Basic Portfolio

Management
Prof. Tet Manalac
The 01 02 03
Philippine PSE, Inc. PSE All PSEi
Shares and
Stock Background
and Structure Six Sectors

Exchange
Philippine Stock Exchange, Inc.
• The Philippine Stock Exchange, Inc. is the national stock exchange of the Philippines

• It was created in 1992 from the unification of the Manila Stock Exchange and the Makati
Stock Exchange. Including previous forms, the exchange has been in operation since
1927

• In June 1998, the Securities and Exchange Commission (SEC) granted the PSE a "Self-
Regulatory Organization" (SRO) status

• Bourse can implement its own rules and establish penalties on erring trading participants
(TPs) and listed companies

Source: PSE.com.ph and Wikipedia

Philippine Stock Exchange, Inc.
• Trading participants: 131 Broker Dealers that have the right to trade at the Exchange

• Number of company listings: 273 (2018)

• Market capitalization of listed companies: ₱ 17.58 trillion (2017); $ 896.58 billion (2017)

• Key people: José T. Pardo (Chairman); Ramon S. Monzon (President & CEO); Roel
Refran (COO)

• Products: equities, preferred shares, warrants and ETF’s

• PSE, Inc. also owns 21% of Philippine Dealing System Holdings Corporation and 100%
of Securities Clearing Corporation of the Philippines and Capital Markets Integrity
Corporation

Source: PSE.com.ph and Wikipedia

Philippine Stock Exchange, Inc.
• In 2001, one year after the enactment of the Securities Regulation Code, the PSE was
transformed from a non-profit, non-stock, member-governed organization into a shareholder-
based, revenue-earning corporation headed by a president and a board of directors
• The PSE eventually listed its own shares on the exchange (traded under the ticker symbol
PSE) by way of introduction on December 15, 2003

369.00
2.50mm

2.00mm 319.00

1.50mm
269.00

1.00mm

219.00
.50mm

0 169.00

The Philippine Stock Exchange, Inc. (PSE:PSE) - Volume

PSE index or PSEi
• Measures the relative changes in the free float-adjusted market capitalization
of the 30 largest and most active common stocks listed at the PSE
• Criteria for inclusion: public float, liquidity and market capitalization
• There are also six sector-based indices as well as a broader all shares index

