A new ETF, the Lion-OCBC Securities Singapore Low Carbon ETF (Lion-OCBC Low Carbon ETF) will be listed on the local Singapore Exchange on 28 Apr 2022. The investment objective of the ETF is to replicate the performance of the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index (the Index). The Index, in turn, tracks the top 50 companies representative of Singapore with a focus on index decarbonisation, which is achieved by the selection of constituents with minimal involvement in fossil fuels and through the implementation of the Carbon Performance Exclusion Criteria.
I had gathered the above information from the brochure of the said ETF. Though it is a mouthful, in short it is an ETF that tracks the top 50 Singapore-based companies with low carbon footprint (my take).
Here is a summary of the details on the Lion-OCBC Low Carbon ETF:
Initial Offer Period | 11 to 22 April 2022 |
Issue Price | SGD 1.00 per unit |
Trading Currency | SGD, USD |
Management Fee | 0.40% per annum |
Total Expense Ratio | Capped at 0.45% per annum for the first two years from the inception of the fund |
Dividend Policy | Semi-annual distribution at the discretion of the Fund Manager (June and December) |
Replication Strategy | Direct Replication or Representative Sampling |
Sector Breakdown (based on the Index as at 31 March 2022) | Real Estate 28% Financials 25.9% Technology 14.3% Industrials 8.4% Telecommunications 8.2% Consumer Discretionary 5.8% Consumer Staples 4.9% Energy 3.8% Health Care 0.4% Basic Materials 0.3% |
The Bedokian’s Take
The “going green” movement has been accelerating in the past few years due to the awareness and urgency of countering climate change, and it has permeated into the investment front. The Lion-OCBC Low Carbon ETF is one financial product that caters to investors who are environmentally conscious.
Going green aside, if we look at the ETF and Index objectively, it is a very diversified mix. Using the mainstream Strait Times Index (STI) for comparison, the Index’s make-up of banks (21.4%) is lower than STI’s 45.9%1, and it also includes overseas-listed Singapore-based companies like Sea Limited, Kulicke & Soffa Industries, Flex Limited, etc. The weightage of each company in the Index does not go above 10%, which I like.
Looking at the ETF’s total expense ratio (TER), it is capped at 0.45% for at least the first two years of the launch of the ETF. This meant that the TER may go above that number after two years. Even at the ETF’s base TER, it is higher than the other two ETFs that follow the STI (ES3 and G3B, both with a TER of 0.3%). Still, as I had reiterated before, TER should never be the only deciding factor in the selection of ETFs; if the additional 0.15% (or more) is justified for the increased diversification, exposure to other companies, etc., it is reasonable to me.
Last but not least, the issue of dividends. I could not find any dividend yield information on the Lion-OCBC Low Carbon ETF, so using the Index constituents’ forward dividend yield numbers from Yahoo Finance as of 16 Apr 2022, it worked out to be around 4.2%, which is pretty decent.
In conclusion, the Lion-OCBC Low Carbon ETF is more diversified in terms of sectors of the Singapore economy and it covered the niche areas not found in the STI. In fact, I would call this ETF and Index “STI-plus”, since a number of companies in the STI are also in the Index. Going forward, I would pay attention to the ETF’s take-up rate by investors, for this would be indicative of its fund size and eventually its liquidity in the market and possible reduction of TER through economies of scale.
I am likely subscribing to this ETF.
References
ETF Brochure – https://www.lionglobalinvestors.com/en/resources/pdf/reports/brochure.pdf
ETF Prospectus – https://www.lionglobalinvestors.com/en/resources/pdf/reports/prospectus.pdf
1 – Strait Times Index (STI). FTSE Russell Factsheet. 31 Mar 2022. https://research.ftserussell.com/Analytics/FactSheets/temp/b2f26058-e912-4ae7-92c6-1072cccbf292.pdf (accessed 16 Apr 2022)
