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Exchange-Traded Funds or ETFs are baskets of stocks that can be bought and sold on the stock market. Diversifying one’s portfolio is essential to minimize risk, but it also comes with high trade fees, which might put off some investors. An increasingly popular choice is investing in ETFs because they offer greater diversity, lower costs and better returns than conventional funds.
Online brokerage
The first way to invest in ETFs is through any online brokerage account between you and your bank. Before opening an account, make sure you understand precisely how much you will need to pay for each buy or sell order based on the number of units traded; brokerage fees vary across platforms, so do your research first! For example, Phillip Securities charges $ 25 plus 0.15% per trade, but you will need to pay $10 for each buy and sell order as a stamp duty fee. Once you open an account with the brokerage service of your choice, it is time to choose your ETFs.
Two choices exist:
・Listed Index Tracking ETFs
・Exchange Traded Managed Funds
Most of Singapore’s ETFs are Listed Index Tracking funds or passive funds that replicate either a stock or an index. It means that the fund’s price tracks precisely what is in its basket—if Apple goes up by 5%, then so does this Exchange Traded Fund (ETF). The benefit is fewer transaction costs because they are not actively managed. To find out what you are getting in your basket, check the fund’s Statement of Additional Information or SAI.
Most of Singapore’s ETFs are Listed Index Tracking funds or passive funds that replicate either a stock or an index. It means that the fund’s price tracks precisely what is in its basket—if Apple goes up by 5%, then so does this Exchange Traded Fund (ETF). The benefit is fewer transaction costs because they are not actively managed. To find out what you are getting in your basket, check the fund’s Statement of Additional Information or SAI.
Exchange-Traded Managed Funds (EFM) track indexes, but they use professional managers to pick stocks and adjust them according to the fund’s theme—this is known as active management. If you consider an Exchange Traded Managed Fund, look at its track record to see its performance compared with the index over time. Ensure that there is no overlap between the stocks you hold already and those which the EFM holds; this reduces diversification of your portfolio and increases risk.
Some Singaporean equity ETFs include:
・iShares MSCI Singapore (SGX: A35)
It’s one of Asia’s largest stock market ETFs consisting only of local companies on SGX. They do not charge any brokerage fees, but they have a minimum investment requirement of $ 10,000.
・UOB Kay Hian Listed Index Fund (SGX: KC35U)
This fund invests in a diversified portfolio of 30 large and mid-cap listed companies on SGX. It tracks the UBS Global Unconstrained Bond Index, consisting of 25% bonds and 75% stocks worldwide. They charge a brokerage fee of 0.20%, with a minimum purchase of 1000 units. Their annual expense ratio is 0.99%. Akshay Mehra manages it with 16 years of experience in the financial services industry.
The three most popular ETFs for investors new to international equity are:
Listed on Singapore Exchange (SGX):
iShares MSCI Emerging Markets Minimum Volatility (EEMV), while they charge a brokerage fee, has a minimum investment requirement of only S$ 1000.
Listed on the London Stock Exchange (LSE):
iShares Core MSCI World ETF invests in stocks from developed markets outside the US. The downside is that they have a 0.50% annual expense ratio and a minimum purchase of £30,000 ($45,000).
Listed on the New York Stock Exchange (NYSE):
iShares Core US Aggregate Bond ETF tracks US bonds and has minimal fees at an annual expense ratio of 0.20%. Their minimum investment is $3000.
These are just five examples of how you can invest in ETFs; there are many more available to cater to all different risk profiles.
Check out Saxo trader today to find out more about ETFs.
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