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Beyond stocks listed on the Singapore Exchange (SGX), the Hong Kong and U.S. stock markets are likely the next most familiar for Singapore investors. The Straits Times Index (STI), Hang Seng Index (HSI) and the S&P 500 Index (SPX) are the three respective country indices.
One easy-to-understand investing strategy is gaining exposure to the average performance of an entire country by investing in its country index. In general, country indices are constructed to include the biggest and most liquid companies driving a particular economy.
Simply put, a single decision to invest in a country index buys us a diversified portfolio of companies able to generate a return that tracks the country’s economic performance.
How Have The Different Country Indices Performed Recently
As funds are constantly flowing from one country or asset to another, based on market conditions, it is also worth keeping track of the different country indices’ performances.
Looking at the three common country indices, in the last 1-month period as of 2 August 2022, the SPX has performed the best with a gain of 7.7%. The STI also posted a smaller gain of 1.4%. On the other hand, the HSI was a big loser, shedding 10.0%.
If we look in the past 1-year timeframe, we can see that the STI has actually held up the best. The SPX lost 6.1%, while the HSI did the worst in this timeframe, down 25.0%.
|Strait Times Index (STI)||1.37%||-3.61%||2.75%|
|Hang Seng Index (HSI)||-10.04%||-6.84%||-24.95%|
|S&P 500 Index (SPX)
(accurate as of 2 August 2022) Past performance is not indicative of future performance
As we can see, the different country indices can move very differently. Hence, there can be merits to have a long-term investment position on these country indices in the long-term as well as trading country indices if we are able to spot short-term positions to take.
How To Gain Exposure To The STI, HSI And S&P 500 Indices on SGX
Passive Approach Of Using ETFs for Long-Only Exposure
Typically, index investing allows us to invest in the broad market, regardless of the market condition. Newer investors or those who do not have the interest to regularly monitor the markets can benefit from passively investing in a country index – to earn the market performance.
Technically, we cannot invest in an index. If we want to gain exposure to the index, we need to invest in an Exchange Traded Fund (ETF) that tracks the index. Such ETFs simply aim to replicate the performance of the component stocks of the index.
Fortunately, we can invest in many ETFs tracking various indices on SGX. There are two STI ETFs that we can invest in, and there is also one ETF tracking the S&P 500 index. While there are no ETFs that track the entire HSI, there is an ETF that tracks the technology sector within the Hang Seng Index.
Using ETFs to construct your passive investment portfolio has numerous benefits including diversification and lower fees which are ideal for a long-term investment long-only strategy where we can only achieve positive returns when the index rises.
However, for more experienced investors who would like to gain a short exposure to achieve positive returns even when the index falls or gain a leveraged exposure to achieve a magnified return on the index’s performance, we can look to another product – Daily Leverage Certificates (DLCs) – that is also available on SGX.
Active Approach Of Using DLCs for Long And Short Exposure With Leverage
With a more active approach, we can use DLCs to take on both long and short positions with leverage and this approach should be for the more experienced investors only. As while this can potentially deliver a higher return than the market returns, we must understand that higher returns come with a higher risk.
DLCs are typically meant for shorter-term holding periods and come with certain benefits, including being able to capitalise on both upward and downward price movements, as well as magnifying our exposure through either 2x, 5x or 7x leverage, depending on the DLC counter.
There are numerous DLCs that are listed on SGX today, and we can trade them through our local brokerages similar to how we buy other listed stocks. For example, Société Générale offers DLCs with different levels of leverage for the Straits Times Index (STI), Hang Seng Index (HSI) and the S&P 500 Index (SPX).
In addition, Société Générale also has DLCs providing access to other popular indices, including for the NASDAQ-100 index and the HSTECH index both with 5x leverage.
In total, Société Générale offers 240 DLCs. Some provide exposure to indices, while many others also give us exposure to individual stocks listed in Singapore, Hong Kong, and the U.S.
Investors Can Strike A Balance Between Active and Passive Approach
Longer-term and passive investing is ideal for investors who have limited funds and ample time on their side to see their investments pay out. Shorter-term and active investing is usually more suited to investors who have the experience, knowledge and time to monitor their investments to aim for above-market returns.
For some investors, mixing both passive and active investing can be ideal. Beyond buying and holding your longer-term investments, taking on a more active strategy can be potentially rewarding. For example, if we believe that funds are flowing into a country due to its safe haven status or because the country’s stock market or even an individual stock has been oversold in the near term. We can take an active approach to buy a Long Daily Leverage Certificate (DLC) to benefit from a short-term rise in the prices with more funds coming in or a rebound from oversold conditions.
Another feature of trading DLCs is that we can just as easily express an opposite view – buying a Short DLC – to benefit from a short-term fall in the index as investments flow out of a country or dropping from an overbought condition. This also enables us to hedge longer-term investments in our portfolio. For example, if we hold a country index ETF or an individual stock, we can buy a short DLC to hedge our positions when the markets are volatile. This way, it might be easier to stomach the drawdowns even if we want to hold on to the investment in the long term.
We have also interviewed more experienced investors to understand how they make use of DLCs. In our chat with Binni Ong, the Founder and Market Technician at TerraSeeds, she claims that she does not “generate a constant income by focusing on one financial instrument”. Instead, we should consider different trading instruments to generate profits as market conditions shift.
While trading can be riskier, especially when employing leverage, DLCs limit our maximum losses to our investment amount. This means we cannot lose more than the total amount that we invested in our DLC trade in the first place.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
The views expressed under this article represent the personal and independent views of the author and do not constitute investment advice. The content of this article does not form part of any offer or invitation to buy or sell any daily leverage certificates (the “DLCs”), and nothing herein should be considered as financial advice or recommendation. The price may rise and fall in value rapidly and holders may lose all of their investment. Any past performance is not indicative of future performance. Investments in DLCs carry significant risks, please see dlc.socgen.com for further information and relevant risks. The DLCs are for specified investment products (SIP) qualified investors only.