February 7, 2015 – Calculating the true cost of “low cost” index funds- Are they really better versus Philequity Fund?


Hat Tip to Kevin Cheung for making an insightful post about a matchup between buying PEFI versus PSEI.


In his conclusion he writes:

So without further adieu, here are the absolute returns over a 3-year period.

PSEi Index (No Sales Load + Dividends) = 65.48%

PhilEquity Fund (With Sales Load + Dividends) = 59.35%

– Kevin Cheung from Alpha Investments.ph


I read the post.  I’d like to agree and disagree on a couple of points.

Let us put his hypothesis that index funds outperform actively managed funds like Philequity to the test.

1.) First and foremost, for the February 10, 2012 date.  There is no PSEI tracking fund that you could purchase with a P5,000 amount.  So you cannot do that. There are no available investment vehicles to put your P100,000 to buy a fund that tracks the PSEI for zero fees.

Here’s the Philequity PSE index fund that tracks whatever the PSEI does but it only accepts a minimum of P200,000

pse index

Look at those fees .It’s not actually zero fees.

2.) I looked at http://www.pifa.com.ph to check how the equity funds today are doing.  Currently, Philequity fund is losing versus the Philequity PSE Index Fund Inc. by a wide margin of 2.72% or 272 basis points.  In the land of compounding, that’s a huge difference.  So if we would base how the YTD returns are doing, Mr. Alpha Investments promoting low cost index funds is doing very well.  There’s no “alpha” in the actively managed fund.

3.)Also I’d like to highlight that the First Metro Philippine Exchange Traded Fund (FMETF) was launched last November 15, 2013 as the first ever fund that you can trade as a stock listed on the exchange.

the match up

For purposes of checking whether it was better to invest in PSE Index Fund versus Philequity this is what we do:

4.) I love #FMETF.  To that point, I agree with Mr. Alpha Investments that low cost index funds can achieve a great advantage especially since the #FMETF has allowed a common person to buy the index for only P5,000.  That’s really cheap but real world computation, I think you should use the P10,000 minimum so as to not get charged the P20 minimum brokerage transaction fees.

Watch this very simple video comparing direct stock investing versus mutual funds (PEFI and PDYF) versus FMETF

It has started with a P750M capitalization last November 15, 2013.  FMETF


The total cost of buying and selling the FMETF is roughly 1.09% if you pay 0.25% brokerage commissions and the appropriate sales taxes and so forth.   Actually if you really adhere to the P5,000 rule, you’re charged the minimum of P20 because 0.25% of 5000 is only P12.50 and is lower than the minimum gross trade amount of commission they charge.   Note too that upon the sale of your investment, you are taxed and you incur a fee of 0.25% multiplied to total gross trade amount on the sale (which of course we assume to be higher as the years go by since that’s the entire point of investing in stocks – for capital appreciation.)  Take into consideration the appropriate taxes.  Still these will probably add up to around 1.2% to 1.5% over the time frame.  (It’s not 1.09%)

For purposes of clarity here’s how it works, let’s assume your P10,000 pesos appreciates to P20,000 via the #FMETF in a 5 year stretch (since in the last 5 years, the PSEI averaged good returns)

If #FMETF existed 5 years ago this is what would have happened:

Thanks to Mr. Omeng Tawid for his helpful excel sheet that allows us to easily compute our buying and selling of stocks or FMETF.  I’d say it was a very good investment indeed (and we do wish FMETF existed sooner.)  After all is said and done, you will have achieved a 172.15% return over the 5 year stretch.  Your P10,030.20 investment cost has paid you a handsome gain of P17,267.09 giving you P27,297.29 at the end of that 5 year stretch.  Hurrah says the low cost index funds!

five year check

To get the real excel sheet, just go here:


cost and fees

5.) I’ve been harping on the fact that Philequity Fund is actually not the best when you’re a very adept stock investor.  I don’t even have to get an excel sheet to tell you that Personal Direct Stock Investing would have achieved gargantuan results.

If you had bought the following 5 companies, split equally with your P10,000 investment during the first trading day of 2010 and held on to them.  This is what would happen.

Using Closing Prices of Jan 3, 2011 until Jan 4, 2015, here’s how it looks

2 powerful consumer stocks , 2 property stocks and 1 bank

JFC 10,000 ;URC 10,000;ALI 10,000; MEG 10,000; BDO 10,000.  The five stock combination yields the man a 269.48%.  This means that his “super stock combination” didn’t significantly outperform the #FMETF return of 272%.  Again in this light, “low cost index funds” rule as Mr. Alpha Investments say.   Although we didn’t calculate the cash dividends given by these five stocks which will give higher returns.

five stock combination

6.) This is PEFI, using the 3.5% sales load fee on the P10,000 investment.  Despite that discrepancy, PEFI still managed to outperform.  Take note, PEFI as a mutual fund has the following distinct features.

a.) Only a maximum of 10% position in any stock

b.) Must maintain a 5% cash structure everyday.

versus PSEI and Personal Stock Fund that enjoys the gains of a good market by being

a.) 100% equity position everyday, 0% cash

b.) May go beyond 10% position in any stock that outperforms

PEFI result

In summary,

index funds versus philequity


I rest my case.

