Pros & Cons Of Buying An SGX-Listed ETF When Investing For Overseas Exposure

This article was written in collaboration with FSMOne.com. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.

As COVID-19 ravaged the world’s economies, the financial markets went into a tailspin, with many country indexes dipping more than 30% within a one-month period from February to March 2020. Just as ferociously, the markets then rebounded to surpass all-time highs – led mainly by technology and healthcare beneficiaries, which also uplifted the broader stock market.

For Singapore investors, we need to realise the importance of gaining global exposure in our investment portfolio. While we may be more familiar with local stocks, global companies are no longer strangers to any of us. Nor can we afford (pun intended) to ignore them anymore.

The Need To Diversify Globally

Being Singapore residents, our job progression and the value of our home is likely all dependent on the Singapore economy continuing to do well. If we also concentrate our investments on Singapore companies only, we are essentially taking a big bet that the Singapore economy will consistently outperform the global economy over the long term.

One easy way to see this concentration risk is in the recovery of the Straits Times Index (STI) since the heights of the pandemic uncertainty in 2020. Since the STI (blue line) hit its lowest point in March 2020, it has risen over 47%.

Source: FSMOne.com

In contrast, the S&P 500 (red line) has risen nearly 70% in the same timeframe. In the chart above, we can also see that the S&P 500 has comfortably beaten its previous high, which was right before the COVID-19 pandemic. However, the STI is still trading below its previous high before the COVID-19-led downturn. If you only invested in the STI, it would have yielded significantly poorer returns for you as an investor.

Diversifying our investment globally is also not as intimidating today, as it may have been for our parents. Most local brokerages, including FSMOne.com, enable investors to buy stocks, bonds and funds listed in other popular markets such as the New York Stock Exchange (NYSE) and NASDAQ in the U.S, and Hong Kong Exchange (HKEX).

The overseas-listed companies that we invest in are also well-known to us rather than obscure companies we may never have heard about. Today, information on companies – listed locally or overseas – is easily accessible to us.

The Apples, Amazons and Googles of the world are companies that we interact with on a daily basis. Chinese tech companies such as Alibaba, Xiaomi, Ping An and more are also growing globally. Closer to home, companies such as Hyundai Motor, CIMB Bank, ANZ banking group and others are entrenched brands in Asia Pacific.

Read Also: How To Diversify Your Investment Portfolio Outside Of Singapore

You Can Use ETFs Listed To Start Your Overseas Investing Journey Today

Especially for beginner investors who are looking to invest in new geographical markets, the easiest way to start is to invest in an Exchange Traded Fund (ETF). An ETF is a basket of investments that seeks to replicate the holdings and returns of an index. Broad country and sector indexes also tend to include more established blue-chip companies, rather than smaller players.

ETFs allow investors to take a passive approach to building our investment portfolio. With just a single investment decision, we can gain diverse exposure to multiple companies, business sectors and even geographies.

Read Also: Complete Guide To ETF Investing In Singapore

It Is Entirely Possible To Gain Broad Exposure To Overseas Markets With SGX-Listed ETFs

Some investors may assume that they have to bypass the SGX to gain overseas exposure. This isn’t true. For a start, many SGX-listed companies may already earn a chunk of their revenue outside of Singapore. For example, a 2017 Business Times article found that the STI constituents generated as much as 46% of their revenue from Asia Pacific region outside of Singapore.

Beyond this, there are also many SGX-listed ETFs focused on overseas markets. In fact, out of the 43 ETFs listed in Singapore, only 10 are fully exposed to the local market.

By investing in SGX-listed ETFs, we can gain exposure to U.S., China, India, Vietnam, Indonesia, ASEAN, Asia Pacific and more. We can also gain exposure to different asset classes as well, including stocks, bonds, REITs, and gold.

For example:

• the Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST) is comprised of 30 of the largest Chinese technology companies
• the NikkoAM-STC Asia REIT ETF (SGX: CFA) has close to 75% exposure to Singapore-listed REITs, with the rest coming from Hong Kong, Malaysia, India, Thailand and others. Even then, Singapore-listed Ascendas REIT has a portfolio that is only 66% exposed to the Singapore market while Mapletree Logistics Trust’s portfolio is only 30% exposed to the Singapore market. Moreover, Singapore-listed REITs also contains several with their entire property portfolio outside of Singapore, such as Manulife US REIT, Mapletree North Asia Commercial Trust and others.
• the ICBC CSOP CGB ETF (SGX: CYB) gives us exposure to overseas bonds as well, seeking to replicate the FTSE Chinese Government Bonds Index
• the iShares MSCI India Index ETF (SGX: I98) which provides diversified exposure to large and mid-sized companies in India

Investing In Singapore Dollars (SGD)

Several of the ETFs listed on SGX that are broadly exposed to overseas markets also have an SGD option to invest in. This means investors would not have to concern themselves with foreign exchange rates conversion when making the ETF investments. ETFs that are listed overseas are almost always listed in foreign currencies.

