Did you know that you can invest in US stocks in the Philippines?
Not much information has been said online about Feeder Funds Philippines.
Feeder funds invest in an international fund known as the target fund. It is made available for Filipino investors as an additional means of diversification and to have access with international stocks mainly, the US stocks.
If you are thinking of investing your money for the first time and/or already investing in stocks, mutual funds and index funds but want additional investment vehicles to diversify, you may want to learn more about feeder funds.
Today I will share with you everything I know about feeder funds.
We are going to see exactly what is inside the top feeder funds available in the Philippines. We are also going to see how feeder funds work and how they differentiate with mutual fund, Unit Investment Trust Fund and Index Fund. Finally, I am also going to describe how to invest in feeder funds.
Feeder Funds Philippines
According to Investopedia, a feeder fund is one of a number of funds that put all investment capital into an overarching umbrella fund that is called the master fund, for which one investment advisor handles all portfolio investments and trading.
To put simply investors place their money into feeder funds which then invests into a master fund. The master fund then invests the money in an attempt to generate profits, which are then allocated to all of the feeders.
Here are examples of feeder funds currently available in the Philippines for you to have a better grasp on what feeder funds are all about.
SB US Equity Index Feeder Fund
The SB US Equity Index Feeder Fund is part of the funds of Security Bank. The SB US Equity Index Feeder Fund aims to invest in large, mid, and small cap US equities with diversified growth and value styles through a Target Fund.
According to Security Bank, SB US Equity Index Feeder Fund is suitable for investors who:
- Have an aggressive risk tolerance
- Seek potentially higher returns through investments in US stocks and who can tolerate high price volatilities
- Have the possibility to be exposed to capital losses given the volatile nature of the US equity market
- Have an investment horizon of three to five (3-5) years
The minimal initial participation for the fund depends on which asset class you want to invest:
Class A – USD 1,000
Class B – USD 5,000
Class F – USD 5,000
To know the difference for each class you can visit Security Bank website.
Below are the Top 10 Holdings according to the latest fund fact sheet.
BPI US Equity Index Feeder Fund
The BPI US Equity Index Feeder Fund aims to achieve for its Participants, investment returns that closely track the total return of the S&P 500 Index, before fees and expenses.
S&P 500 Index, everyone!
You might be wondering what S&P 500 Index is and why it is commonly heard and read in US stock market news.
The Standard & Poor’s 500 (S&P 500) index is an index tracking 500 large companies in the United States stock market. It is one of the most famous indexes along the Dow Jones Industrial Average (DJIA) and the NASDAQ.
Think of it as the US version of Philippine Stock Exchange Index or PSEi.
All the 500 largest companies available in the stock market were grouped together to form a fund.
Here are the five biggest companies in the S&P 500 Index:
Microsoft Corporation: 3.53%
Apple Incorporated: 3.29%
Facebook Incorporated: 1.75%
Berkshire Hataway: 1.69%
Imagine being invested in those companies, right?
According to the BPI website, the fund allows clients to diversify their portfolio, and take advantage of opportunities in the international market by investing in a diversified portfolio of U.S. stocks which belong in the S&P® 500 index which is the Target Fund.
It is suitable for clients with an aggressive risk profile. The BPI U.S. Equity Index Feeder Fund is considered as the first and only fund in the country to track the performance of one of the major U.S. Stock Indices, the S&P 500 index.
The minimum investment for the fund is US 1,000.
Below are the Top 10 Holdings according to it latest fund fact sheet:
BDO US Equity Feeder Fund
Next is BDO US Equity Feeder Fund. The fund is a US-dollar denominated global equity unit-investment trust fund that functions like a feeder fund.
The goal of BDO’s US Equity Feeder Fund is to generate long-term capital appreciation by investing in a single collective investment scheme, called the Target Fund, which is invested in a diversified portfolio of listed US companies.
The Target Fund for BDO US Equity Feeder Fund is the Legg Mason ClearBridge US Aggressive Growth Fund (Class X Accumulating USD Share Class).
Below are the Top 10 Holdings according to the website Morning Star:
The Fund is suitable for individual and corporate investors with aggressive risk appetite and who seek potentially higher returns through global stock market investments but are also aware of the possibility of capital losses that such investments may entail.
You need to prepare the minimum initial investment of USD 2000 and the same USD 2000 as minimum additional investment.
Related read: BDO wins Gold in Kidlat Awards
To know more about BDO US Equity Feeder Fund, visit BDO website.
ATRAM Global Technology Feeder Fund
Last for this list is the ATRAM Global Technology Feeder Fund.
ATRAM Global Technology Feeder Fund is the only peso denominated feeder fund from the list. Yes! And it is also the one with the lowest minimum and additional investment needed.
The objective of ATRAM Global Technology Feeder Fund is to achieve long-term capital appreciation by investing all or substantially all of its assets in a collective investment scheme that invests principally in equity securities of companies throughout the world that derive or benefit significantly from technological advances and improvements.
Its Target Fund is Fidelity Funds – Global Technology Fund which when you check on Bloomberg holds a lot of well-known stocks in the tech department like Microsoft, Apple and even Google.
