** Updated on 27 April 2021 to reflect updated fees for ATRAM
Filipinos are increasingly becoming interested in investing overseas. With the democratization of information, including information only formerly available to the rich and the moneyed, we are now becoming more aware of our financial and investing options, including options outside our borders.
My post on How to Open a TD Ameritrade Account as a Non-Resident Alien was read by tens of thousands of people, many of whom opened their TD Ameritrade accounts. So, I pat myself on the back for helping the common folk. Not only Filipinos but also those in non-Western countries like Bhutan, Ecuador, Brazil, and South Korea, etc., to open their accounts, invest in the US financial markets, and make money off what increasingly looks like unfettered capitalism.
Ladies and gents, I think I may be a modern-day working-class shero. *Wipes lone tear from left eye*
But what about those of you who, for some reason, can’t open a TD Ameritrade account?
Don’t worry chickees. Auntie Katie got you.
In this post, I will write about another option for Pinoys to invest in overseas financial markets without opening a US-based trading account. I hope you enjoy my ultimate guide to Philippine feeder funds.
WHAT IS A FEEDER FUND?
A Feeder Fund is a structure that requires at least 90 percent of its net assets invested in a single collective scheme.
Other pooled funds can invest different proportions of its assets to diverse holdings. For example, an index fund can change its allocation based on the allocation of the benchmark index it’s tracking. An actively managed balanced fund can change its allocation based on its managers’ decision, and their holdings can be stocks and bonds.
On the other hand, Philippine law requires that 90 percent of a feeder fund’s assets be invested only in one (1) investing scheme, which we call the target fund.
Which means that we need to consider two entities:
- The feeder fund; and
- The target fund
The feeder fund pools the money of all its investors and then deposits it in a target fund. The target fund will then invest your money.
It is the target fund that invests in the market.
Many of the target funds are mutual funds or exchange-traded funds (ETFs) invested in the US, European, Asian, and global equity markets. However, some feeder funds also target funds invested in the bond markets.
But we will not be talking about feeder funds invested in bonds. This post only talks about feeder funds whose target funds are invested in the US, European, Asian, and global equity markets.
Of course, there are also feeder funds that target Philippine funds. I struggle to understand their purpose other than to feed on the lazy and/or the confused. Why would anybody invest in a feeder fund that targets a Philippine fund when the investor can just go directly to the target fund? Hmn?
WHY INVEST IN A FEEDER FUND?
1. Convenience – You don’t have to open a brokerage account that will allow you access to international markets. You can just go to your bank or investment house of choice, give them your money, and they will take care of the rest.
2. Market diversification – You will be able to have exposure to foreign financial markets instead of being limited to the local stock market. The world is now your oyster.
3. Liquidity – If you want to cash out, you only need to contact your feeder fund. Sure, it will still take them days to give you your money, but at least you don’t have to think about how the money will get to you. You don’t need to have a dollar account, no need to worry about wire transfer fees and exchange rates or think about other factors that you’d consider if you do the investing yourself.
4. You won’t become a tax evader – Many of my readers have expressed their concerns about the tax ramifications of investing abroad and how they might unintentionally become tax evaders, a la Manny Pacquiao. Well, if you’re one of these people, you can invest through a feeder fund instead. You can assume that these giant banks and investment houses will have a battery of lawyers and accountants that already figured out how to advise their investors.
WHY NOT INVEST IN A FEEDER FUND?
1. Expensive Fees – You will be subject to a complicated fee structure. At its simplest, you will pay the feeder fund’s management fees and the management fees of the target fund.
Some feeder funds even have different fee structures based on the amount you invest. The higher the amount you invest, the lower management fees will be charged. This is a significant disadvantage to small investors, and a stark example of how being poor is more expensive.
2. Your money is still tied to a Philippine-based company – Personally, my primary motivator in investing in foreign stocks is to take my money away from the Philippine market and the control of Philippine companies. Putting my money in a Philippine-based company (that invests in a foreign company) defeats my purpose. My money can still be affected by what’s happening in our country.
