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Despite its small size, Singapore has one of the world’s strongest economies. According to the World Bank Group, our GDP per capita, measured in purchasing power parity (PPP), is approximately US$141,500, ranking it amongst the highest globally and highlighting our robust economic position. Singapore’s stability and renowned connectivity make it an attractive destination for businesses and investors.
For those looking to participate in Singapore’s economic growth, one easy way is via investing in its companies.
Growing up in Singapore, I’ve always considered the Singapore Exchange (SGX) as the primary platform for investing.
As Singapore’s primary exchange, the SGX plays a crucial role in maintaining Singapore’s position as a well-connected global financial hub. On the SGX, we can invest in some of Singapore’s top companies, including the three local banks—DBS, OCBC, and UOB—and other established firms like Singtel, Singapore Airlines and many more. According to the SGX’s Market Statistic Report for June 2024, there are 623 listed securities on SGX, with a total market capitalisation of S$792 billion.
Investing In Singapore Companies & Securities Via ETFs
If you are based in Singapore, the SGX is an ideal platform for starting your investment journey. However, if you are new to investing, the vast number of companies listed on the SGX can be overwhelming, and it can be challenging to decide which ones to invest in.
To simplify this, Exchange Traded Funds (ETFs) offer a practical entry point. ETFs are collections of securities traded on an exchange, designed to track the performance of specific indexes. By investing in a single ETF, investors gain exposure to a broad range of assets, reducing the risk associated with individual investments. ETF managers handle the portfolio management, including rebalancing to align with the tracked index, allowing investors to participate in the market without needing to constantly monitor and manage their investments.
In this article, we will highlight four ETFs available on the SGX that can provide exposure to various segments of Singapore’s economy, allowing us to benefit from the growth and stability that Singapore’s economy offers.
#1 Nikko AM Singapore STI ETF
One of the most popular ETFs on the SGX is the Nikko AM Singapore STI ETF (SGX: G3B). This ETF provides investors with exposure to the Straits Times Index (STI), which tracks the performance of the top 30 companies listed on the SGX by market capitalisation.
In other words, by investing in the Nikko AM Singapore STI ETF, you will be investing in the top 30 largest companies listed in Singapore by market capitalisation. This ETF provides you with a good representation of major companies in Singapore’s economy.
Source: Nikko AM, as of 30 June 2024
Based on their June 2024 Factsheet (as of 30 June 2024), the Nikko AM Singapore STI ETF has a significant weighting towards the financial sector, particularly the “Big Three” banks—DBS, UOB, and OCBC—which together make up over 50% of the ETF’s holdings. This is because these banks are among the largest companies in Singapore. The next most significant sectors in the ETF are Real Estate (16.5%) and Industrials (15.5%), providing exposure to stable and mature companies known for consistent dividend payments.
Launched in February 2009, the ETF pays distributions semi-annually* and has a Total Expense Ratio (TER) of 0.29% per annum. It has achieved an annualized total return of 8.06%** since its inception, based on the June 2024 Factsheet, making it a popular choice for investors seeking diversified exposure to Singapore’s economy.
#2 NikkoAM-StraitsTrading Asia ex Japan REIT ETF
Real Estate Investment Trusts (REITs) are a popular investment option in Singapore, which has become the largest REIT market in Asia outside of Japan. As an asset class, REITs are required to distribute 90% of their earnings to unitholders, making them attractive to income-seeking investors looking for high yields (source:?).
Instead of selecting individual REITs, an easier way to gain diversified exposure to this asset class is through a REIT ETF, such as the NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX: CFA/COI). This ETF is traded in both Singapore Dollars (SGX: CFA) and US Dollars (SGX: COI) and aims to replicate the performance of the FTSE EPRA Nareit Asia ex Japan REITS 10% Capped Index, which tracks the performance of REITs in both developed and emerging markets in Asia ex Japan.
By investing in the NikkoAM-StraitsTrading Asia ex Japan REIT ETF, you gain exposure to many of the top REITs in Singapore, including CapitaLand Integrated Commercial Trust and CapitaLand Ascendas REIT. Beyond just Singapore, you also get exposure to other major REIT markets across Asia, including Hong Kong and India, with investments in REITs like Link Real Estate Investment Trust (based in Hong Kong) and Embassy Office Parks REIT (based in India).
