For new investors who want to gain exposure to the stock market, ETFs are one of the simplest ways to get started on your investment journey. When you invest in an ETF, you invest in a basket of stocks that the ETFs invest in. Similar to stocks, ETFs are traded with an exchange so you can buy and sell them like regular stocks.
While you will find ETFs for specific business sectors, regions and asset classes, most beginner investors should probably begin by investing in an index-based ETF. This is an ETF that will closely track the performance of an index that you want to invest in.
For example, in Singapore, the Straits Times Index (STI) serves as the benchmark index for the Singapore Exchange (SGX), and it comprises the 30 largest and many liquid stocks on the SGX. So, when you invest in an ETF such as the SPDR STI ETF (SGX: ES3) or even the Nikko AM STI ETF (SGX: G3B), you are investing in all the stocks that are area of the STI.
Besides investing in ETFs focused on stocks that are in Singapore or Asia, there's also a couple of ETFs listed on the SGX which are tracking US indexes. This means if you want to invest in a portfolio of U.S. stocks, you can invest in these US indexes through a few of the ETFs that are listed on the SGX.
SPDR S&P 500 US$ (SGX: S27)
As its name suggests, the SPDR S&P 500 US$ (SGX: S27) is definitely an ETF that tracks the performance from the S&P 500. So, before you decide to think of investing in it, you need to know the stocks that make up the S&P 500.
The S&P 500 is a market capitalisation weighted index that tracks the performance of the 500 largest publicly-traded companies in the U.S. A look at the SPDR S&P 500 ETF monthly report shows that as of 28 February 2021, top holdings inside the ETF are Apple (6.02%), Microsoft (5.46%), Amazon (4.10), Alphabet (3.73%) and Facebook (1.92%).
You can see just how well diversified this ETF is. Despite to be the biggest companies in the world, Apple, Microsoft, Amazon, Alphabet & Facebook combined just for slightly about 20% of the ETF. Johnson and Johnson, a company with a market capitalisation of approximately US$428 billion, only comprise just 1.30% from the ETF.
As of 28 February 2021, here's the top 10 holdings for the SPDR S&P 500 ETF.
Since the beginning of the year, the SPDR S&P 500 has delivered a return of 9.28%. It has an expense ratio of 0.09% p.a.
SPDR Dow Jones Industrial Average ETF (SGX: D07)
The SPDR Dow Jones Industrial Average (DIJA) ETF (SGX: D07) tracks the performance of the Dow Jones Industrial Average (DIJA). Unlike the S&P 500, the DIJA comprises only 30 blue-chip U.S. companies. As a result, the DJIA could be seen as less diversified compared to S&P 500 but would hold a greater weightage in each of the companies that are part of its index.
It's also worth mentioning that unlike the S&P 500 which is a market capitalisation weighted index, the DJIA is really a price-weighted index. This means that stocks with higher prices get a higher weightage in the index compared to stocks with a lower price. The result of this is that companies like UnitedHealth Group (price: US$367.07) and Goldman Sachs (price: US$327.64) possess a higher weightage in the index as compared to Apple (price: US$123), despite having a significantly smaller market capitalisation.
As of 28 February 2021, here's the very best 10 holdings for the SPDR DIJA ETF.
Since the beginning of the year, the SPDR DIJA ETF has delivered coming back of 10.70%. It has an expense ratio of 0.16% p.a.