FEEDER FUNDS OFFERED IN THE PHILIPPINES
The matrix below includes information and links that will bring you to the source if you wish to read more about each listing. I suggest that you carefully read the source materials if you want to explore investing in any of these funds.
I only include funds that are invested in the equity markets.
Also, note that this matrix includes the following information:
- States if the target fund is an index fund or actively managed;
- The benchmark of the target fund;
- Fees charged by the feeder fund AND the fees charged by the target fund;
- How much money you need to start investing and the minimum investment required; and
- Whether you can invest in PHP or USD.
FUND | TARGET FUND | CLASSIFICATION AND FEE STRUCTURE | REQUIRES USD ACCOUNT? |
JP Morgan Asia Equity Dividend Fund – Actively Managed Benchmark: MSCI AC Asia Pacific ex Japan Net Index | 0.95% 1. 20% per annum (plus third-party fees) and the 1.5% per annum management fee (and other fees) of the target fund Initial: PHP 1,000 Min Investment: PHP 1,000
* Starting 01 June 2021 | No | |
Templeton Emerging Markets Fund – Actively Managed Benchmark: MSCI Emerging Markets Index | 0.95% 1.15% per annum (plus third-party fees) and the 1.95% per annum management fee (and other fees) of the target fund Initial: USD 1,000 Min Investment: USD 1,000
* Starting 01 June 2021 | Yes | |
BlackRock Global Funds (BGF) – European Equity Income Fund – Actively Managed Benchmark: MSCI Europe Net Index | 0.9% 1.15% per annum (plus third-party fees) and the 1.50% per annum management fee (and other fees) of the target fund Initial: USD 1,000 Min Investment: USD 500
* Starting 01 June 2021 | Yes | |
Fidelity Funds – Global Dividend Fund – Actively Managed Benchmark: MSCI AC World Net Index | 0.9% 1.10% per annum (plus third-party fees) and the 1.50% per annum management fee (and other fees) of the target fund Initial: PHP 1,000 Min Investment: PHP 1,000
* Starting 01 June 2021 | No | |
Fidelity Funds – International Fund – Actively Managed Benchmark: MSCI World Index | 0.9% 1.15%* per annum (plus third-party fees) and the 1.50% per annum management fee (and other fees) of the target fund Initial: USD 1,000 Min Investment: USD 500
* Starting 01 June 2021 | Yes | |
BlackRock Global Funds (BGF) – World Financials Fund – Actively Managed Benchmark: MSCI AC World Financials Index | 0.9% 1.15% per annum (plus third-party fees) and the 1.50% per annum management fee (and other fees) of the target fund Initial: NO INFO Min Investment: NO INFO
* Starting 01 June 2021 | No | |
ATRAM Global Technology Feeder Fund | Fidelity Funds – Global Technology Fund – Actively Managed Benchmark: MSCI AC World Information Technology Index | 0.9% 1.15% per annum (plus third-party fees) and the 1.50% per annum management fee (and other fees) of the target fund Initial: PHP 1,000 Min Investment: PHP 1,000 * Starting 01 June 2021 | No |
Franklin U.S. Opportunities Fund – Actively Managed Benchmark: Russell 3000 Growth Index | 0.9% 1.15% per annum (plus third-party fees) and the 1.81% per annum management fee (and other fees) of the target fund Initial: USD 1,000 Min Investment: USD 500
* Starting 01 June 2021 | Yes | |
BGF BlackRock European Focus Fund – Actively Managed Benchmark: MSCI Europe Index | 1% per annum (plus third-party fees) and the 1.33% per annum of the target fund Initial: USD 500 Min Investment: USD 500 | Yes | |
BlackRock Global Index Funds (BGIF) iShares Emerging Markets Equity Index Fund – Index Fund Benchmark: MSCI Emerging Markets Index | 0.5% per annum (plus third-party fees) and the 0.35% per annum of the target fund Initial: USD 500 Min Investment: USD 500 | Yes | |
BlackRock Global Index Funds (BGIF) iShares World Equity Index Fund – Index Fund Benchmark: MSCI World Index | 0.5% per annum (plus third-party fees) and the 0.23% per annum of the target fund Initial: USD 500 Min Investment: USD 500 | Yes | |
