One of my friends asked me about the POSB invest-saver to purchase STI ETF (G3B). Indeed, this is one of the best investment programs by making investment starting as little as $100/month. With a low sales charge of 1%, that means $1 only per trade (wow that’s hard to be a sustainable business isn’t it!?). Actually, I wouldn’t be surprised if some platform comes up with 0% trading charges soon to get inflows of money. What’s the difference between making $1 and $0?
If you are new to investing, the STI ETF is likely a good choice as compared to investing in an individual share. With a large fund size (around $570m), it is probably the most liquid/tradable ETF counter listed in Singapore. There are a ton of write-ups on the diversification benefits of STI ETF but I’ll just like to balance the thinking by saying it benefits you to consider investing beyond it.
SPDR Straits Times Index ETF (ES3)
As shown above, the Singapore Index has lagged the performance of other markets and the STI ETF’s performance had not been great over the last 5 years. Its 5year performance is 3.50% p.a and 10y performance is 3.02% p.a. By investing or diversifying to other equity markets and other asset classes, you could have gotten a better return. These are 3 ways:
1) ETFs that is diversified to Asia Ex-Japan
Db x-trackers MSCI AC Asia ex Japan Index UCITS ETF (IH1) is one of a few that has this focus. Its tracks the MSCI AC Asia ex Japan TRN Index which consists of the following 10 developed and emerging market country indices: China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. Do note that this definition does not include Australian equities.
Lyxor Asia ETF (P60) is a worthy mention. It tracks a different MSCI Asia index which includes Australia.
Current performance chart
Current country allocation
2. Unit trust fund that is diversified to Asia Ex-Japan
First state dividend advantage is a highly popular unit trust fund that focuses on Asia Ex-Japan equities. It is actively managed and is currently allocating more towards Indian Equities as shown below. This fund pays out quarterly dividends.
HGIF Asia Ex-Jap Eq Sm Cos SGD AD is a worthy mention as a top performing unit trust fund which focuses on Asian small caps. 5y returns of 15.8% p.a
Current performance chart
Current country allocation
3. Unit trust bond fund investing in high yield bonds
Fidelity Asian High Yield SGD (Hedged) is a top performing Asian High Yield bond fund with a lower annual management charge of only 1%. Hedged means that while most bond holdings are in USD, this fund does not suffer FX volatility to you. The definition of a high yield bond is a high paying bond with a lower credit rating than investment-grade corporate bonds. This means higher default risk. Majority of the holdings are in the B and BB ratings but the fund is highly diversified with China, Indonesia and India being the top allocations.
It had delivered a superior 5yr performance thus far and has a lower volatility in comparison to the STI ETF. Adding such a fund makes sense for asset diversification to a portfolio. Fund pays out monthly dividends.
United Asian High Yield Fund is a worthy mention in the similar space with a 3y record of 13.3%p.a
Current performance chart
Bond credit allocation
Further comments
This blog post is to highlight the alternatives that are working well in the current investment choices. The suggestions mentioned cover only a few possibilities for diversifying. There seems to be a lot of interest to buy the STI ETF but a proper portfolio should have more than just that.