Source: PSE.com.ph
 PSE index constituents (Sept 2018)
Exchange:Ti Market Cap Revenue
Company Name cker (mm)[Latest]*† (mm) P/E*†CIQ Primary Industry
1 SM Investments Corporation PSE:SM 1,073,283.3 417,886.2 31.18xIndustrial Conglomerates
2 SM Prime Holdings, Inc. PSE:SMPH 1,054,092.0 97,441.8 35.32xReal Estate Operating Companies
3 Ayala Land, Inc. PSE:ALI 596,762.7 154,863.3 21.90xDiversified Real Estate Activities
4 Ayala Corporation PSE:AC 571,304.2 291,601.6 19.01xMulti-Sector Holdings
5 BDO Unibank, Inc. PSE:BDO 489,753.0 128,734.0 17.73xDiversified Banks
6 Manila Electric Company PSE:MER 412,067.3 292,068.0 18.86xElectric Utilities
7 San Miguel Corporation PSE:SMC 398,369.5 931,681.0 19.22xIndustrial Conglomerates
8 JG Summit Holdings, Inc. PSE:JGS 374,616.6 284,258.2 15.26xIndustrial Conglomerates
 PSE index constituents
Exchange: Market Cap Revenue
Company Name Ticker (mm)[Latest]*† (mm) P/E*†CIQ Primary Industry
9 Bank of the Philippine Islands PSE:BPI 369,651.1 73,544.9 15.93xDiversified Banks
10 Universal Robina Corporation PSE:URC 315,195.1 128,584.6 33.40xPackaged Foods and Meats
11 PLDT Inc. PSE:TEL 304,638.6 163,150.0 35.61xWireless Telecommunication Services
12 Jollibee Foods Corporation PSE:JFC 295,666.9 144,830.4 39.01xRestaurants
13 Globe Telecom, Inc. PSE:GLO 295,644.3 143,004.8 17.91xWireless Telecommunication Services
14 Aboitiz Power Corporation PSE:AP 264,173.9 127,775.4 13.35xIndependent Power Producers & Energy
Traders
15 Metropolitan Bank & Trust Co. PSE:MBT 262,624.6 80,160.0 11.29xDiversified Banks
 PSE index constituents
Company Name Exchange:Ticker Market Cap Revenue (mm) P/E*†CIQ Primary Industry
(mm)[Latest]*†
16 Aboitiz Equity Ventures, Inc. PSE:AEV 260,844.6 159,660.4 12.18xIndustrial Conglomerates
17 International Container Terminal PSE:ICT 190,027.2 70,464.5 28.82xMarine Ports and Services
Services, Inc.
18 LT Group, Inc. PSE:LTG 169,679.4 68,049.6 11.12xIndustrial Conglomerates
19 DMCI Holdings, Inc. PSE:DMC 168,092.8 87,849.9 10.29xIndustrial Conglomerates
20 Metro Pacific Investments PSE:MPI 163,241.6 78,484.0 11.45xMulti-Sector Holdings
Corporation
21 GT Capital Holdings, Inc. PSE:GTCAP 163,058.1 232,256.0 12.10xMulti-Sector Holdings
22 Megaworld Corporation PSE:MEG 133,148.9 51,259.8 9.72xReal Estate Development
23 Security Bank Corporation PSE:SECB 131,869.3 24,687.8 14.17xDiversified Banks
*As of September 18, 2016
† Market Capitalization, P/E is calculated using the company's primary security, as determined by Capital IQ.
 PSE index constituents
Company Name Exchange:Ticker Market Cap Revenue (mm) P/E*†CIQ Primary Industry
(mm)[Latest]*†
24 Alliance Global Group, Inc. PSE:AGI 124,364.0 143,629.0 7.70xIndustrial Conglomerates
25 Puregold Price Club, Inc. PSE:PGOLD 122,368.1 131,940.6 19.20xHypermarkets and Super Centers
26 Semirara Mining and Power PSE:SCC 118,590.3 48,075.1 8.20xCoal and Consumable Fuels
Corporation
27 Robinsons Retail Holdings, Inc. PSE:RRHI 113,570.0 124,534.7 21.41xHypermarkets and Super Centers
28 Robinsons Land Corporation PSE:RLC 103,668.9 24,597.9 14.30xDiversified Real Estate Activities
29 Petron Corporation PSE:PCOR 83,157.2 501,164.0 8.77xOil and Gas Refining and Marketing
30 First Gen Corporation PSE:FGEN 61,269.1 97,000.1 8.54xIndependent Power Producers &
Energy Traders
*As of September 18, 2016
† Market Capitalization, P/E is calculated using the company's primary security, as determined by Capital IQ.
 Philippines PSE Composite Index - Index Value

PSE index: Last 10

8968.00 years
7968.00

6968.00 10 year CAGR of

5968.00
12.16%
4968.00

3968.00
5 year CAGR of
2968.00

1968.00
3.29%
968.00
Source: Capital IQ
 Philippines PSE Composite Index - Index Value
PSE index Last Twelve
Months -
All time high on January 29
8779.00 2018 at 9,058.62

8279.00
Average daily value of
trades at P8.5 billion in
January 2018
7779.00

Year to date decline of

7279.00
13.37% as of September 18

6779.00
Source: Capital IQ
 PSE All Share Index - Index Value
PSE All Shares index:
Last 10 years
5224.00

4724.00
10 year CAGR of
4224.00

3724.00
11.16%
3224.00

2724.00
5 year CAGR of 3.37%
2224.00

1724.00 Year to date return of

1224.00 -10.05%
724.00

Source: Capital IQ
PSE Sectors – reflects top 100 listed companies
Benefits of Listing in the PSE
o Funding source
o Daily valuation
o Stock liquidity
o Tax on transfer of ownership
Requirements for Listing in the PSE
o The Applicant Company has been operating for at least ten (10) years prior to the filing of
the application and has a cumulative EBITDA of at least ₱50 Million for at least two (2) of
the three (3) fiscal years immediately preceding the filing of the listing application

o Positive Stockholders’ Equity – The Applicant Company must have a positive stockholders’
equity in the fiscal year immediately preceding the filing of the listing application

o Market Capitalization – At listing, the market capitalization of the Applicant Company must
be at least ₱500 Million

o Operating History – The Applicant Company must have an operating history of at least
three (3) years prior to its application for listing

o Minimum Capital Requirement – The Applicant Company must have a minimum

authorized capital stock of ₱500 Million, of which a minimum of twenty-five percent (25%)
must be subscribed and fully paid
http://www.pse.com.ph/resource/rulesAndRegulations/Article%20III.pdf
 Growth vs Value Style

Investment Fundamental and Technical Strategies

Approach Top-down and Bottom-up Approach

Passive vs Active Investment Style

Equities Risk and Return

Investment Style: Growth vs Value
• Price to earnings ratio = Price per share/earnings per share

• Growth oriented managers pay attention to earnings per share growth and
revenue growth