Standard Life Investments Global Equities Fund – Actively Managed Benchmark: MSCI All Country World Index | 1% per annum (plus third-party fees) and the 0.79% per annum of the target fund Initial: USD 500 Min Investment: USD 500 | YES | |
Legg Mason ClearBridge US Aggressive Growth Fund – Actively Managed Domicile: Ireland Benchmark: Russell 3000 Growth Index | 1% per annum (plus third-party fees) and the 0.65% per annum of the target fund Initial: USD 500 Min investment: USD 500 | Yes | |
CBIS Global Funds PLC – Actively Managed Benchmark: MSCI All Country World Index (Euro) | 0.50% per annum (plus third-party fees) and the 1.30% per annum management fee of the target fund Initial: PHP 50,000 Min investment: PHP 10,000 | No | |
SPDR S&P500 ETF Trust – Index Fund Benchmark: S&P 500 | 0.75% per annum (plus third-party fees) and the .0945% per annum management fee of the target fund Class A (USD Class) Initial: USD 1,000 Min investment: USD 500 Class P (PHP Class)
Initial: PHP 50,000 Min investment: PHP 10,000 | Can be bought with both USD and PHP. Each denomination has their respective NAVPUs. Automatic subscription is available. | |
Wellington Strategic European Equity Portfolio – Actively Managed Benchmark: MSCI Europe World Index | 0.75% per annum (plus third-party fees) and the 0.70% fees of the target fund Initial: USD 1,000 Min investment: USD 500 | Yes | |
iShares Core S&P 500 Exchange Traded Fund – Index Fund Benchmark: S&P 500 | 0.50% per annum (plus third-party fees) and the 0.03% fees of the target fund Initial: USD 500 Min investment: USD 200 | Yes | |
Manulife American Growth Equity Feeder Fund PhP-Unhedged Share Class A | Manulife Global Fund (MGF) American Growth Fund Note: I cannot find any information on this target fund in the Manulife website. Benchmark: S&P 500 | 1.75% per annum (plus third-party fees) AND the fees of the target fund Initial: PHP 5,000 Min investment: PHP 5,000 | No |
Manulife Global Fund (MGF) American Growth Fund Note: I cannot find any information on this target fund in the Manulife website. Benchmark: S&P 500 Index | 1.75% per annum per annum (plus third-party fees) and other fees) AND the fees of the target fund Initial: USD 100 Min investment: USD 100 | Yes | |
iShares MSCI Eurozone Exchange-Traded Fund – Index Fund Benchmark: MSCI EMU Index | 0.75% per annum (plus third-party fees) and 0.49% management fees (and other fees) of the target fund Initial: USD 500 Min investment: USD 100 | Yes | |
iShares MSCI Japan Exchange-Traded Fund – Index Fund Benchmark: MSCI Japan Index | 0.75% per annum (plus third-party fees) and 0.49% management fees (and other fees) of the target fund Initial: USD 500 Min investment: USD 100 | Yes | |
iShares Core S&P 500 ET – Index Fund Benchmark: S&P 500 Index | 0.75% per annum (plus third-party fees) and 0.03% management fees (and other fees) of the target fund Initial: USD 500 Min investment: USD 100 | Yes | |
Investec Global Strategic Equity Fund – Actively Managed Benchmark: Not disclosed | 1% per annum (plus third-party fees) and up to 2.5% management fees (and other fees) of the target fund Initial: USD 500 Min investment: USD 100 | Yes | |
MUFG Asia Pacific ex Japan Equity Stable Growth Fund – Actively Managed Benchmark: MSCI AC Asia Pacific ex Japan Total Index, net dividends in USD | Class A 1.25% per annum (plus third-party fees) and the 0.90% fees of the target fund Initial: USD1,000 Min investment: USD 500 Min balance: USD 1,000 Class B and F 0.90% per annum (plus third-party fees) and the 0.90% management fees of the target fund Initial: USD 5,000 Min investment: USD 1000 Min balance: USD 5,000
| Yes | |
