Top 8 ETFs to Invest in Singapore 2018

Serious investors would be familiar with the investment security called ETF, short form for Exchange Traded Funds which have seen tremendous inflows globally. It was first introduced in 1993 and about USD4 trillion are currently invested in various ETFs. ETFs main advantage lies in its low cost structure, broad diversification and liquidity and ease of purchasing and selling, similar to a stock listed on any globally recognized stock exchanges. There are multiple types of ETFs, namely index ETFs, stock ETFs, Bond ETFs and Commodity ETFs. For example index ETF is an investment fund that tracks a specified index maintained by licensed index providers such as S&P or MSCI.

There are around 80 ETFs which falls under the above mentioned categories listed on SGX. We have handpicked the top 8 ETFs that investors can place their investment portfolio funds.

Below is a summary of the 8 ETFs handpicked based on a top down country sector rationale.

Singapore, following an outstanding 2017 3.3% economic growth, would very likely continue its uptrend of clocking another 3% GDP growth for 2018, based on a survey by economists and analysts. Manufacturing, finance and insurance and private consumption is forecasted to performed reasonably well to contribute to the target growth rate for 2018. With oil and gas sector recovering, property sector upswing mode underway and continued low unemployment rate hovering at lows of 2.2%, Singapore’s solid forecasted 2018 economy would translate into higher earnings enjoyed by Singapore companies and public listed stocks.

To get exposure on Singapore’s economic expansion, investors can acquire units in pure play Singapore equity ETF. First up on the list is the SPDR Straits Times Index ETF. The ETF tracks the Straits Times Index, giving investors instant exposure to the top 30 Singaporean blue chip heavyweights such as DBS, UOB and Singtel. Since the Global Financial Crisis in 2008/2009, the index has recovered from a low of about 1700 points to 3307 currently, giving it an effective 8% CAGR over the past 8 years. Investors whom have a long term horizon can participate in the Singapore’s future growth via exposure to these solid corporations.

Investors looking to tap into Singapore’s 2018 growth trajectory can invest in Xtrackers MSCI Singapore UCITS ETF. The index constituents differ slightly compared to STI index and also contains some of the big names in corporate Singapore ie Keppel Corp, Capitaland and Ascendas REIT. This ETF provides a cost effective opportunity for investors to participate in the long term growth of Singapore’s economy.

Japanese economy is forecasted to do well into much of 2018, as recent exports indicator shows which grew 12%. A resurgence of Japan’s economy coupled with loose monetary policy has powered businesses to invest. Labour markets remain strong with unemployment rates hovering at around 3%, and economists are all sanguine about the economic prospects for 2018.

Japanese equities would no doubt continue to perform well on the rise of corporate earnings, and investors can take advantage of ETFs focused on Japan’s corporate sector. One such fund that should be in investor’s portfolio for 2018 is Xtrackers MSCI Japan UCITS ETF. The fund notched a total return of 27% since inception. The Fund tracks MSCI Japan as constructed by index provider MSCI, and has several Japanese blue chip stocks as its index constituents such as Toyota Motor Corp, Sony, Honda and Nintendo. The past 2 years has seen strong flow of funds into Japanese equities on the back of low interest rates and strong exports as highlighted.

U.S. economic prosperity for much of 2017 has captured headlines around the world and lifted US equities. Further growth is anticipated by economists where projected 2018 growth is fixated around 3%. U.S. tax overhaul involving cutting corporate tax rate would stimulate the economy for 2018. Monetary policy has been closely watched and a faster pace of interest rate hikes by US Federal Reserve has sparked a global equties selloff in early February 2018. However, equity markets had since stabilized and recovered strongly and the dip has presented opportunities for cash rich investors to accumulate fundamentally strong US based companies.

Investors locally could participate in the vibrancy of US economy via ETFs that tracks the 3 major stock indices that global investors rely upon. Equities remain the best asset class to compound wealth over longer term. One such ETF that investors can look to accumulate is SPDRs® S&P 500® ETF. S&P 500 index comprises best US corporations that is highly profitable and has rewarded investors with increased dividends. The index constituents must pass stringent qualitative and quantitative criteria before being accepted into the index.

Investor can also look into SPDR® Dow Jones Industrial Average ETF. The Dow Jones Industrial has been the pioneer index tracking 30 US heavyweight corporations such as Microsoft, Amex and Coca-cola. The index is well diversified among different sectors such as technology, consumer staples and oil and gas. Corporate earnings of these largest US corporations will propel share valuations upwards. Investors staying the equity course in the large liquid ETF would be well rewarded.

For investors wishing to go overweight on US technology sector, they can plough their capital into Lyxor ETF Nasdaq-100. The ETF tracks the tech heavy NASDAQ-100 index that contains the all familiar tech corporations such as Apple Inc, Facebook and Alphabet. American tech corporations has been dominating the global internet economy and deriving revenues from across the globe. This ETF is most suitable for the younger generation of investors more familiar with these new economy companies.

Last but not least, Chinese economy has not seen as much glowing coverage as the US economy but could grow another 6.5% in 2018. Pollution crackdown and real estate lending restriction measures have been put in place to ensure economy is on track for sustainable growth going forward. External trade is forecasted to perform well in 2018 as US economy gather momentum.

Leading the pack in terms of China ETF play is United SSE50 China ETF managed by UOB Asset Management. China’s growth as the world’s second largest economy behind US is no accident where it is the culmination of government planning and single pursuit of economic advancement for the betterment of its citizens. The ETF replicates the price performance of SSE50 index where top 50 listed Chinese corporation make up the index components.

Another China based ETF for 2018 that would make a great addition to investor’s portfolio is Xtrackers FTSE China 50 UCITS ETF. It mirrors the index performance of FTSE China 50, where index components include large Chinese State owned enterprise such as China Minsheng Bank, China Construction Bank, Bank of China and BYD. The largest companies in China are going global with operations spanning in various countries.

Conclusion

Investors in these SGX listed ETFs could be well rewarded in the long term due to massive savings in reduced management fees compared to traditional mutual funds. It provides an economical advantage for investors to obtain sector-wide or country-wide diversification. Investors from both the institutional space and retail space are moving into the ETF space in a big way from the record AUM managed by reputable fund managers, the largest being Blackrock and Vanguard. Investors can reap the full benefits of ETFs via holding on to a mid to long term investment horizon.

(By Chee Hoong Chan)

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