Nevertheless, at the underlying investments level, because we are gaining overseas exposure, we also cannot run away from foreign exchange risk.

Focusing Only On SGX-Listed ETFs Can Be Quite Limiting

There many ETFs listed on global exchanges today, and just trying to use SGX-listed ETFs to build our ETF portfolio may be limiting. While SGX provides sufficient choices for us to start gaining broad overseas exposure, we do not always have to stick to it.

Overseas-listed ETFs may also provide greater depth in the type of geographical markets and business sectors we can invest in. Just to provide some statistics, there are close to 120 ETFs listed on HKEX and over 2,400 ETFs listed on the NYSE.

Through our local brokers, we can also easily invest in these foreign-listed ETFs. Another advantage of using a local brokerage is that we can leverage on their insights and attend events that they organise. FSMOne will be organising is FSM ETFestival on 15 May 2021 from 10 am to 5 pm. This annual event will be held virtually this year.

Investors keen to understand more about ETFs will be treated to investment ideas from around the world. This is especially helpful to investors keen to branch out to international opportunities with ETFs but lack the knowledge or expertise. With the number of ETFs available globally, the FSM ETFestival will also help us sieve through the market.

Using A Local Brokerage Firm You Trust On The Next Leg Of Your Investing Journey

One of the reason to start our overseas investing journey via locally listed ETFs is because it’s easier. We can take a passive approach to investing and we would be slightly more familiar with being able to trade on the SGX and buying and selling using the SGD.

Similarly, we should look for ease of use and familiarity when choosing a brokerage firm to start our overseas investing journey with. FSMOne.com is a good platform to start investing both locally and overseas. As we build more investing knowledge, we can also use FSMOne.com to invest in overseas-listed ETFs and stocks. Using the same brokerage firm provides us an overview of our entire portfolio within one platform.

From 5 April 2021, FSMOne.com has made it a sweeter deal for investors to trade using their platform by charging a flat commission rate of $8.80 when we invest in SGX-listed stocks and ETFs. While most brokerages typically charge a percentage of our trade amount and enforce a minimum commission, FSMOne.com charges a flat fee, regardless of your investment size. We can also link our CDP Account online to enjoy this flat $8.80 commission rate when selling our stocks currently held in CDP.

This is a boon for investors who are investing both small and big amounts. For those investing a few thousand dollars, this $8.80 flat fee is lower than many other minimum brokerage fees charged in the industry. At the same time, for those investing tens of thousands or more, this flat fee is great as it places a cap on your commission charges.

For investors who want to start investing in ETF, whether locally or overseas, through a dollar-cost average method where we invest a small amount each month, we can use the FSMOne ETF Regular Savings Plan (RSP) to invest in 57 ETFs locally and globally. We can start investing, and gaining overseas exposure, from as little as $50 a month. Moreover, we can also increase this amount, stop investing or sell our investments at any point. Transaction cost is kept very low, at 0.08% or a minimum of SGD 1, HKD 5 or USD 1 per transaction when buying ETFs via the FSMOne ETF Regular Savings Plan (RSP). This makes it cost-effective for those of us who only intend to invest a small sum each month but would like to do so regularly.

Read Also: How To Start Investing As A Young Investor, Tertiary Student Or NSF

FSMOne.com also helps investors maximise returns with its FSMOne Auto-Sweep Account, by “sweeping” all our excess cash from sales proceeds, bond maturities, dividends and coupons towards earning better returns in money market funds. This eliminates any period of time when our funds are not invested to earn a better-than-bank interest rate.

When we want to invest again, without having to do anything extra, our funds will be automatically transferred from this account into any investment trades we make.

Do note that non-SGD denominated cash, as well as funds we deposit into our FSMOne Account but do not give any instructions to “auto-sweep” into investments, will not be automatically invested.