Vanguard Total World Stock ETF – Index Fund Benchmark: FTSE Global All Cao Index | Class A 0.64% per annum (plus third-party fees) and the 0.08% fees of the target fund Initial: USD 1,000 Min investment: USD 500 Min balance: USD 1,000 Class B and F 0.44% per annum (plus third-party fees) and the 0.08% management fees of the target fund Initial: USD5,000 Min investment: USD 1000 Min balance: USD 5,000
| Yes | |
Vanguard Total Stock Market ETF – Index Fund Benchmark: CRSP US Total Market Index | Class A 0.71% per annum (plus third-party fees) and the 0.03% fees of the target fund Initial: USD1,000 Min investment: USD 500 Min balance: USD 1,000 Class B and F 0.51% per annum (plus third-party fees) and the 0.03% management fees of the target fund Initial: USD 5,000 Min investment: USD 1000 Min balance: USD 5,000 | Yes | |
Sun Life Prosperity World Equity Index Feeder Fund (formerly DECA Homebuilder Fund Inc.) | Not disclosed in Prospectus Benchmark: MSCI All Country World Index | As usual, Sun Life has the worst fee and most expensive fee structure of all. Read the entire train wreck in their Prospectus here. 0.50% management fee per annum, 0.50% distribution fee per annum (plus third-party fees, Independent Directors’ per diem) and the management fees of the target fund. PLUS: Sales loads and redemption fees Initial: PHP 50,000 Min Investment: PHP 10,000
| No |
FINDINGS ON PHILIPPINE FEEDER FUNDS
1. There are many feeder funds offering access to foreign equity markets and diverse sectors.
Even though only a few people have heard of feeder funds before, there are many options for Filipino investors who wish to put their money in foreign equity markets. Investing in international stocks is not as unreachable as we think it is.
There are feeder funds invested in geographic markets (US, Europe, Asian, Japan), global and emerging markets, and even in actively managed funds focused on “Catholic values” companies, tech, and dividend play.
2. You can invest in either pesos or US dollars.
It’s also surprising that so many feeder funds allow their subscribers to invest in pesos instead of in dollars only. This is excellent news for those who can only invest in our local currency (i.e., most small investors).
For instance, ATRAM allows its investors to participate in its Asia Equity Feeder Fund for as low as PhP 1,000! And it even has an online platform where you can select and invest in a fund without going to a branch and talking to a person (who will probably upsell you things).
But JFC, their fees are astronomical. Personally, it’s a hard pass for any of their feeder funds for me. The only way you’d invest with them is if you hate yourself and want to give your money away to rich people.
3. They are expensive!
I’m used to Philippine funds charging high annual management fees, which I wrote about in my Ultimate Guide to Philippine Index Funds. But as you can see in the matrix above, apart from the fees charged by the bank or investment house, investors also need to check the management fees of the target funds.
The iShares Core S&P 500 ETF, the target fund of several feeder funds, only charges .03% annual management fee. It’s interesting to note that different feeder funds have different management fees, even if they have the same target fund. For example:
- EastWest S&P 500 Index Equity Feeder Fund charges .50% annual management fees
- MetroBank’s Metro$ US Equity Feeder Fund 0.75% annual management fees
That’s a difference of 50% in management fees between the two, despite offering the same target fund.
Meanwhile, Security Bank’s SB US Equity Index Feeder Fund’s target is Vanguard Total Market Equity Index ETF, which also charges 0.03% annual fees. Its fees are a polite reminder of why you shouldn’t be poor. See the price differences between the different types of individual investors:
- Class A investors are charges 0.71% annual management fees. These are clients who invest an initial amount of USD 1,000.
