Alternatives to STI ETF

[believeinyourself]

Hi all,

I've been lurking on the forum for quite some time and finally decided to open an account.

After reading through countless posts on Money Mind, I've decided not to go for STI ETF. However, I am still interested in having some form of a hedge to SGD. I will be using my CPF-SA and MBH bonds as a hedge towards SGD for retirement.

However, I was wondering are there other suitable alternatives which could be used as an effective hedge against the gradual appreciation of the SGD by MAS? I understand that our currency (SGD) is basically managed in a way that correlates with our major trading partners.

Here is the list of Singapore's major trading partners.

China: US$51.6 billion (13.2% of Singapore’s total exports)
Hong Kong: $44.4 billion (11.4%)
Malaysia: $41.2 billion (10.5%)
United States: $34.4 billion (8.8%)
Indonesia: $27.4 billion (7%)
Japan: $17.6 billion (4.5%)
Taiwan: $16.4 billion (4.2%)
Thailand: $15.4 billion (3.9%)
South Korea: $15.2 billion (3.9%)
Vietnam: $13 billion (3.3%)
India: $11.4 billion (2.9%)
Australia: $11.3 billion (2.9%)
Netherlands: $8.6 billion (2.2%)
Philippines: $8.5 billion (2.2%)
Germany: $5.8 billion (1.5%)

I was wondering would it make sense to replace the STI ETF with either a REIT ETF (CFA or CLR), total China ETF (9169.HK), Asia Pacific ETF (excluding Japan) [9805.HK] or emerging markets ETF (EIMI)?

Here is the article that I have referenced:
fattysfinance.com/2020/02/29/the-bogleheads-three-fund-portfolio-for-singaporeans/

Or would it make sense to just be globally diversified up till 7 / 10 years prior to retirement just as what BBCWatcher suggests? In that case I will just go ahead with investing in VHVE and VFEA for the long term because it has the lowest TER and I trust Vanguard.

Anyone has any views on this?

Thanks in advance!

 

[zoneguard]

1. What are the reasons you ruled out STI ETF (ES3)?
2. 9169.HK , 9805.HK and EIMI are all in USD. Where's the SGD hedge you want?
3. There's a simpler alternative to VHVE/VFEA combo. VWRA.
4. CFA and CLR are all REIT ETFs. While ES3 has a growing component of REITs, they are there due to the increasing market cap of REITs with respect to the components they replaced.
I subscribe to the view REITs and equities are still different as asset classes.

There is OVQ which is in SGD if you really don't want ES3 (for whatever reasons you had) but DYODD for that ETF. It is a smart beta ETF and not really passive.

 

[Kaypohji]

Why no iwda ?

 

[supersnail0]

honestly, dont invest in sg... just see STI market trend for the past 12 years after financial crisis @ 2008. there isnt a clear uptrend. liquidity is also not as good as others. U want asian market HK, if not US.

 

[believeinyourself]

1. What are the reasons you ruled out STI ETF (ES3)?
2. 9169.HK , 9805.HK and EIMI are all in USD. Where's the SGD hedge you want?
3. There's a simpler alternative to VHVE/VFEA combo. VWRA.
4. CFA and CLR are all REIT ETFs. While ES3 has a growing component of REITs, they are there due to the increasing market cap of REITs with respect to the components they replaced.
I subscribe to the view REITs and equities are still different as asset classes.

There is OVQ which is in SGD if you really don't want ES3 (for whatever reasons you had) but DYODD for that ETF. It is a smart beta ETF and not really passive.

Hi zoneguard, here are my replies:

(1)

I am convinced by the posts by both BBCWatcher and w1rbelw1nd from both "Shiny Things Fan Club" and "BBCWatcher Fan Club" threads. Singapore is about 0.5% or 1% in a globally diversified index fund (e.g. VWRA) and if one wants to be truly passive with no home bias, then one should avoid getting ES3.

I also looked at the historical returns on portfoliovisualizer, comparing EWS (a US-listed alternative to ES3) and VWO (US-listed emerging markets ETF to EIMI). They do seem to follow a similar trend.

I am also quite convinced by the arguments made by Mr Loo from 1M65. Here is his article: singsaver.com.sg/blog/singapore-sti-bad-passive-investment-strategy

My original intention was to get ES3 just for the sake of having some form of a currency hedge by using my SRS funds (via OCBC BCIP), following the strategy recommended by tangent314 and firepathlion.

