EPHE iShares MSCI Philippines

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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