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Complete Guide To ETF investing in Singapore

By making a single investment, we can gain exposure to an entire country’s stock market performance.


Investing in ETFs is one of the easiest and most cost-effective ways to start our investment journey. In recent years, ETFs have been gaining even more attention and popularity, and today, has overtaken active investing. Currently, there are more than 7,600 ETFs listed globally (as of 2020).

While many ETFs tend to provide broad-based market exposure, the diversity and complexity of ETFs have also evolved over time. Apart from replicating country indexes, there are ETFs now for very specific business sectors, regions, asset classes, as well as more complicated leveraged and synthetic ETFs.

What Is An ETF?

ETFs are listed on stock exchanges and seek to replicate the returns of an index. The index can be broad country-based indexes such as the Straits Times Index (STI), Hang Seng Index or S&P 500 Index. Or, it can also replicate narrower indexes that are tracking specific business sectors, geographical regions or asset classes. Since they are listed on stock exchanges, we can also buy and sell them, just like we trade other stocks and bonds listed on the exchange.

How To Invest In ETFs In Singapore?

As ETFs are listed on the stock exchange, the most common way to invest in ETFs is through a stock brokerage account – similar to how we buy and sell stocks in Singapore. According to the Singapore Exchange (SGX), there are 45 ETFs listed in Singapore. The actual number may be lower, as some ETFs are listed in dual currencies. Apart from SGX, most local stock brokerage accounts also offer us access to other major stock markets overseas. Thus, we can also invest in ETFs listed in these overseas exchanges.

Another way we can invest in ETFs in Singapore is through Regular Shares Savings (RSS) plans. There are currently 4 RSS providers in Singapore, some of them also allow us to invest in individual stocks or overseas-listed ETFs.

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

A third way investors can gain exposure to ETFs is by investing via robo-advisory platforms in Singapore. There are currently at least 11 robo-advisory platforms in Singapore, and 9 of them offer their solutions using ETFs. Predominantly, the ETFs that robo-advisory platforms use are exposed to broad indexes listed in the U.S.

Benefits Of Investing In ETFs

There are four main benefits of investing in ETFs:

#1 Low Barrier Of Entry For New Investors

Investing in ETFs is the perfect way for new investors to get started as they do not need a lot of investment knowledge or skills to start investing. Investors also would not have to spend much time trying to monitor or rebalance their investments.

#2 Low-Cost Method To Invest

ETFs usually charge lower management fees compared to actively managed funds. This is because ETFs are simply following instructions on what to invest in by replicating the index. By not having an active fund manager stock picking or timing stock prices, we are able to save on the cost.

For example, the S&P 500 ETF has a net expense ratio of 0.0945%. The STI ETF has a total expense ratio of 0.3%. Typically, the larger the ETF, the lower it can afford to charge for its expense ratio.

Read Also: Complete Guide To Investing In The Straits Times Index (STI) ETFs In Singapore

#3 Instant Diversification

Depending on the index that the ETF is tracking, we can technically build our entire portfolio with just a single investment in an ETF.

For example, by just investing in the S&P 500 ETF, our portfolio will comprise close to 500 blue chip stocks covering about 80% of the market capitalisation in the U.S. Furthermore, this investment will be diversified to the IT (26%), healthcare (13%), consumer discretionary (12%), Financial (12%), communications (11%), industrials (9%), consumer staples (6%) and more.

#4 Passive Approach To Investing

By investing in ETFs, we are taking the decision to pick stocks out of our hands. We are simply letting the index dictate which stocks we should be investing in.

If we invest in a broad country index, again, like the S&P 500, we will essentially earn the market returns of the U.S. market. This way, we do not try to time the market or beat the market – we only want to earn the market returns over the long term.

Another way we enjoy a passive approach to investing is that we do not have to monitor our investments so closely. This is because the index usually has a methodology for picking and removing constituent stocks. This means that once a stock does not fit into the methodology, it is automatically removed from the index, and by default the ETF. This is how a good index (and the ETFs tracking it) can last for a very long time, while individual stocks may not.

Downsides Of Investing In ETFs

Similarly, there are four main disadvantages to investing in ETFs.

#1 ETFs Always Underperform The Index

When we invest in an ETF, we can never earn extraordinary returns. As mentioned, it is akin to deciding to earn just the market return.

Also, when we buy (or sell) an ETF, we have to pay brokerage fees. When we hold an ETF, we have to pay management fees and other expenses. For these reasons, we will never earn the return that the index actually delivers. However, we will still earn a return that is just slightly lower than it.