• Value oriented managers pay attention to price, i.e. that the stock is “cheap” at
the moment (and might correct later). Studies stocks with low price to book
Example: The Russell 2000 Growth Index
• The term Russell 2000 Growth Index refers to a composite of small cap companies
located in the United States that also exhibit a growth probability

• The Russell 2000 Growth Index is a subset of the securities found in the Russell
2000. There are approximately 1,150 securities in the Russell 2000 Growth
Index. The stocks included in the growth index are selected based on a "probability"
of growth as measured by their Institutional Brokers' Estimate System (I/B/E/S)
forecast of medium-term growth (2 year), and sales per share historical growth (5
year)

• First launched on June 1, 1993, the companies included in the index are selected
based on float-adjusted market capitalization

• Note: Russell 2000 Value stocks are selected based on a "probability" of value as
measured by their relative book-to-price (B/P) ratio for the Russell 2000 Value Index
Strategies: Fundamental vs technical
The fundamental manager -
• Looks at financial state and individual characteristics of the company
• Runs company valuations and assess prospects of the company
• Rotates investments into asset classes (stocks and bonds) based on broad market
forecasts.

The technical manager -

• Looks at price trends, assuming prior prices are good indicators of future prices.
• Contrarian will buy when everyone else is selling and vice versa
• Price momentum followers believe that pricing trends will tend to be reinforced…”hot stocks
will stay hot”
• Not supported by efficient market hypothesis
 Sample
technical
chart
 Sample
fundamental
analysis
Investment Approach: Top-down
General Economic Influences
Taxes, interest rates, government
spending, inflation

Industry Analysis
Import/export quotas, commodity
prices

Company Analysis
Economy and
industry
affect stock
returns
Investment Approach: Bottom-up

• Stock-picking of undervalued stocks independent of economy and

industry trends
Investment Style: Passive vs Active

• Passive equity portfolio management holds stocks so the portfolio returns will
track benchmark index over time, e.g. funds tracking PSEi, S&P 500

• Active portfolio management is an attempt by the manager to outperform the

benchmark on a risk adjusted basis. Can be done through stock or sector
selection and allocation. Excess of return over benchmark is alpha

• Difficult to outperform market over the long term and results have been mixed
among fund managers
 Passive
vs. Active
 Passive
vs. Active

https://www.morningstar.com/blog/2018/03/26/end-active-passive.html
Equities risk and return
Holding period return
U.S. Financial
Markets
The Historical
Record: 1925-2011
Risk and Return:
Performance of Financial Instruments
Average Standard
Series Annual Return Deviation Distribution

Large Company Stocks 11.8% 20.2%

Small Company Stocks 16.5 32.3

Long-Term Corporate Bonds 6.4 8.3

Long-Term Government Bonds 6.1 9.7

U.S. Treasury Bills 3.6 3.1

Inflation 3.1 4.1

– 90% 0% + 90%

Source: Ibbotson® SBBI® 2013 Classic Yearbook (Copyright Morningstar Inc. 2014).
Risk and Return: Risk-Free Rate & Risk
Premium
Risk Premium: the added return (to the Risk-Free
Rate) resulting from bearing risk

18%

Return Small-Company Stocks

16%
Annual Return Average

14%

12%
Large-Company Stocks
10% risk-free
8%
rate
risk premium
6%

T-Bonds
4%
T-Bills
2%
0% 5% 10% 15% 20% 25% 30% 35%
Risk
Annual Return Standard Deviation
 Philippines PSE Composite Index - Index Value

9171.00

8171.00

7171.00

6171.00

5171.00
PSEi 1992
4171.00

3171.00

2171.00
- Present
1171.00

171.00

Philippines PSE…
Philippine investment returns over
last 9 years (July 2009-Sept 2018)

Average Average Std

Asset Class Returns Dev
Equities 13.92% 18.66%
S&P Philippine
Government Bond Index 6.06% 4.52%
S&P Philippine Corporate
Bond Phil Index 6.58% 3.70%
Alphaland case
1. Describe the ownership structure of Alphaland in early and late December 2012.
Characterize the relationship between the RVO Group and the Ashmore Group in late
December 2012 and July 2013.
2. Analyze PSE requirements, in particular, the 10% public ownership rule (MPO), the
reasons for such a rule, and the consequences for violations
3. On the January 19, 2014 disclosure: Assess the impact of the simulated shares sale on the
two major shareholders and minority shareholders. Why should the PSE be concerned?
4. On the January 20, 2014 disclosure: What would the PSE’s concerns have been with this
disclosure? What was the impact of the capital call and private placement on the
ownership of Alphaland?
5. On the January 20, 2014 Disclosure: Evaluate if the company is in financial distress based
on Exhibits 3 and 6 and company statements about its financial health. In light of your
analysis, what do you think of the price on the rights offering vs. prevailing market price?
6. Do you think management appropriately considered the interests of all shareholders in its
Disclosures to the PSE?
7. What course of action would you recommend for the PSE?
References and Acknowledgements

