Thursday, September 27, 2018

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:

NameWeight (%)
Singapore Telecommunications Ltd10.18
DBS Group Holdings Ltd8.5
Oversea-Chinese Banking Corp Ltd7.95
United Overseas Bank Ltd7.46
Singapore Exchange Ltd5.77
CapitaLand Commercial Trust5.4
CapitaLand Mall Trust5.2
Singapore Technologies Engineering Ltd5.19
SATS Ltd5.09
Mapletree Commercial Trust4.72
Hongkong Land Holdings Ltd4.69
NetLink NBN Trust Regs Units Regs S4.14
Dairy Farm International Holdings Ltd3.5
Parkway Life Real Estate Investment Trust2.3
SIA Engineering Co Ltd2.19
Sheng Siong Group Ltd2.06
M1 Ltd1.62
Keppel Infrastructure Trust1.57
Manulife US REIT1.57
OUE Hospitality Trust1.48
United Engineers Ltd1.41
Haw Par Corp Ltd1.36
StarHub Ltd1.25
First Real Estate Investment Trust0.98
AIMS AMP Capital Industrial REIT0.95
Hong Leong Finance Ltd0.9
Raffles Medical Group Ltd0.8
Frasers Hospitality Trust0.51
Silverlake Axis Ltd0.39

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. 


Monetary Authority of Singapore. OPERA. Phillip SING Income ETF Prospectus. 24 Sep 2018. 25 Sep 2018)

Monetary Authority of Singapore. OPERA. Phillip SING Income ETF Product Highlights Sheet. 24 Sep 2018. 25 Sep 2018)

Morningstar. Morningstar Index Data.  21 Sep 2018. 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. 25 Sep 2018).

FTSE Russell. FTSE ST Index Series. 31 Aug 2018. (accessed 26 Sep 2018)

Monday, September 17, 2018

Considerations of ETF Selection

ETFs are great tools to start off passive index investing, whether you want to follow the Bedokian Portfolio or other investment strategies and approaches. Before you jump right in, here are some considerations that you should take note of.

Consideration #1 – The Index

The index determines the make-up of the underlying securities of the ETF. Take the Straits Times Index (STI) for instance, both the STI ETF and the Nikko AM STI ETF track it, but there could be some slight differences between them, such as their proportions of the STI components and how closely the ETF tracks the index.

Additionally, you may also want to see the sector/industry exposure of the index, as well as regional/country exposure if applicable. This is important due to diversification.

Consideration #2 – The Structure of the ETF

I had mentioned earlier about physical and synthetic ETFs. Although in my ebook I had stated that physical ETFs are preferred, due to the counterparty risk that synthetic ETFs have, the latter do track the index closer than the former. The verdict of going with physical or synthetic is up to you.

The other thing to take note of would be whether you want to have dividends from the ETF. An ETF could be capitalising (reinvest the dividends from the underlying securities back to the ETF) or distributing (distribute the dividends) on a periodic basis, so again it is your call which one is more suitable.

Consideration #3 – Total Expenses Ratio

Expenses are part and parcel of running an ETF, and ETF providers impose these expenses as a percentage (dubbed as total expenses ratio or TER) of the entire investment fund, so it is important to select an ETF with as low TER as possible.

As TER is imposed yearly, there is compounding effect at work. For example, take two similar ETFs called A and B, with an annual TER of 0.5% and 1% respectively. Assuming an initial $10,000 investment with a 10% annual return, after 20 years ETF A will return $61,416 while ETF B returns only $56,044. The 0.5% TER variation spelt a difference of $5K+ in returns.

To find out about an ETF’s TER, you can look it up at the ETF’s fact sheet or prospectus, or online on ETF screeners and Google/Yahoo Finance pages.

Consideration #4 – The Liquidity of the ETF

The liquidity of the ETF (or any other financial instrument) is the measurement of how quickly it can be transacted in the financial markets without affecting its price. For instance, if ETF A has a 10,000-unit buy queue at $1 and a 5,000-unit sell queue at $1.05, it is highly liquid, since the narrow price spread would make the buy/sell transactions easier. However, if ETF B has a 1,000-unit buy queue and a 500-unit sell queue at $1.00 and $1.50 respectively, then it is not so liquid or is illiquid.