As what BBCWatcher mentioned in one of his posts, I am also quite skeptical of the future of ES3. Unlike many other stock exchanges, SGX hasn't been getting the up-and-coming companies of the future and most of the stocks in ES3 are blue-chip / dividend-play stocks without much growth potential. If the best we can do in Singapore is to rely on dividends, would it make more sense then to go for a REIT ETF instead?

I think it is a sector specific bet (REIT ETFs) in particular, but I think ES3 is also more or less a similar sector specific bet (real estate and financials).

(2)

The idea of the hedge is to bet on the growth of our biggest trading partners instead. I understand that MAS adopts a gradual appreciation of the SGD with respect to the currencies of our major trading partners so as to control both imported inflation (since we as a country import almost everything) and the competitiveness of our exports (since we are an export-oriented economy).

As such, I believe that keeping primarily SGD-based assets (as in ES3) will be more or less having the same currency exposure as the assets based in the currencies of our major trading partners. Of course, our major trading partners may change dramatically someday, but that is unlikely to happen that quickly and if that happens we can adjust our allocation accordingly.

(3)

Yes, I am aware of this option. I am trying to minimize my TER and I wouldn't mind doing the annual re-balancing between developed markets (VHVE) and emerging markets (EIMI) on my own.

(4)

That's true. I went over most threads in bogleheads.org and it seems like a rough guide to REIT allocation is at most about 10%. That corresponds roughly to the 10% ES3 allocation suggested by firepathlion and 0% to 20% ES3 allocation suggested by BBCWatcher.

I guess going with a REIT ETF might be less diversified and am leaning towards either an Asia Pacific (ex-japan) ETF or a Total China ETF.

(5)

Thanks for the suggestion! That looks interesting but I would like to go for a purely indexed option if possible (non-smart beta)

 

[believeinyourself]

Why no iwda ?

(1)
I trust Vanguard more for their reputation. They are the only provider out of the 3 mainstream ones (i.e., Vanguard, BlackRock, State Street) to have never closed down an ETF before in their entire history.

(2)
They have a history and track record of reducing the TER of their funds over time. State Street and BlackRock introduced new versions of their funds with lower TER while leaving investors in their previous funds stuck with higher TER. For your reading pleasure: blog.wealthfront.com/avoid-blackrock-etfs/

(3)
BlackRock is the largest asset manager in the world, followed by Vanguard and then State Street. Vanguard tends to get a majority of their funds from retail investors while BlackRock tends to focus on institutional funds. Not so sure about State Street.

This point is entirely subjective though. If you go over Vanguard's website across various countries as compared to BlackRock or State Street, I feel that Vanguard tends to care more for their investors holistically.

First, there's the whole bogleheads.org forum and various books from John Bogle which I have read about financial planning.

Second, notice that Vanguard tends to publish lots of educational material. For example: vanguardinvestments.com.au/retail/ret/investor-resources/learning/plainTalk-library.jsp

Another example on Lump Sum Investing versus Dollar-Cost Averaging: personal.vanguard.com/pdf/ISGDCA.pdf

I don't think I've been introduced to a resource provided by BlackRock or State Street so far. Though if anyone has book/article recommendations, I would be happy to go over them.

Lastly, Vanguard seems to have a big following globally. Just look at Reddit. Lots of people are recommending Vanguard. Warren Buffet recommended Vanguard's SP500 too.

I think Vanguard's ETFs have low AUM in Europe primarily because it entered that market late. Given the tax situation in most European countries, accumulating ETFs are recommended over distributing ETFs. Vanguard only started their accumulating versions in Europe in 2019. BlackRock started way back in 2009 (for IWDA) so that's a HUGE first-mover advantage in Europe. I have a lot of faith in Vanguard and I am sure that their funds will grow to a large enough size over time.

Look at VWRA in particular. I was introduced in July 2019 and it already has an AUM of USD$901 million (less than a year). Vanguard pools it's accumulating and distributing funds together so that's a USD$5.3 billion ETF.

(4)
VHVE/VFEA and VWRA follows FTSE indices while IWDA/EIMI and SWRD/EIMI follows MSCI indices. FTSE global index capture a larger share of the entire global market capitalization (large/mid caps) as compared to the MSCI index. I am all for diversification so that is a plus.

For more reading: justetf.com/uk/news/etf/msci-vs-ftse-which-etf-provider-is-the-best-index-provider.html

(5)
VHVE has a TER of 0.12 which is lower than that of IWDA with a TER of 0.2. Yes, VHVE has a much smaller AUM but it is lumped together with VDEV (distributing version of VHVE) which has over US$500 million in assets. According to ShinyThing's classification, this ETF has more than US$300 million in assets plus it's Vanguard so it's unlikely to close down.