- Class F investors are charged 0.51% per annum annual management fees. These are clients who invest an initial amount of USD 5,000.
And these feeder funds are the least expensive of the bunch.
The most expensive target fund is JP Morgan Asia Equity Dividend Fund, which charges 1.95% annual fees. My question is, ATRAM, why? Why would you choose this costly fund?
On top of the 1.95%, the feeder fund itself, ATRAM Asia Equity Opportunity Feeder Fund, charges 0.9% annually. Damn. What would be left to the investors after all the fees are deducted?
FINAL THOUGHTS
You know I only give you the tea in these pages. So, my verdict is, after reading all the available information on the current feeder fund offerings in the Philippines, I conclude that if I have a choice, I will not invest in any of them.
However, I understand that there are still people who want to invest through feeder funds. These people can’t open their foreign trading account (no time, no proof of residence, among others) but still want to take advantage of the potential for growth in the international equity markets.
If you REAAAAALLY must, I suggest the following steps in choosing the most cost-efficient option:
- Using my matrix above, choose the feeder fund that targets an index fund instead of an actively managed one;
- From these, choose the index fund that charges the least;
- Take note which feeder fund offers the index fund with the lowest fees;
Determine if these index funds are invested in the market of your preference. - Is the fund invested in the US markets, emerging markets, in Asia-Pacific? Is this negotiable for you, or are you hard-set on investing in a specific market?
- Once you make the above decisions, select the feeder fund you will invest in.
Do not reverse the process and choose the feeder fund first! Otherwise, you might get stuck with the wrong investment and lose money in the process.
I hope this post can help you in making a wiser decision. I’d love to hear back about what you think about my ultimate guide to Philippine feeder funds.
This post is part of my series on cross-border investing
Post 1: How to Open a TD Ameritrade Account Outside of the US as a Non-Resident Alien
Post 2: Taxation on US Stock Investments of Non-Resident Aliens
Post 3: I Opened a TD Ameritrade Account – Now What?
Post 4 (this post): The Ultimate Guide to Philippine Feeder Funds
Post 5: My Experience Wiring Funds to TD Ameritrade Account with BPI
14 Responses
I never noticed the expense ratio/per annum management fee of the target fund when I look at the prospectus. So does this mean the BPI US Equity Index Feeder Fund is cheaper than the BPI Invest Catholic Values Global Equity Feeder Fund when you combine the fees? I was so close to picking the Catholic Value one because I wasn’t looking at the expense ratio. And yes you are right when there are some people that have a hard time opening up accounts. 🙂
It’s usually not in the prospectus. You have to go to the prospectus of the target fund to figure it out. The feeder fund just usually says “net of fees of the target fund” or something similar.
Your exhaustive analysis is always appreciated, Katiescarlett!
Thank you, George!
Hi mam i would like to express my gratitude,Thank You. This has really helped me decide.
You’re welcome Ivy!
Thank you for this!
Thanks for the exhaustive comparison! Is it possible for an investor living in the Philippines to invest directly in those target funds (i.e., Vanguard, iShares, etc) ? Hope you can share how this can be done. Thanks again!
Hi EC,
Yes, you can. You just need to open a brokerage account like TD Ameritrade so that you can access the target funds and invest directly. Here’s my guide on how to open an account.
https://katiescarlettneedsmoney.com/td-ameritrade-nra/
Wow. Thank you po for sharing. I have been looking for something like this for Pinoys. Thank you po, very informative!!!
You’re very much welcome, Yas!
Hi Katie I was thinking of investing in a feeder fund (BDO) but after researching stumbled on to Etoro, I was thinking why not invest there instead since I can also choose which ETF, Index fund, stocks to buy there, and I do have control over my investments – would like to know your thoughts on this 🙂
I personally don’t invest in eToro because I use TD Ameritrade instead because it’s simpler, more straightforward and charge fewer fees. The control that you will have in eToro is an illusion – most of the investment instruments there are CFDs, which are derivatives. You won’t really own the actual investment but the contract. The investment would still be under eToro’s name.