Fortunately in a way, there are market makers (like the authorised participants that are responsible for the ETF creation and redemption processes with the ETF providers) who can facilitate some liquidity for the ETF. These market makers act as middlemen and will buy up the sell side and sell to the buy side, earning some profit along the way if feasible.

Consideration #5 – Tax 

Specifically tax from dividends. There are some ETFs whose dividends are subject to tax, like those based on foreign markets. Typically if you (as an individual) invest in a United States (U.S.) market ETF, and if you are not a U.S. person, a 30% withholding tax is imposed on the dividend. Meaning if an ETF is giving a 5% annual dividend yield, with the withholding tax, the effective yield is only 3.5%. 

Still, if you are still unsure about taxes and such, it is best to consult an accountant or tax expert (and I’m not one of them, apologies).

Putting Them All Together

The above five considerations are not exhaustive but I believe they are sufficient in your ETF selection for your investment portfolio. A holistic approach is needed; it is better to balance out the considerations and not to over-emphasize on one, like looking strictly at TER without regarding the index.

Saturday, September 8, 2018

The SGX ETF Universe

There are almost 60 Exchange Traded Funds (ETFs) listed on the local Singapore Exchange (SGX). You can find them on the SGX webpage, under “ETFs”.

To make things easier, I have a screenshot of the webpage in Figure 1.

Fig. 1 – SGX Listed ETFs (as at 7 Sep 2018, 5:06PM)

From here, you can learn a few things on ETFs.

#1 – ETF Providers

The listed ETFs are typically prefixed with the name/abbreviation of the ETF providers, such as the IS Asia HYG, with IS being iShares; and SPDR being ETFs from State Street Global Advisors, etc. If there is no prefix (such as GLD ETF), a quick Google search will yield who the ETF provider is.

Some ETF providers will have a number of ETFs, while a few only have one so far (e.g. UOB’s UETF SSE50 China).

#2 – Asset Classes and Regions/Countries

The good thing about ETFs is that they allow you to invest in various asset classes, as well as different regions/countries. 

Interested in the United States (U.S.) equities market? There is the SPDR S&P 500 US$ and the XT MSUSA US$, to name a few. 

Want some bonds? We can choose the localised ABF SG Bond ETF or the more international IS Asia BND US$, among others.

REITs? PHIL AP DIV REIT, NikkoAM-STC Asia REIT or LION-PHILIP S-REIT may be your answer. 

If you wish to enter the ASEAN regional market, there is the CIMBASEAN 40 or the ONESTOXXASEAN. 

Commodities wise, we have the GLD ETF.

#3 – Physical and Synthetic ETFs

A physical ETF will hold all, if not most, securities that made up the index that it follows, while a synthetic ETF uses swaps (a form of derivative financial instrument) with a counterparty (usually an investment bank) to track the index.

SGX had labelled synthetic ETFs with a “X@” symbol  (e.g. Lyxor Asia US$, XT MSWorld US$, etc.) for ease of reference. Alternatively, you can visit the ETF provider page to read up the prospectuses for further information.

#4 – Inverse ETFs

There are also inverse ETFs, where if the indices go down, their prices go up, and vice versa. Inverse ETFs are used mainly for speculation and it is not meant for holding it long term. There is an inverse ETF on SGX called the XT S&P 500 – 1x US$ (see Figure 2), and can be found under Leveraged and Inverse Products (Specified Investments Products) in the SGX website.

Fig. 2 – SGX Listed Inverse ETF (as at 7 Sep 2018, 5:06 PM)

#5 – Trading Currency

You may have noticed by now that there are listed ETFs with the same name but different currencies, like the CIMB APAC Div S$D and CIMB APAC Div US$. The S$D and US$, representing Singapore dollars (or SGD) and U.S. dollars respectively, are called trading currencies.

Regardless of whether an ETF can be traded using SGD, USD, Euros or even Yen, all these are of no concern, for the most important part is not the trading currency, but the currency of the securities that make up the ETF. For example, if you have changed some SGD to buy a U.S. Dow Jones Index ETF in Sterling Pounds, the foreign exchange risk is between SGD and USD (which all constituents of the Dow Jones Index are based on), not the SGD – Sterling Pound and the Sterling Pound – USD pairs.

ETFs are great investment vehicles to start off a passive index investment portfolio. In my next blogpost, I will highlight some of the considerations when embarking on one.