This
seems to have continued into 2012 and could carry on until there
are signs of recovery in Europe and elsewhere across the globe.
Despite global economic uncertainty and market turbulence, the
economy of the Philippines is still expected to deliver a GDP
growth rate of between 5% and 6% in 2012, provided there is an
increase in government spending coupled with gains in consumer
confidence (Three Overlooked Emerging Market ETFs).
Unfortunately, the Philippines is still a very small economy
when compared to others emerging nations in the region. Due to
this, many of the country’s stocks do not trade on American
exchanges, making the country a difficult one to invest in.
Due to this, an ETF approach could be one of the few ways to
play the sector, specifically in the case of a relatively new
iShares fund, EPHE. This product provides one of the only ways
American investors have to target the country in low-cost basket
form and we have highlighted some of the key points about the
product below:
MSCI Philippines Investable Market Index Fund
(EPHE)
The fund tracks the MSCI Philippines Investable Market Index,
which looks to offer investors a broad exposure to equities listed
in the Philippines. The fund trades with an asset base of
$141.6 million and volume of 73,600 (Five Top Performing Single
Country ETFs of 2012 (So Far)).
The performance of the ETF has been quite remarkable. This ETF
has added about 24.6% so far in 2012 and it has gained roughly
13.6% over the last 52 weeks. Meanwhile, the yield of the fund
stands at 1.01% while costs come in at 59 basis points a year (Top
Three Emerging Market Dividend ETFs for Income and Growth).
Currently, the product has just over 41 securities in its
basket. Maximum sector exposure is to financials (37.6%),
industrials (25.6%), and utilities (13.7%). Clearly, despite
the heavy financial exposure, the product hasn’t been hampered by
the European crisis, suggesting it could be an interesting choice
for those looking for financial exposure that isn’t heavily
correlated to the euro zone.
Investors should note that the fund is concentrated in the top
10 holdings with 55% of investment. Among individual holdings, SM
Investments Corp, Philippine Long Distance Telecom and Ayala Land
take the top three positions with 9.73%, 7.09% and 6.37%,
respectively, of EPHE’s assets.
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ISHARS-MS PH IM (EPHE): ETF Research Reports
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