This week, local news outlets and online forums were filled with commentary about the release of the latest figures that showed that majority Singaporeans who chose to invest their CPF monies under the CPF Investment Scheme (CPFIS) managed to beat the standard CPF Ordinary Account (OA) interest rate (2.5%) in the financial year ending in 2016.
By no means does this suggest that you should rush to make use of your CPF OA balances for investment purposes as you may be taking on higher risks and greater uncertainties with your investments. However, this run of good performance over the past year might interest you to start learning more about how you can maximise your returns. So, for 4 Stocks This Week, let’s take a timely look at the four CPFIS-approved ETFs that you can invest in using your OA.
Firstly, the four ETFs available under the CPFIS are the ABF Singapore Bond Index Fund, Nikko AM Singapore STI ETF, SPDR Straits Times Index ETF and SPDR Gold Shares. They are all listed on the Singapore Exchange (SGX), and you can buy or sell them in the market at any time.
ABF Singapore Bond Index Fund (SGX: A35)
This ETF tracks a basket of AAA-rated Singapore government bonds and bonds issued by quasi-Singapore government entities, like the Housing Development Board, Land Transport Authority and Temasek Holdings.
Since its inception more than a decade ago, the fund size has grown to $882.60 million (as of August 31, 2017) and it has proven to be highly resilient even in the face of volatile market conditions.
Singapore’s consistently high credit standing indicates that expectation of default is extremely low, which means this fund continues to be an attractive option for investors who cannot afford to lose much of their investment capital or are risk averse. With this safety comes the expectation that expected returns will be comparatively lower than other higher-risk bond funds or equity funds.
A unique feature of this ETF is that it gives investors exposure to bonds that are normally not available to retail investors, such as those issued by quasi-Singapore government entities, allowing them to benefit from exposure to highly-rated entities and annual dividend distributions, while maintaining high liquidity.
Nikko AM Singapore STI ETF (SGX: G3B)
Listed on the SGX in 2009, the Nikko AM Singapore STI ETF is a relatively new exchange traded fund (ETF) with a fund size of $186.13 million (as of August 31, 2017). It seeks to replicate as closely as possible, the performance of the Straits Times Index (STI) by investing in the STI constituents according to the same weightage.
Regular readers of our 4 Stocks This Week column are undoubtedly aware, the STI represents the top 30 companies listed on the SGX. They include the likes of DBS, SingTel, CapitaLand and ThaiBev. Thus, this ETF gives investors exposure to all these 30 companies from diverse industries and with businesses across vast geographies.
SPDR Straits Times Index ETF (SGX: ES3)
After emerging on the markets in 2002 as the first ETF that gave investors exposure to the STI, the SPDR Straits Times Index ETF has proven to track the performance of the STI with precision, with a rolling 1-year tracking error of 0.0893%.
Similar to the Nikko AM Singapore STI ETF, this ETF provides investors exposure to the STI. Through both these investments, investors can embark on a passive approach to long-term investment in the Singapore market through investing in an equity portfolio comprising primarily of STI constituent companies.
SPDR Gold Shares ETF (SGX: O87)
This ETF is suitable for those who wish to participate in the gold market without the hassle, costs and physical risks of holding physical gold.
The historical resilience of gold during uncertain times makes this a good asset class to hedge against one’s securities portfolio. With the potential missile conflict brewing in the Korean peninsular, uncertain policies in many of the world’s biggest economies (the USA, China, the UK and others) as well as terror closer to home, this might be one of the most geopolitically uncertain times in the recent past.
4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.
Bonds and Fixed Income