Sure, it is less liquid so there is a larger bid-ask spread. But that is a one-time cost and I will only traverse the bid-ask spread twice (once when buying and another time when selling during retirement) so that's not a big deal.

Also, if you want the exact same thing as IWDA but with lower TER, go for SWRD. It was introduced last year and will grow in time and is already relatively large (almost USD$200 million in AUM).

(6)

BlackRock's IWDA carries out much more securities lending than Vanguard's VWRA/VHVE/VFEA. I am not entirely sure how much risk there is in doing that, but IWDA buyer's only get a small share of the profits (approx. a 0.03 reduction in TER I believe). On the other hand, Vanguard does minimal securities lending for the sake of efficient portfolio allocation purposes.

SWRD does not do any securities lending by the way.

 

[believeinyourself]

honestly, dont invest in sg... just see STI market trend for the past 12 years after financial crisis @ 2008. there isnt a clear uptrend. liquidity is also not as good as others. U want asian market HK, if not US.

Hi supersnail0,

Yes, I am aware of that too. I am not venturing into individual stocks so I think liquidity shouldn't be too big of an issue.

I have sufficient US exposure with VHVE/VFEA so I wouldn't want to overweight the US. I am considering having a very small bit of "home/regional bias" and am not sure if allocating 10% of my portfolio to the HK (Hang Seng Index), a Total China ETF or an Asia Pacific ETF makes sense.

Ideally I would like to use my SRS funds for implementing this small tilt to Singapore/our region but our options are really limited unfortunately...

 

[Kaypohji]

You have similar plans as me.

I’m intending to use SRS for STI ETF but this is going to be a very small portion of my portfolio. Like 10% only.

Currently my sti etf is at posb invest saver. Gonna stop it soon after their multiplier account interest rate stop taking this into consideration then I’m gonna shift it to SRS

I am still thinking to get iwda or the alternative u recommended or just a pure S&P 500 etf coupled with an Asian market focus etf like the ones u mentioned.

I started a thread asking about China etf but I think looking at whole Asia seems safer

 

[zoneguard]

I think it is a sector specific bet (REIT ETFs) in particular, but I think ES3 is also more or less a similar sector specific bet (real estate and financials).

Fair point on ES3 being a sector specific bet based on it being overweight on financials and real estate. BUT why did you deliberately exclude financials when you replaced it with a REIT ETF? There are also other counters in ES3 and you lose the diversification when you replace it with a REIT ETF.

(3)

Yes, I am aware of this option. I am trying to minimize my TER and I wouldn't mind doing the annual re-balancing between developed markets (VHVE) and emerging markets (EIMI) on my own.

Then you incur twice the brokerage fees.
Are you sure that's a reasonable trade-off for the expense ratio improvement? And you need to monitor the developed market/emerging market market caps which may change over time. Is the trouble worth it? BTW what's the trading volumes of VHVE compared to VWRA?

Anyway I've read your responses to the others and they sound reasonable and you've obviously thought things through, done a fair bit of ground work and know what you want.
So good luck in your investments!

 

[believeinyourself]

You have similar plans as me.

I’m intending to use SRS for STI ETF but this is going to be a very small portion of my portfolio. Like 10% only.

Currently my sti etf is at posb invest saver. Gonna stop it soon after their multiplier account interest rate stop taking this into consideration then I’m gonna shift it to SRS

I am still thinking to get iwda or the alternative u recommended or just a pure S&P 500 etf coupled with an Asian market focus etf like the ones u mentioned.

I started a thread asking about China etf but I think looking at whole Asia seems safer

Hey Kaypohji,

I think sticking with globally diversified index funds would be better. The other alternative would be to "build" your own globally diversified index fund like what w1rbelw1nd did. I recall which post but I believe it was in one of the threads in "Shiny Thing's Fan Club". He basically picked 6 or 7 ETFs so as to minimize TER below 0.12.

But at that point I think even if he uses IBKR, the commissions and effort probably outweighs the TER savings.

That is a whole lot of work though and I would rather slide and dice only to the current extent. Of course, if you don't want to bother at all with slicing and dicing, VWRA is the answer. And if Vanguard were to ever introduce their target retirement funds to us, then we can forget about rebalancing with bonds too, just get that.

