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Bourse operator to introduce PSE total return index

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By Arra B. Francia
Reporter

THE PHILIPPINE Stock Exchange, Inc. (PSE) will be introducing a new index that will help track the overall return of the main index, as part of efforts to cater to the needs of a broader investor base.

In a statement over the weekend, the bourse operator said it will launch the Philippine Stock Exchange index (PSEi) Total Return Index (PSEi TRI). The new index will have the same components as the PSEi and will integrate regular and special cash dividends of index components on ex-date.

The PSEi TRI will measure the overall return of the index, considering both capital gains and dividend payments, and whether these dividends are reinvested back into the PSEi.




“We have always been focused on investment gains from price appreciation. As done in other markets, we want to show the bigger picture on the profitability of stock and index investing,” said PSE President and Chief Executive Officer Ramon S. Monzon in a statement.

The PSEi TRI uses 1,000 as the base value, with Dec. 28, 2007 as the base year. This places the PSEi TRI at 2,771.01 on Dec. 28, 2018, indicating a 10-year cumulative gain of 417.6%, higher than the PSEi’s 298.6% increase from 2008 to 2018.

The PSE also noted that a five-year computation of the PSEi TRI will show a growth of 38.7%, against the 26.8% uptick of the PSEi.

Any changes to the PSEi will also be reflected on the PSEi TRI. The new index will be available on the PSE website no later than 5 p.m. of each trading session.

Sought for comment, Timson Securities, Inc. equities trader Jervin S. de Celis said this could affect the strategies of investors.

“TRI’s return is almost always higher than the price return performance of an index since TRI gauges returns if dividends are reinvested,” Mr. De Celis said in a mobile phone message.

“So for active investors who are outperforming the return of an index, TRI might make their fund look like it’s performing less or underperforming. In turn, these investors may change their strategy by shifting to other low-cost funds.”

The PSEi TRI is part of the bourse operator’s efforts to launch more PSE indices this year. The PSE said it is also reviewing the current sector index classification.

“We want our sectoral indices to be more representative of the industries they belong to. This will be beneficial to fund managers in planning and executing their investment strategies. We hope to announce the new sector classifications by midyear,” Mr. Monzon explained.

The PSE indices to be released will be available for index licensing. Collective investment schemes that track PSE indices or use PSE indices as the underlying index for their fund will be charged with license fees depending on the fund, as well as the size of the fund’s net asset value.

“Index licensing is not something unique to the PSE. Several other exchanges globally charge for the intellectual property of the indices they develop and maintain,” Mr. Monzon said.

The PSE chief said last year that they will introduce the licensing scheme for all funds tracking the PSEi starting this first quarter. The licensing fee will be equivalent to three basis points of the total assets under management of any PSEi-tracking fund.