Serious investors would be familiar with ETFs – Exchange Traded Funds – which have seen tremendous inflows globally.
It was first introduced in 1993 and over US$4 trillion have already been invested in various ETFs. An ETF’s main advantage lies in its low cost structure, broad diversification, and its liquidity and ease of purchasing and selling. In fact, it is similar to a stock listed on any globally recognised stock exchanges.
There are multiple types of ETFs, including index ETFs, stock ETFs, Bond ETFs and Commodity ETFs. For example index ETF is an investment fund that tracks a specified index maintained by licensed index providers such as S&P or MSCI.
There are around 80 ETFs which fall under the above mentioned categories listed on the SGX.
Investors in these SGX listed ETFs could be well rewarded in the long term due to massive savings in reduced management fees compared to traditional mutual funds. They also provide an economical advantage for investors to obtain sector-wide or country-wide diversification.
Investors from both the institutional space and retail space are moving into the ETF space in a big way, as seen from their record AUM managed by reputable fund managers, the largest being Blackrock and Vanguard. Investors can reap the full benefits of ETFs when they maintain their holdings for a mid to long term investment horizon.
We have handpicked the top 8 ETFs that investors can place their investment portfolio funds.
SPDR Straits Times Index ETF
The ETF tracks the Straits Times Index, giving investors instant exposure to the top 30 Singaporean blue chip heavyweights such as DBS, UOB and Singtel. Since the Global Financial Crisis in 2008/2009, the index has recovered from a low of about 1700 points to 3229 currently, giving it an effective 8% CAGR over the past 8 years. Investors whom have a long term horizon can participate in the Singapore’s future growth via exposure to these solid corporations.
FTSE China 50 UCITS ETF
China’s export led growth has lifted the Chinese economy to World No. 2 in terms of absolute GDP, and is continuing its growth story. Investors will be able to get exposure to the largest well run Chinese listed firms via db x-trackers FTSE China 50 UCITS ETF. The ETF replicates the price performance of the FTSE China 50 H Shares index which contains China’s biggest conglomerates such as Sinopec, Petrochina, Bank of China and China Construction Bank.
MSCI Indonesia Index UCITS ETF
Indonesia, being the largest country in South East Asia in terms of population size, deserves investor’s attention due to rapidly rising income and explosion of middle class citizens with higher purchasing power. The country is home to some of the locally listed corporations such as Telkom Indonesia, Astra International and Bank Mandiri. Investors should opt for db x-trackers MSCI Indonesia Index UCITS ETF which will provide performance growth similar to the MSCI Indonesia Index. The index comprises 31 Indonesian companies, giving investors diversified access to the future earnings of these companies.
MSCI Korea UCITS Index ETF (DR)
Korean stocks have generally been viewed to be undervalued among the Asian region and investors can gain investment exposure to Korean stocks via db x-trackers MSCI Korea UCITS Index ETF (DR). The underlying index which the Fund tracks, MSCI Korea has 112 Korean multinationals and conglomerates such as Samsung Electronics and Hyundai. The index components currently has a P/E multiple of 12 times historical earnings, making it one of relatively undervalued equity markets in the Asia region. Investors would gain instant exposure to 85% of Korean listed large cap and mid cap stocks via investment into the ETF.
CIMB FTSE ASEAN40 ETF
This is an ETF for investors wishing to participate in the ASEAN growth story. The largest 40 blue chips from 5 ASEAN member countries namely Singapore, Malaysia, Thailand, Philippines and Indonesia are included in the FTSE ASEAN 40 index, giving investors a solid regional portfolio diversification across countries with varied economic growth. The blue chips have known to be solid dividend paymasters due to massive operational free cash flow, which translates into regular distributions by the ETF.
Phillip SGX APAC Dividend Leaders REIT ETF
Investors can now simultaneously own a portfolio of REITs in the Asia Pacific region via Phillip SGX APAC Dividend Leaders REIT ETF. There are 30 REITS is based upon the SGX APAC Ex-Japan Dividend Leaders REIT Index, created by the reputable SGX Index Edge, an upcoming Singapore based Index provide. The Index contains the highest dividend yielding across Asia such as Singapore, Hong Kong and Australia. In Singapore, solid REIT counters such as Keppel REIT and Mapletree Commercial Trust are part of the ETF’s holdings. Investors could obtain the best of both worlds by investing in the ETF via cost efficient diversification and stable and regular dividend income distributions.
ABF Singapore Bond Index ET
Investors looking for fixed income exposure and stability of returns can turn to ABF Singapore Bond Index ETF. The Fund tracks the iBoxx ABF Singapore Bond Index where the majority index components (around 87%) are AAA-rated investment grade Singapore Government Bond with a yield to maturity of 2.08% as at 31 May 2017. This ETF would be suitable for investors looking for income stability backed by the Singapore Government which gives peace of mind knowing that their principal are highly secure.
SPDR Gold Shares ETF
Rather than investing directly into buying and storing physical gold, investors could instead purchase SPDR Gold Shares ETF that will increase in value in tandem with global gold spot price increases. Gold price touched a high of US$1,889 per ounce in late 2011 and is currently hovering around US$1,200 and US$1,400 per ounce. Investors can take the opportunity to diversify into gold as an asset class via investing into the ETF, which saves the many costs of buying storage space for physical gold. Historically gold is known to have low correlation with other stock and bond asset classes, hence having a small gold portfolio could serve as an effective hedge.
(By Chee Hoong Chan)