In the last 5 years, the Philippines has experienced a strong bull market.  With a lot of obstacles for PEFI which is a P10-P15 Bil fund, that usually is front ran both on entry and exit, it has outperformed DESPITE the sales load fees.

But fret not, Philequity will be making all the sales load fees ZERO by March 2015 onwards and available to everyone for only P5,000 minimum.  The Philequity Dividend Yield fund has a P20,000 minimum.

Visit http://www.philequity.net for more information or go to the Philequity Management office at 2104 East Tower, Philippine Stock Exchange Ortigas Pasig for more details (look for me : Nikki Yu aka Faceless Trader as I help many people to invest in Philequity funds.)

Admittedly, you should go get the Philequity Dividend Yield Fund.  It’s a smaller fund P3 Bil which can navigate and outperform the markets better.  In fact I suggest you currently go for SB Equity fund that outperformed last year 2014, as they navigate the current market faster like sharks 😀

Get this fund — yep our competitor is doing better. Get SB Peso Equity Fund.


Note though that UITFs and MFs have different rule sets.  That’s why UITFs are outperforming MFs recently 😀


For people who are nitty gritty with the three year range highlighted by Mr. Alpha Investments.

I used the 3.5% sales load fee for PEFI 3 year and 0 sales load fee for PSEI 3 year.

We have a draw.  A tie.  three year range


Anyhow, again Philequity is not for short term.  It’s for longer term horizon investors. The consistency of 20% average returns for the past 20 years is what separates Philequity from low cost index funds.

Philequity is being outran by PSEI recently but I believe it will catch up. It has done this for the past 5 years and ten years so I’m a believer.  Call me biased of some sort but these are also the numbers.  I calculate the same numbers as everyone does.  I use all the numbers from PIFA.

pefi will catch up

Your low cost index funds will not outperform Philequity in the long run. (use 10 year and 5 year track records.)

In fact, 5 years is actually not good a barometer in Philequity because of the following obstacle courses it has.

It’s a P15Bil fund.  It’s got rules to follow such as the 5% cash rule and 10% maximum stock position rule versus UITFs (unit investment trust funds) that can go 100% equity and 15% max stock position rule.

That goes to show you(the direct stock investor) without these limits should be outperforming any of these funds.

Direct managed funds will outperform provided the direct stocks are all winners in the five year stretch and the one managing it is good in picking winners and adding winners in the portfolio.

– Faceless Trader


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5 Responses to February 7, 2015 – Calculating the true cost of “low cost” index funds- Are they really better versus Philequity Fund?

  1. Mark says:

    Hi Ms. Nikki, before I read this article I really wanted to open a Mutual fund and I was wondering what are the pros and cons of Philequity fund and Philequity Dividend yield fund. And I am leaning towards the latter fund just because it has just started. And what are your thoughts on Cocolife fixed income fund? Thank you for always sharing your thoughts.


  2. val says:

    I think Philequity’s annual management fee at 1.5% is far more damaging than FMETF’s 0.5%. Not to include the high sales load fee and exit fees. I still believe a balanced couch potato portfolio of low cost bond+stock index funds or ETFs are better than actively managed funds in the long run.

    Have you seen FMETF’s dividend payout history?


    • I have no idea that FMETF gives dividends but the Philequity index fund is also similar to FMETF where the passive route is also okay. You’re right. Sometimes a low cost index fund might work — but maybe diversify by monthly averages and strategically adding more during downturns since you’re there for the next 5-10 years


      • Mico Flores says:

        Hello Ms. Nikki,

        Thank you for this insightful article. This inquiry is focused on low-cost index funds vs mutual funds, namely PhilEquity PSE Index Fund (PPIF) vs PhilEquity Fund(PEFI) because I recently finished reading John C. Bogle’s book titled “The Little Book of Common Sense Investing” which advocates that low-cost index funds is the best investment instrument for long-term goals. You used FMETF as the basis for the low cost index fund, but I think that using PPIF would be better to use as a basis when comparing the calculation for profit against the PhilEquity Fund (Forgive me if COL’s fund supermarket was not yet available when this article was written). I know that the article was written in February of 2015, however, I checked COL’s Fund Supermarket and was happy to find PPIF among the list of funds I can buy.

        In COL’s fund supermarket, one can invest in PPIF with a minimum of P10,000 and additional contributions at P5,000 with no front-end fees. Investing in PPIF would not incur the 1.09% fees that FMETF would, nor would it incur VAT o after redemption. Based on this new information, do you still think PhilEquity Fund will outperform a low-cost index fund?

        Thank you for your time.


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