• Ross, Westerfield, and Jordan, Corporate Finance Fundementals, 8th

Edition, 2008 McGraw Hill

• Reilly and Brown, Analysis of Investments and Management of Portfolios,

10th Edition, 2012 Cengage Learning

• CapitalIQ for pricing and indices

• MBA 2018 students for calculation of certain Philippine market statistics

from CapitalIQ – Tim Fernando, Endel Mata and Chester Pacio
Tagalog / Filipino Arabic Korean

Hindi Thai Japanese

Malay / Indonesian Lao Chinese

[Presenta
tion Title]
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[Presente
36
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Appendices
Appendix 1: Philippine Stock Exchange
In October 2004, the Securities Clearing Corporation of the Philippines (SCCP), a clearing and settlement agency for depository
eligible trades, became a wholly owned subsidiary of the PSE. The SCCP acts as the settlement coordinator and risk manager for
broker transactions as well as administrator of the trade guaranty fund.

In 2005, the PSE adopted an online daily disclosure system (ODiSy) to improve the transparency of listed companies and ensure
full, fair, timely and accurate disclosure of material information from all listed companies. The ODiSy provides 24/7 online system
access for the submission of all types of disclosures.

On July 26, 2010, the PSE launched its new trading system, PSEtrade, which replaced the MakTrade system. The system was
acquired from the New York Stock Exchange.

On July 7, 2011, the PSE spun off its Market Regulation Division into a separate independent company named Capital Markets
Integrity Corporation (CMIC) as part of the Exchange''s commitment to good corporate governance. The CMIC shall ensure the
regulatory independence over the audit, surveillance and compliance activities of TPs. The CMIC received its provisional Self-
Regulatory Organization status on February 2, 2012 and subsequently began operations in March of the same year. On May 8,
2012, the CMIC launched its new surveillance system called Total Market Surveillance (TMS), which was acquired from the Korea
Stock Exchange. The TMS features detection rules, statistics analysis models, and pattern recognition logics needed to enhance
monitoring of stock market transactions. TMS is also designed to support a market of one million orders/trades per day.

Source:PSE.com.ph
Appendix 2: Philippine Stock Exchange
In 2013, The PSE rolled out its new three-year strategic plan which focuses on introducing more products and services to the market.
A new listing board structure was adopted, switching from the previous three-board structure to the current two-board structure
consisting of the Main Board and the SME board.

On November 25, 2013, the co-branded SGX-PSE MSCI Philippines Index Futures was listed at the Singapore Exchange. A few days
later on December 2, 2013, the first Exchange Traded Fund, First Metro Philippine Equity Exchange Traded Fund, Inc. (FMETF), was
listed at the PSE. Also in December, the Exchange released the list of Shariah-compliant securities. On December 27, 2013, the
portal for the new disclosure system co-developed with the Korea Exchange known as EDGE (Electronic Disclosure Generation
Technology) went live.

The PSE also embarked on various technology-related projects to address the needs of the PSE's stakeholders. Among the major
undertakings were the launch of the mobile application version of the Exchange's disclosure facility, the PSE EDGE, and the
utilization of social media to market the said mobile app. It also appointed NASDAQ OMX as its technology provider for the new
trading system, and signed a Memorandum of Understanding with Deutsche Boerse to collaborate on market data-related initiatives.

Progress was also achieved by the PSE in its goal to have a unified local capital market. Likewise, the Exchange actively participated
in the launch of the new FTSE ASEAN Index Series.
Source: PSE.com.ph
Appendix 3: Philippine Stock Exchange
The PSE envisions to be a premier exchange with world-class standards for trading
securities and raising capital that serves as a strong engine for a robust economy.

PSE’s mission includes:

• providing a facility for fair, accurate, complete and timely information about listed
companies, while extending market education and awareness programs to investors
• being a preferred venue for raising capital
• practicing and promoting good governance within the Exchange and among listed
companies and trading participants adopting world-class systems and global best
practices for an efficient, fair and orderly market.

As a regulatory body in-charge of listed companies, the PSE ensures that general public
investors’ interests are protected. The PSE Rules and Regulations for companies include
guidelines on listing requirements, corporate governance, disclosure rules, minimum public
ownership requirements and penalties & fines for non-compliance.