Thanks to their lower fees, diversification benefits and ease of trading, exchange-traded funds (ETFs) have gained immense popularity. ETFs are investment funds traded on stock exchanges, exposing investors to a diversified portfolio of assets, including stocks, bonds, and commodities. They offer an efficient way for individuals to invest in a wide range of underlying assets without purchasing them individually. While ETFs are available in numerous markets worldwide, Singapore also has a burgeoning ETF market with various options for investors.
There are various types of ETFs available in Singapore that cater to different investment objectives and risk appetites. This article will discuss the main types of ETFs available in Singapore and why investors should consider including them in their portfolios.
Equity or stock ETFs are the most common type available in Singapore. These funds track a specific stock market index, such as the Straits Times Index (STI) or MSCI Singapore Index, and aim to replicate its performance. Investors can gain exposure to diverse stocks by investing in equity ETFs without purchasing each stock individually. This type of ETF is suitable for investors seeking to invest in a specific market or sector, as it provides instant diversification and lower risk compared to investing in individual stocks.
The most popular equity ETFs in Singapore are the STI ETF and Nikko AM Singapore STI ETF. These funds track the performance of the top 30 companies listed on the Singapore Exchange (SGX), providing investors with exposure to various industries such as finance, telecommunications, and real estate. Equity ETFs are also available for specific sectors, such as the Nikko AM SG REIT ETF, which tracks the performance of Real Estate Investment Trusts (REITs) listed on the SGX.
Bond ETFs, or fixed-income ETFs, invest in a portfolio of bonds issued by governments or corporations. These funds provide investors regular income through interest payments from the underlying bonds. Bond ETFs suit risk-averse investors seeking steady income and a lower risk profile than equity investments.
In Singapore, there are several bond ETFs available, such as the ABF Singapore Bond Index Fund and Nikko AM SGD Investment Grade Corporate Bond ETF. These funds invest in a portfolio of high-quality bonds with varying maturity periods, providing investors with government and corporate debt exposure. Additionally, some bond ETFs offer exposure to international bonds, such as the LionGlobal SGD Money Market Fund, which invests in global short-term bonds issued by corporations.
Bond ETFs help those in ETF trading build a balanced portfolio by providing diversification away from equities and access to fixed-income assets for steady returns.
Commodity ETFs expose investors to physical commodities such as gold, oil, and agriculture products. These funds track the performance of specific commodity indexes and can serve as a hedge against inflation or market volatility. They offer diversification benefits to traditional investment portfolios.
In Singapore, there are several commodity ETFs available, such as the ABF SG Bond ETF and Phillip SING Income ETF. These funds track the performance of various commodity indexes, providing investors with exposure to different commodities or a specific sector. For example, the Lion-Phillip S-Reit ETF gives investors access to REITs in Singapore, Malaysia, Hong Kong and Indonesia.
Traders can also invest in inverse or leveraged commodity ETFs, which aim to profit from price movements in the underlying commodities. These ETFs are riskier and require a thorough understanding of the market and investing strategies.
Real estate ETFs
Real estate ETFs invest in a portfolio of listed real estate companies or REITs. These funds expose investors to the real estate sector without purchasing physical properties. Real estate ETFs can offer diversification and steady income to portfolios, making them attractive to investors seeking regular income and lower risk.
In Singapore, there are several real estate ETFs available, such as the Lion-Phillip S-Reit ETF and Nikko AM SG REIT ETF. These funds invest in a diversified portfolio of REITs listed on the SGX, providing investors with exposure to various commercial, industrial and retail properties. Specialised real estate ETFs are also available, such as the Nikko AM STC Asia REIT ETF, which invests in REITs listed in Japan and Hong Kong.
Leveraged and inverse ETFs
Leveraged and inverse ETFs offer traders a way to profit from short-term market movements. Leveraged ETFs aim to amplify the returns of an underlying index or asset, while inverse ETFs seek to profit from a decline in the market. These funds are highly speculative and require careful consideration before investing.
In Singapore, there are several leveraged and inverse ETFs available, such as the ProShares UltraShort MSCI Singapore Index Fund and DBXT MSCI Indonesia Leveraged 2X ETF. These funds are highly volatile and best suited for experienced traders with a high-risk tolerance.
Traders can also invest in leveraged and inverse ETFs that track specific sectors or commodities, providing targeted exposure to potential market movements.