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An Alternative To The STI ETF? Introducing The Phillip SING Income ETF

Want access to the growth and success of the Singapore market, but are not satisfied with the market-capitalisation model of STI ETFs? This might be the ETF you’ve been waiting for.


For years, investing in a STI ETF is one of the best ways beginner investors in Singapore can start building a diversified portfolio that provides a measure of stability (due to its blue chip constituents), as well as a balance between dividend yield and growth.

For those who believe in strength and potential of the Singapore market, a STI ETF is one of the most convenient ways to gain exposure to that growth.

However, as much as STI ETFs are popular, it is also not without its detractors, who point out that because the STI is market-capitalisation weighted, more than 40% of the index is made up of just 3 stocks, all of which are banks.

This means that while you think you’re getting exposure to a broad base of 30 of Singapore’s blue chip stocks, your portfolio would actually be disproportionately impacted (for better or worse) by what happens to DBS, OCBC and UOB.

Source: Nikko AM STI ETF Factsheet

For all its shortcomings, the STI ETFs offered by Nikko AM and SPDR remain the de facto way for retail investors to gain access to the Singapore growth story.

Until now, that is.

Read Also: Complete Guide To Investing In The STI ETF

Introducing The Phillip SING Income ETF

Last week, Philip Capital Management announced the launch of the Phillip SING Income ETF (SGX: OVQ), which seeks to replicate and track the performance of the Morningstar Singapore Yield Focus Index. The ETF’s initial offer period began on 1 October 2018 and will close at 11am on 19 October. Subject to fulfilling regulatory requirements, the ETF will trade on SGX at 9am on 29 October 2018, after which investors can buy into the ETF just like any other stock on SGX.

The Phillip SING Income ETF was launched to give investors exposure to a basket of quality stocks that yield sustainable dividends, while having good capital growth potential, in a cost-effective and convenient manner. The index’s focuses on quality to avoid the pitfalls of companies with high but unsustainable dividends, with the aim of providing better risk-adjusted returns.

About The Morningstar Singapore Yield Focus Index

The Morningstar Singapore Yield Focus Index, which the Phillip SING Income ETF seeks to replicate, was designed to screen for high-quality SGX-listed companies with good financial health and dividend yield.

This focus on quality makes this index an interesting one to consider, since stocks are evaluated not by virtue of their market capitalisation (which tells you virtually nothing about the financial health of the company today and their growth prospects tomorrow) nor solely by their dividend yield (which can be unsustainable).

Source: Morningstar

As you can see, selection for inclusion into the index is rigorous, yet inclusive. For instance, the index’s selection universe consists of stocks whose primary listing is the SGX, which means large, mid and small cap stocks all have the potential to be included.

The stocks are then scored based on Quality (defined by the quantitative economic moat), Distance to Default (which measures the risk of defaulting) and Trailing 12-month Dividend Yield.

The top 30 stocks sorted by score are included in the index, weighted by their score, adjusted if liquidity is low, and capped at 10% to avoid excessive concentration. Rebalancing is done twice a year (June and December).

Backtesting indicates that the initial portfolio would have offered a dividend yield of more than 4% per annum, which is a much more attractive yield compared to long-term Singapore Government Bonds for those who seek recurring dividend income.

Read Also: Here’s How You Can Start Building A Dividend Income Portfolio To Replace Your Wage In Singapore

Phillip SING Income ETF Constituents

Here are the inaugural constituents of the Phillip SING Income ETF, and their respective weights within the ETF:

Experienced investors will notice that many of the constituents are also STI constituents, though in different proportions.

Compared to the STI’s heavy leaning towards Financials (~43%), the Phillip SING Income ETF’s 3 largest sectors consist of Financials (31%), REITs (24%), Telcos (17%).

The Phillip SING Income ETF also includes smaller capitalisation stocks, giving investors exposure to the growth potential of these companies.

Should You Invest In The Phillip SING Income ETF?

Once the ETF starts trading on SGX (which is tentatively 29 October 2018), you can buy it through your brokerage firm, just like you would any other stock or ETF listed on SGX.

As it is newly launched, the Phillip SING Income ETF is not yet available on Regular Shares Savings Plans or CPFIS.

If this is the first time you are signing up for a brokerage account, your broker will likely help provide you with a CDP (Central Depository) application form to fill in and submit it on your behalf to CDP. Alternatively, you can sign up for a CDP Account by downloading and completing the CDP application form. More information can be found on the SGX website.

The Phillip SING Income ETF offers a compelling alternative to investors who want exposure to the growth and success of the Singapore market, but are unhappy with the STI’s market-cap weighted approach.

While investing in the stock market can be risky compared to Singapore Government Securities and other instruments, the Phillip SING Income ETF aims to mitigate that risk by using a robust methodology to assess a company’s financial health and business moats, and not fall into the trap of pursuing unsustainable dividend yields.

Some investors online have remarked that the annual management fee of 0.4% is higher than that of a STI ETF, but that isn’t really fair to compare, since you’re getting a different product.

Read Also: Step-By-Step Guide To Investing Using Regular Shares Savings (RSS) Plan


 
 

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