Source: Nikko AM, as of 30 June 2024
Based on their June 2024 Factsheet, we can see that Singapore has the highest weightage within the ETF at about 70%. The ETF also has significant holdings in Hong Kong (12.2%) and India (9.5%).
The main sectors covered are Retail REITs (36.5%), Industrial REITs (29.3%), and Office REITs (14.4%). Listed since March 2017, the ETF has earned an annualised total return of 0.58%** since inception.
#3 ABF Singapore Bond Index Fund
While many investors focus on equities for their potential to generate high returns, it’s crucial to also consider the role of fixed income instruments like bonds in a portfolio. Bonds may provide stable, passive income and often have an inverse correlation with stocks. This means including stocks and bonds in a portfolio may reduce overall risk and limit potential losses. The stability and fixed interest payments of bonds may offer a counterbalance to the volatility and potential high returns of stocks, creating a more resilient and balanced investment strategy.
Similar to stocks, we can invest in bonds through ETFs. One such ETF listed on the SGX is the ABF Singapore Bond Index Fund (SGX: A35). This fund provides investors with access to bonds mainly issued by the Singapore government, which holds a AAA credit rating, and quasi-Singapore government entities ensuring these bonds are safe and creditworthy in terms of default risk. By investing in the ABF Singapore Bond Index Fund, you are essentially investing in secure bonds mainly issued by the Singapore government, supported by a stable and strong Singapore Dollar (SGD).
Source: Nikko AM, as of 30 June 2024
As we can see from their June 2024 Factsheet, the top 10 ETF holdings consist of only high-quality government bonds, which are considered low-risk investments. This makes the ABF Singapore Bond Index Fund an attractive option for investors seeking stability and predictable income in their portfolios.
#4 Nikko AM SGD Investment Grade Corporate Bond ETF
If we want higher returns from our bond investments, we can also consider investing in high quality corporate bonds through the Nikko AM SGD Investment Grade Corporate Bond ETF (SGX: MBH). This ETF closely tracks the iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index.
By investing in the Nikko AM SGD Investment Grade Corporate Bond ETF, we would invest in investment grade bonds issued by high quality entities such as Temasek, DBS, HSBC, NTUC Income and UOB. The average credit rating for the fund is A based on their June 2024 Factsheet.
Source: Nikko AM, as of 30 June 2024
The Nikko AM SGD Investment Grade Corporate Bond ETF is attractive to investors looking for stable returns and lower risk, as it focuses on investment-grade bonds from financially strong and stable companies. The semi-annual distributions* provide regular income, appealing to those seeking a steady cash flow. Additionally, the ETF’s diversification across various sectors and issuers may help to mitigate risk, as it is not overly dependent on any single entity or sector.
Read Also: 3 Reasons To Add Bond Exposure To Your Investment Portfolio
Expanding Your Investment Horizons In Singapore Through ETFs
The rise of ETFs as a popular investment tool globally may also be reflected in Singapore. Unlike individual company shares that require buying in lots of 100, SGX-listed ETFs can be purchased with just one share, making them highly accessible. This feature makes ETFs an excellent choice for building diversified portfolios, particularly for new investors.
ETFs like the ABF Singapore Bond Index Fund, Nikko AM SGD Investment Grade Corporate Bond ETF, Nikko AM Singapore STI ETF, and NikkoAM-StraitsTrading Asia ex Japan REIT ETF provide investors with broad-based exposure to Singapore’s economic growth and stability. These ETFs offer a mix of government bonds, corporate bonds, equities, and REITs, enabling investors to benefit from the stability of government bonds, the creditworthiness of high-quality corporate bonds, and the growth potential of leading Singaporean companies and real estate assets.
However, investors should be aware of key risks and considerations associated with these ETFs. Market volatility can cause significant price fluctuations in equities and REITs while interest rate changes can lead to capital losses in bond ETFs. Also, while diversification reduces risk, it doesn’t eliminate it; sector-specific or economic downturns can still impact performance.
With the diverse offerings of these ETFs, investors can come together as one to participate in the growth story of Singapore’s economy, benefiting from the collective strength of multiple sectors and asset classes.
Read Also: Why Regular Savings Plans (RSP) Makes Sense If You Are Starting Your Investment Journey In 2024
* Distributions are not guaranteed and are at the absolute discretion of the Manager. Any distribution is expected to result in an immediate reduction of Fund’s NAV. Distributions may be paid out of capital which will result in capital erosion and reduction in the Fund’s NAV, which will be reflected in the redemption price of the Units.