From its Php 97.60 NAVPU in January 2019, the ATRAM Global Technology Fund grew to a whopping Php 119.37 NAVPU in end of July 2019. Plus, you only need Php 1000.00 to invest in the fund and Php 1000.00 as additional funds.
To know more about ATRAM Global Technology Feeder Fund, vist ATRAM website.
How to Open a Feeder Fund in the Philippines
Opening a Feeder Fund is the same as opening a Mutual Fund or a Unit Investment Trust Fund account in the Philippines. Depending on the financial company you will entrust your investments with, you may need to do/to present the following:
Step 1. Visit the website of your chosen Feeder Fund provider.
Step 2. On their website you can easily find the page for Feeder Fund Product/s they offer.
Step 3. Read the differences of each Feeder Fund offering. Select your fund based on your personal investment objectives, investment horizon and your risk profile. READ: Reader Question | Where Should I Invest My Money?
Step 4. Download the needed forms. This will depend on your chosen Feeder Fund provider. The documents below will definitely be available are as follows:
Prospectus which is required and filed with the Securities and Exchange Commission. This document provides details about an investment offering as well as facts that an investor need to make an investment decision.
Account Opening Form which is required to be filled up for your information and other personal reference.
Investment Risk Profiling Questionnaire which will know your investment risk profiles and match you with the right companies to invest with.
Step 5. Prepare your IDs. Only valid government IDs are okay to use for account opening.
Step 6. Have you initial investment ready. There are Feeder Fund that requires US Dollars and the one with ATRAM for only Php 1000. Also take note that banks may require you to open a dollar account to invest.
Step 7. Submit all your requirements. You may need to go to the nearest office or send through mail all the requirements. I suggest having much patience when it comes to processing your documents.
Step 8. Wait for your proof of purchase and/or statement of account to arrive from your initial investment.
Step 9. Fund your Feeder Fund account.
Advantages of Feeder Funds
The way I see it, Feeder Funds offer almost the same benefits as Unit Investment Trust Fund (UITF) or Mutual Fund. The only exciting difference is that the target fund is a.) known globally and b.) holds stocks outside the Philippine stock market.
You typically get the following benefits:
1. Exposure to US Stocks – This is by far the best reason why you need to consider investing in Feeder Funds – have your assets allocated in a completely different market, not to mention the USA. We all know and use the stocks in the US stock market so why not invest in them too, right?
2. Instant Diversification – Because it is a fund, your money is instantly diversified in a pool of stocks and securities. This is a great way to own shares from top companies without really putting so much time, money and effort.
3. Cost-Effectiveness – If you buy one share of Microsoft (MSFT), you need to spend USD 132.21 (stock price as of this August 6, 2019) or roughly Php 6869.50. When you invest in a Feeder Fund, your dollars is maximized to its fullest potential giving you a fraction of a share from multiple stocks not just MSFT.
Related read: 7 Advantages of Mutual Fund
Disadvantages of Feeder Funds
For now, the only disadvantage I can see is the tax and fees involved when you invest in Feeder Funds. Offshore target fund may be subject to US tax on dividends or even withdrawal that may affect your investments should you opt to redeem.
But, if you are investing for the long-term, this will not be a big problem. You can grow your money through compound interest giving you more than enough to cover the costs.
Feeder Funds vs. Mutual Funds vs. Index Funds
“Izza, this too much information for me. I just want to know what makes Feeder Fund different and should I invest in it rather than mutual fund or Unit Investment Trust Fund (UITF)?”
The best way to differentiate the Feeder Fund from Mutual Fund and/or Index Fund is to point out all three’s unique characteristics as a pooled funds.
Feeder Funds has a “Target Fund” involved. Although you are opening an account and transacting to the Feeder Fund provider, it is the so-called Target Fund that does the job.
Mutual Fund can be any of the two: actively-managed or passively-managed. Actively-managed funds are further classified based on risk profile. You have Equity Fund for Aggressive, Balanced Fund for moderate and Fixed-Income Fund for conservative.
Passively-managed funds are also called Index Funds that mirrors a particular “index” or tracker. For example, we have the first and only Exchange-Traded Fund in the Philippines – First Metro Exchange Traded Fund that mirrors the performance of the PSEI or the top 30 stocks in the Philippine stock market.
A trusted financial institution (licensed private company) does to asset management for you. Example of Mutual Fund providers are First Metro Asset Management Inc., ATRAM or Philequity.
Unit Investment Trust Fund is managed by banks. It functions same as mutual fund only that it is the banks that offer it as part of it's roster of investment products.
So whether you will invest your money in a Feeder Fund, Mutual Fund or Unit Investment Trust Fund, it will really be up to you.
I will suggest always considering your age, your investment horizon and your goals as well. You also want to take note of your risk appetite. Offshore investments will definitely be too risky for those who are conservative by nature.
Final Notes from SavingsPinay
I hope you find this post interesting. I like to point out that I am not a licensed financial advisor. Please do not treat this post as an investment advice but more of an added reading.
As always, invest only what you are okay to lose. Investing, whichever shape or form involves risks.
What do you think of Feeder Funds?