I am equally as confused as to what other options we have for some asset more closely related to SGD besides ES3. Actually on hindsight, I'm slanting away from the Asia Pacific ETFs / China ETFs and more towards CPF-SA.

I am quite skeptical about whether ES3 can actually beat CPF-SA's 4%. Only downside of this strategy is of course your money is locked up in CPF and it is subject to a little bit of policy risk (in my opinion is a very low risk since if CPF chooses to cut rates, we probably have more problems worry about).

 

[reddevil0728]

(1)
I trust Vanguard more for their reputation. They are the only provider out of the 3 mainstream ones (i.e., Vanguard, BlackRock, State Street) to have never closed down an ETF before in their entire history.

never have doesn't mean never will though.

 

[reddevil0728]

You have similar plans as me.

I’m intending to use SRS for STI ETF but this is going to be a very small portion of my portfolio. Like 10% only.

Currently my sti etf is at posb invest saver. Gonna stop it soon after their multiplier account interest rate stop taking this into consideration then I’m gonna shift it to SRS

I am still thinking to get iwda or the alternative u recommended or just a pure S&P 500 etf coupled with an Asian market focus etf like the ones u mentioned.

I started a thread asking about China etf but I think looking at whole Asia seems safer

which platform allows to use SRS for STI ETF (ES3/G3B) for RSP?

 

[believeinyourself]

Fair point on ES3 being a sector specific bet based on it being overweight on financials and real estate. BUT why did you deliberately exclude financials when you replaced it with a REIT ETF? There are also other counters in ES3 and you lose the diversification when you replace it with a REIT ETF.



Then you incur twice the brokerage fees.
Are you sure that's a reasonable trade-off for the expense ratio improvement? And you need to monitor the developed market/emerging market market caps which may change over time. Is the trouble worth it? BTW what's the trading volumes of VHVE compared to VWRA?

Anyway I've read your responses to the others and they sound reasonable and you've obviously thought things through, done a fair bit of ground work and know what you want.
So good luck in your investments!

(1)

Honestly, I am conflicted about being less diversified. However, I looked over the other components (not the big 3 banks, not REIT/real estate) in ES3 and I am really skeptical about their future outlook. Of course, there is some chance that new counters will appear in ES3 in the future and they improve the performance of ES3 as a whole. I have a strong feeling that the new counters appearing in ES3 will continue to be REITs going forward into the future.

I've read this book called the "Dhandho Investor" and my main takeaway from that book is to find a strategy where "Heads I win; tails, I don't lose much". To begin with, I am not staking a huge portion of my portfolio on ES3/its replacement (at most 10%). So even if I were to lose it all, it isn't that big of a deal as I have my globally diversified core portfolio to rely on and I (hopefully) have a full CPF-SA balance by the time I hit 30/early 30s to be set for retirement.

If I were to go down that route, I would probably go with a REIT-ETF and one of the 3 big banks (Probably DBS since if one doesn't do well, the others probably won't too and DBS in my opinion is much safer than the other banks given that it owns POSB (almost everyone in Singapore has an account with them)).

Basically the question I have for myself now is --> is there an asset in Singapore which has a relatively high probability of compounding by more than 4% annually (after accounting for all costs) besides CPF-SA?

Read this article that even investing in DBS (beginning from the year 2000) gives about 2.5% (investmentstab.blogspot.com/2020/06/if-you-invested-right-after-dbss-ipo.html).

Do you have any ideas? If you do maintain a SGD-hedge, how do you do it?

(2)

I plan to maintain an asset ratio of about 90% VHVE and 10% VFEA. I think that's the market split right now. It isn't that hard to figure this out by comparing the asset allocations of VWRA against that of VHVE and VFEA. Monitoring this annually shouldn't be too big of a hassle in my opinion.

With a USD$100k portfolio, I save about USD$1,000 (~ SGD$1.4k) per year [0.22 TER versus approx 0.12/0.13 TER]. Personally I think my eventual portfolio size by the time I hit retirement in about 40 years should be at the very least USD$200k/USD$300k. So even if we were to ignore compounding and assume that I have a USD$100k portfolio today and hold for 40 years, I save USD$40k (~ SGD$56k). In my opinion, I think saving SGD$56k is worth the minor hassle.

On the subject of re-balancing, I think the general guideline is to rebalance annually if the deviation from your ideal allocation is somewhat significant (e.g., 90% and 10% to something like 95% to 5% or 85% to 15%).

