The Phillip SING Income ETF

There is a new ETF coming to town; the Phillip SING Income ETF (the ETF) and it is scheduled to be listed on the Singapore Exchange on 29 October 2018. From the product highlights sheet (see link at References below), this is what we know of the ETF:

• It replicates, as closely as possible, to the Morningstar Singapore Yield Focus Index (the Index).

• The ETF is suitable for investors who want capital growth and regular income in the form of dividends, with an indexed approach.

• The investment strategy used by the ETF manager would be the replication strategy (i.e. investing in the Index’s underlying securities in their actual proportions). However, a representative sampling strategy (i.e. non-Index component securities with a high correlation/similar valuation/market capitalisation to the actual Index securities may be included) would be employed to track the index more efficiently.

• Semi-annual distributions in June and December or such other times as the ETF manager may determine.

• The total expense ratio is about 0.64% of the ETF’s net asset value, consisting of 0.4% manager’s fee, 0.04% trustee’s fee, 0.1% custodian fee and 0.1% other fees and charges. The latter two percentages are variables and may be exceeded.

The Index and the STI

Listed in Figure 1 are the components of the Index:

Name	Weight (%)
Singapore Telecommunications Ltd	10.18
DBS Group Holdings Ltd	8.5
Oversea-Chinese Banking Corp Ltd	7.95
United Overseas Bank Ltd	7.46
Singapore Exchange Ltd	5.77
CapitaLand Commercial Trust	5.4
CapitaLand Mall Trust	5.2
Singapore Technologies Engineering Ltd	5.19
SATS Ltd	5.09
Mapletree Commercial Trust	4.72
Hongkong Land Holdings Ltd	4.69
NetLink NBN Trust Regs Units Regs S	4.14
Dairy Farm International Holdings Ltd	3.5
Parkway Life Real Estate Investment Trust	2.3
SIA Engineering Co Ltd	2.19
Sheng Siong Group Ltd	2.06
M1 Ltd	1.62
Keppel Infrastructure Trust	1.57
Manulife US REIT	1.57
OUE Hospitality Trust	1.48
United Engineers Ltd	1.41
Haw Par Corp Ltd	1.36
StarHub Ltd	1.25
First Real Estate Investment Trust	0.98
AIMS AMP Capital Industrial REIT	0.95
Hong Leong Finance Ltd	0.9
SPH REIT	0.87
Raffles Medical Group Ltd	0.8
Frasers Hospitality Trust	0.51
Silverlake Axis Ltd	0.39

Fig.1 - Components of the Morningstar Singapore Yield Focus Index

The companies that are in bolded italics are also in the Straits Times Index (STI). While it is easy to assume that this Index and the STI share similarities, there are differences between the two.

The first would be the sector make-up and proportion. For the STI, the three local banks (DBS, UOB and OCBC) stood at about 33% of the weightage, while for the Index it is only at 24%. Also, there are seven property centric companies (including REITs) in the STI, but the Index contains 12. 

Secondly, the aims of the indexes are different. The Index is income focused, whereas the STI captures the most liquid companies in the Singapore market, and it is like a microcosm of the local economy. 

The Bedokian’s Take

Besides the SPDR STI ETF and the Nikko AM STI ETF, this is the next closest Singapore-listed equity ETF you can get. In fact, the ETF can be considered a good complement or even a substitute for the equity component of the Bedokian Portfolio, given the ETF’s focus of providing yield and the Bedokian Portfolio’s emphasis on dividend and index investing.

The caveat here is that REITs hold about 24% of the ETF’s weightage, as seen from Figure 1. Extrapolate this onto the balanced Bedokian Portfolio (35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash), we could have a Bedokian Portfolio of about 43% in REITs. Even for the STI, the overall property weight (including REITs and property centric companies) is only about 15%. This is not unusual as the ETF emphasizes on yield and REITs typically provided a good one.

Still, if you are interested in getting this ETF and want to maintain a strategic asset allocation, you may have to take an additional calculation step of dissecting the REIT part of the ETF and categorise it under REITs, so there will be some sort of ETFs overlapping between the equity and REITs portions of your portfolio. 

References

Monetary Authority of Singapore. OPERA. Phillip SING Income ETF Prospectus. 24 Sep 2018. https://eservices.mas.gov.sg/opera/4b35e09c-17a6-4b9b-9903-2a1cea001d25.publishresource(accessed 25 Sep 2018)

Monetary Authority of Singapore. OPERA. Phillip SING Income ETF Product Highlights Sheet. 24 Sep 2018. https://eservices.mas.gov.sg/opera/222d30b8-0632-43aa-8625-ef50c106fde2.publishresource(accessed 25 Sep 2018)

Morningstar. Morningstar Index Data.  21 Sep 2018. http://corporate1.morningstar.com/us/products/indexes/(under Equity > Dividend > Morningstar Singapore Yield Focus Index) (accessed 25 Sep 2018)

Morningstar. Morningstar Indexes. Construction Rules for the Morningstar Singapore Yield Focus Index. May 2018. http://corporate.morningstar.com/US/documents/Indexes/Construction%20Rules%20for%20Morningstar%20Singapore%20Yield%20Focus.pdf(accessed 25 Sep 2018).

FTSE Russell. FTSE ST Index Series. 31 Aug 2018. http://www.ftse.com/Analytics/FactSheets/Home/DownloadSingleIssue?issueName=SGXSERIES. (accessed 26 Sep 2018)