**As of 30 June 2024. Returns are calculated on a NAV-NAV basis and assuming all dividends and distributions are reinvested, if any. Past performance is not necessarily indicative of future performance.
Important Information by Nikko Asset Management Asia Limited:
This document is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in funds are not deposits in, obligations of, or guaranteed or insured by Nikko Asset Management Asia Limited (“Nikko AM Asia”).
Past performance or any prediction, projection or forecast is not indicative of future performance. The Fund or any underlying fund may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the Fund are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus (including the risk warnings) and product highlights sheet of the Fund, which are available and may be obtained from appointed distributors of Nikko AM Asia or our website (www.nikkoam.com.sg) before deciding whether to invest in the Fund.
The information contained herein may not be copied, reproduced or redistributed without the express consent of Nikko AM Asia. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, Nikko AM Asia does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. Nikko AM Asia accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document. This advertisement has not been reviewed by the Monetary Authority of Singapore.
The performance of the ETF’s price on the Singapore Exchange Securities Trading Limited (“SGX-ST”) may be different from the net asset value per unit of the ETF. The ETF may also be suspended or delisted from the SGX-ST. Listing of the units does not guarantee a liquid market for the units. Investors should note that the ETF differs from a typical unit trust and units may only be created or redeemed directly by a participating dealer in large creation or redemption units.
The Central Provident Fund (“CPF”) Ordinary Account (“OA”) interest rate is the legislated minimum 2.5% per annum, or the 3-month average of major local banks’ interest rates, whichever is higher, reviewed quarterly. The interest rate for Special Account (“SA”) is currently 4% per annum or the 12-month average yield of 10-year Singapore Government Securities plus 1%, whichever is higher, reviewed quarterly. Only monies in excess of $20,000 in OA and $40,000 in SA can be invested under the CPF Investment Scheme (“CPFIS”). Please refer to the website of the CPF Board for further information. Investors should note that the applicable interest rates for the CPF accounts and the terms of CPFIS may be varied by the CPF Board from time to time.
Neither Markit, its Affiliates or any third party data provider makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. Neither Markit, its Affiliates nor any data provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the Markit data, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. Markit has no obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. Without limiting the foregoing, Markit, its Affiliates, or any third party data provider shall have no liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein. Copyright © 2023, Markit Indices Limited.
The Markit iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index are marks of Markit Indices Lmited and have been licensed for use by Nikko Asset Management Asia Limited. The Markit iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index referenced herein is the property of Markit Indices Limited and is used under license. The Nikko AM SGD Investment Grade Corporate Bond ETF is not sponsored, endorsed, or promoted by Markit Indices Limited.
The units of Nikko AM Singapore STI ETF are not in any way sponsored, endorsed, sold or promoted by FTSE International Limited (“FTSE”), the London Stock Exchange Plc (the “Exchange”), The Financial Times Limited (“FT”) SPH Data Services Pte Ltd (“SPH”) or Singapore Press Holdings Ltd (“SGP”) (collectively, the “Licensor Parties”) and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Straits Times Index (“Index”) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. None of the Licensor Parties shall be under any obligation to advise any person of any error therein. “FTSE®”, “FT-SE®” are trade marks of the Exchange and the FT and are used by FTSE under license. “STI” and “Straits Times Index” are trade marks of SPH and are used by FTSE under licence. All intellectual property rights in the ST index vest in SPH and SGP.
The NikkoAM-StraitsTrading Asia ex Japan REIT ETF (the “Fund”) has been developed solely by Nikko Asset Management Asia Limited. The Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings, including FTSE International Limited (collectively, the “LSE Group”), European Public Real Estate Association (“EPRA”), or the National Association of Real Estate Investments Trusts (“Nareit”) (and together the “Licensor Parties”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in FTSE EPRA Nareit Asia ex Japan REITs 10% Capped Index (the “Index”) vest in the Licensor Parties. “FTSE®” and “FTSE Russell®” are a trade mark(s) of the relevant LSE Group company and are used by any other LSE Group company under license. “Nareit®” is a trade mark of Nareit, “EPRA®” is a trade mark of EPRA and all are used by the LSE Group under license. The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The Licensor Parties do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. The Licensor Parties makes no claim, prediction, warranty or representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Nikko Asset Management Limited.
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