Low cost investment funds

Dear Mr Tan,

I've read your blog regularly and you're an advocate of low cost index fund as the primary tool for investments. While the idea it's great in principle, I find the lack of index fund products in Singapore to be somewhat inconvenient. Based on my analysis, we only have the following products locally, either through unit trust or traded at SGX:


Singapore Stock
There is only StreetTracks STI ETF and DBS STI ETF. Both track the same index. In my opinion the STI Index is not that well diversified, it only has 30 companies (compare it to S&P 500) and it comprises only of large cap stocks. There is no index fund or ETF that tracks a Singapore small cap index, or even an index that has more companies making up the index (e.g. a Singapore total market index that has small + large cap companies).


Singapore Bond
There is only the ABF Singapore Bond ETF, which is to my knowledge the only passively-managed bond fund in this country. However, the ETF suffers from problems like liquidity, large bid-ask spread and trading prices not tracking its NAV properly. It behaves more like a stock than a bond index fund at times. Considering that it invests only in SGD-denominated government bonds, that shouldn't be the case. As for bond unit trust, most do not invest in local bonds and is subjected to currency risk. Bond unit trust also have expense ratios like ~1% which makes extremely unattractive. The last way is to invest in SGS bonds direct, but regularly saving into SGS bonds is difficult as they have fixed issuance dates. To complicate the matter, SGS bonds cannot be bought online (unless you consider FSM secondary SGS bond market).


International Stock
Many of the Lyxor series of ETF which do cover international stocks are usually single country fund and are not a good form of diversification. There are some regional/global ETFs, but the whole range of Lyxor ETFs suffer from liquidity problems too. There is only 3 unit trust that are passively managed, and those are the Lion Capital Infinity series that are feeder funds into Vanguard index funds. However, Lion Capital slaps a 1% management fee just for feeding money into Vanguard index funds... real easy money for Lion Capital for just doing almost zero work!


I was hoping if you could comment on this in your blog one day. It certainly would help if we had more good index fund based products in Singapore.


Garrett
 
My comment
Read my book, Practical Guide on Financial Planning available at www.easysearch.sg/ishop

Some people commented about the lack of liquidity of the STI ETF. This should not be of concern to the long term investor. The ETF manager will create more units to meet demand. The ETF is not suitable for short term trading, but is suitable for long term investing. Just place your order at the price indicated by the index and wait for someone to sell the units to you. Be patient.