#2 Will Never Pick Up On Good Stocks To Invest In

Remember, the ETF is simply following instructions on what to buy from the index. Unlike active fund management, where there’s an active fund manager speaking to companies and keeping their ears on the ground in order to earn better returns and pick up on growth trends earlier.

#3 False Sense Of Security For Investors

By investing in an ETF, even one as broad and diversified as the S&P 500 ETF, we may falsely think that our investments are safe. To be clear – every investment carries risk.

Case in point, during the market crash from February to March 2020, the S&P 500 declined 32% in a space of approximately one month. This shows that ETFs can still fluctuate wildly, especially when there is a market-wide crash.

What we are sheltered from is the risk of an individual stock performing poorly within the ETF.

#4 No Control Over Investing Or Divesting

We’ve covered this point a few times now – the ETF has to replicate the index. This means that if the index removes a stock that we really like, the ETF we own will also sell that stock. Similarly, if the index adds a stock we absolutely do not want to touch, the ETF will still purchase that stock.

Read Also: Pros And Cons Of Building An ETF-Only Portfolio

Best ETFs In Singapore To Invest In

There’s really no right or wrong answer as to which ETFs are the best to invest in. One possible answer is sticking to investing in ETFs that are exposed to broad country indexes.

In Singapore, we can invest in these six popular ETFs listed locally:

#1 STI ETFs: SPDR STI ETF (SGX: ES3) / NikkoAM Singapore STI ETF (SGX: G3B)

The SPDR STI ETF and NikkoAM STI ETFs both seek to replicate Singapore’s 30-stocks Straits Times Index (STI). As many of us would already be familiar with, the largest companies on STI include DBS, OCBC, UOB, Jardine Matheson, SingTel, Ascendas REIT, CapitalandInvest and more.

Read Also: SPDR STI ETF VS NikkoAM Singapore STI ETF: What’s The Difference Between These 2 Straits Times Index ETFs Listed On The SGX?

#2 Overseas ETFs: S&P 500 ETF: SPDR S&P 500 ETF Trust (SGX: S27); Lion-OCBC Securities China Leaders ETF (SGX: YYY); Lion-OCBC Sec Hang Seng TECH ETF (SGX: HST)

We’ve covered the S&P 500 ETF in the article. It invests in approximately 500 blue chip companies listed in the US, such as Microsoft, Apple, Amazon, Tesla, Alphabet (Google), Meta Platforms (Facebook), NVIDIA, Berkshire Hathaway and more.

The Lion-OCBC Securities China Leaders ETF invests in 80 of the largest Chinese companies, including Ping An Insurance, Kweichow Moutai, ICBC, Tencent, BYD and others.

The Lion-OCBC Sec Hang Seng Tech ETF will comprise 30 of the largest technology stocks listed on the Hong Kong Stock Exchange. It includes popular stocks such as Alibaba, Tencent, Meituan, Xiaomi, JD.com, Lenovo, Ping An, ZTE, Foxconn and others.

Read Also: 5 Things You Need To Know About The Lion-OCBC Sec Hang Seng Tech ETF Before Invest In It

#3 Bond ETFs: ABF Singapore Bond ETF (SGX: A35); Nikko AM SGD Investment Grade Corporate Bond ETF (SGX: MBH)

The ABF Singapore Bond ETF invests in SGD-denominated bonds issued by the Singapore government and quasi-government entities.

As its name suggests, the Nikko AM SGD Investment Grade Corporate Bond ETF invests in corporate bonds. These include the bonds of companies such as Temasek Financial, NTUC Income Insurance DBS, OCBC, UOB, Changi Airport Group, Aviva Singlife, Manulife Financial and more.

Read Also: How Fixed Income ETFs Can Help Protect Your Investment Portfolio In Singapore

#4 Gold ETF: GLD US$ ETF (SGX: O87)

The objective of the GLD US$ ETF is to reflect the performance of the price of gold bullion, less expenses.

Read Also: 5 Ways Investors In Singapore Can Invest And Gain Exposure To Gold As An Asset Class

#5 REIT ETFs: NikkoAM-Straits Trading Asia Ex Japan REIT ETF (SGX: CFA); Lion-Phillip S-REIT ETF (SGX: CLR); Phillip SGX APAC Dividend Leaders REIT ETF (SGX: BYJ); UOB APAC Green REIT ETF (SGX: GRN); CSOP iEdge S-REIT Leaders Index ETF (SGX: SRT);

REITs is a hugely popular asset class in Singapore. We can invest in as many as five REIT ETFs listed in Singapore.

Read Also: Investing In REIT ETFs: 5 Things You Need To Know

 

This article was originally written on 22 March 2021 and has been updated to provide the latest information. 

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