My plan is to keep buying VHVE till I reach USD$100k and then switch to pure Interactive Brokers since I am using a white label right now. It costs about SGD$2.50 for each transaction by then.

VHVE's volume is pretty low (~1.5k average daily) as compared to VWRA's volume (~18k average daily). But I think the only issue is bid-ask spreads. For reading: vanguardinvestments.dk/documents/understanding-etf-liquidity.pdf

Plus it's Vanguard so I have a lot more faith in it regardless of it's volume. On top of that, I plan to split my future assets amongst providers to diversify the risks too (i.e., invest first in VHVE/VFEA and then once that gets to a large enough size, start to build another portfolio of equal size with 50% SWRD/EIMI/(and maybe WSML for a bit of small cap exposure).

 

[believeinyourself]

which platform allows to use SRS for STI ETF (ES3/G3B) for RSP?

OCBC's BCIP. You need to have a SRS account with them and a simple deposit account with OCBC (e.g., OCBC's monthly savings account with min. $500 deposit to avoid monthly fees).

"0.3% of the total investment amount or S$5 per counter, whichever is higher." plus $0.37 fee per counter if you use SRS.

If you're below 30 years old then "Flat rate of 0.88% of the total investment amount" plus $0.37 fee per counter if you use SRS.

That's the cheapest possible RSP for SRS. You can use it for CLR (SG-focused REIT ETF) too.

 

[zoneguard]

Do you have any ideas? If you do maintain a SGD-hedge, how do you do it?

I hold ES3.

 

[believeinyourself]

I hold ES3.

Ah I see. Thanks for sharing!

Would love to hear about other strategies from others too!

 

[d5dude]

Bet on the world, dun put huge bets on SG, we are a small and open economy that cannot possibly do well if the rest of the world falters.

Currency volatility is a non-issue as long as you dun have all your eggs in one basket.

 

[Kaypohji]

I’m not looking at a global diversified portfolio...

Just want to concentrate on USA + Asia.
Europe/Australia/Uk etc performances have been nth of impressive.. and if there is a global recession, I don’t think they have any advantage that will make them outperform or a safe heaven.

Even iwda has 50% USA stocks and the MSCI world index Top 10 stocks, 9 r from USA...

I feel if USA has a problem/crisis, it will affect the whole world. But Asia stands a chance to be resilient or be less correlated like China. Just a thinking in general based on news I read. I have no data to prove.

Hence the focus on just USA + Asia. Ignoring other countries

I could be wrong

 

[razoreigns]

I’m not looking at a global diversified portfolio...

Just want to concentrate on USA + Asia.
Europe/Australia/Uk etc performances have been nth of impressive.. and if there is a global recession, I don’t think they have any advantage that will make them outperform or a safe heaven.

Even iwda has 50% USA stocks and the MSCI world index Top 10 stocks, 9 r from USA...

I feel if USA has a problem/crisis, it will affect the whole world. But Asia stands a chance to be resilient or be less correlated like China. Just a thinking in general based on news I read. I have no data to prove.

Hence the focus on just USA + Asia. Ignoring other countries

I could be wrong

If that's how you feel, why not take it a step further and just go USA + China?
In developed world, Japan, Europe is rather stagnant. In EM, do you really need other stuff like Korea, India, Brazil etc?

 

[Kaypohji]

Asia thinking to consist of China, Japan, India, Taiwan and Hong kong(maybe this is under China too), Thailand, etc

just Asia not Brazil those emerging countries etc.

I’ve just went to google and realize Australia haven’t been experiencing recession since 1991... and they r a common country in Asia etf too. So Australia should fit in my objective well.

But most of the Asia etf doesn’t include japan as they r relatively developed... but I hope to include them. And find an etf that is not usd dominated preferably.

My aim is to find something that is not that highly correlated to USA. I’m not looking for all high growth high return countries. Usa will bring me the return I need if the world is to do well... but if USA were to do badly, the Asia etf serves as smth that is not usd dominated and not as highly correlated. And Asia does have potential. So between Asia and Europe/Uk assuming both can serve the purpose of decreasing correlation of portfolio with USA, Asia is a better choice for me as Asia have more potential of growth. And there is a geographical diversification

If anyone know there is an etf on Asia that is not dominated in usd, please feel free to share. I am not sure if I can find one that includes japan and not listed in usd. But basically above is my concept. Just have to find the right vehicle if possible

If that's how you feel, why not take it a step further and just go USA + China?
In developed world, Japan, Europe is rather stagnant. In EM, do you really need other stuff like Korea, India, Brazil etc?