As COVID-19 ravaged the world's economies, the markets went into a tailspin, with many country indexes dipping a lot more than 30% within a one-month period from February to March 2021. Just like ferociously, the markets then rebounded to surpass all-time highs – led largely by technology and healthcare beneficiaries, that also uplifted the broader stock market.
For Singapore investors, we need to realise the importance of gaining global exposure in our investment portfolio. While we might be more familiar with local stocks, global companies are no longer strangers to any people. Nor can we afford (pun intended) to disregard them anymore.
The Need To Diversify Globally
Being Singapore residents, our responsibility progression and the value of our home is likely all dependent on the Singapore economy continuing to do well. If we also concentrate our investments on Singapore companies only, we're essentially taking a big bet that the Singapore economy will consistently outperform the worldwide economy over the long term.
One easy way to see this concentration risk is in the recovery from the Straits Times Index (STI) since the heights from the pandemic uncertainty in 2021. Since the STI (blue line) hit its lowest reason for March 2021, it has risen over 47%.
In contrast, the S&P 500 (red line) has risen nearly 70% in the same timeframe. In the chart above, we are able to also see that the S&P 500 has comfortably beaten its previous high, which was right before the COVID-19 pandemic. However, the STI continues to be trading below its previous high prior to the COVID-19-led downturn. If you only invested in the STI, it would have yielded significantly poorer returns for you personally as an investor.
Diversifying our investment globally is also not as intimidating today, as it may have been for our parents. Most local brokerages, including FSMOne.com, enable investors to buy stocks, bonds and funds indexed by other popular markets like the New York Stock Exchange (NYSE) and NASDAQ within the U.S, and Hong Kong Exchange (HKEX).
The overseas-listed firms that we invest in are also well-known to us rather than obscure companies we may never have heard about. Today, info on companies – listed locally or overseas – is easily accessible to us.
The Apples, Amazons and Googles of the world are companies that we interact with on a daily basis. Chinese tech companies such as Alibaba, Xiaomi, Ping An and more will also be growing globally. Closer to home, companies for example Hyundai Motor, CIMB Bank, ANZ banking group yet others are entrenched brands in Asia Pacific.
You Can Use ETFs Listed To Start Your Overseas Investing Journey Today
Especially for beginner investors who are looking to invest in new geographical markets, the simplest way to start is to invest in an Exchange Traded Fund (ETF). An ETF is really a basket of investments that seeks to replicate the holdings and returns of an index. Broad country and sector indexes also have a tendency to include more established blue-chip companies, rather than smaller players.
ETFs allow investors to take a passive approach to building our investment portfolio. With only a single investment decision, we can gain diverse contact with multiple companies, business sectors as well as geographies.
It Is Entirely Possible To Gain Broad Contact with Overseas Markets With SGX-Listed ETFs
Some investors may think that they have to bypass the SGX to achieve overseas exposure. This isn't true. For a start, many SGX-listed companies may already earn a slice of their revenue outside of Singapore. For instance, a 2021 Business Times article discovered that the STI constituents generated as much as 46% of their revenue from Asia Pacific region beyond Singapore.
Beyond this, there are also many SGX-listed ETFs focused on overseas markets. In fact, from the 43 ETFs listed in Singapore, only 10 are fully subjected to the local market.
By investing in SGX-listed ETFs, we can gain exposure to U.S., China, India, Vietnam, Indonesia, ASEAN, Asia Pacific and more. We can also gain contact with different asset classes too, including stocks, bonds, REITs, and gold.
- the Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST) is comprised of 30 of the largest Chinese technology companies
- the NikkoAM-STC Asia REIT ETF (SGX: CFA) has close to 75% exposure to Singapore-listed REITs, with the rest coming from Hong Kong, Malaysia, India, Thailand and others. Even then, Singapore-listed Ascendas REIT has a portfolio that's only 66% exposed to the Singapore market while Mapletree Logistics Trust's portfolio is only 30% exposed to the Singapore market. Moreover, Singapore-listed REITs also contains several with their entire property portfolio outside of Singapore, such as Manulife US REIT, Mapletree North Asia Commercial Trust and others.
- the ICBC CSOP CGB ETF (SGX: CYB) gives us exposure to overseas bonds as well, seeking to replicate the FTSE Chinese Government Bonds Index
- the iShares MSCI India Index ETF (SGX: I98) which supplies diversified exposure to large and mid-sized companies in India
Investing In Singapore Dollars (SGD)
Several of the ETFs listed on SGX that are broadly subjected to overseas markets also have an SGD choice to invest in. This means investors will not have to concern themselves with foreign exchange rates conversion when making the ETF investments. ETFs which are listed overseas are almost always listed in foreign currencies.
Nevertheless, at the underlying investments level, because we are gaining overseas exposure, we cannot run away from foreign currency risk.
Focusing Only On SGX-Listed ETFs Can be very Limiting
There many ETFs listed on global exchanges today, and just trying to use SGX-listed ETFs to build our ETF portfolio might be limiting. While SGX provides sufficient selections for us to start gaining broad overseas exposure, we do not always have to stick to it.
Overseas-listed ETFs may also provide greater depth within the type of geographical markets and business sectors we are able to invest in. Just to provide some statistics, there are close to 120 ETFs for auction on HKEX and over 2,400 ETFs on the NYSE.
Through our local brokers, we are able to also easily invest in these foreign-listed ETFs. Another advantage of using a local brokerage is the fact that we can leverage on their insights and attend events that they organise. FSMOne will be organising is FSM ETFestival on 15 May 2021 from 10 am to 5 pm. This annual event is going to be held virtually this year.
Investors keen to understand more about ETFs will be treated to investment ideas from around the globe. This is especially helpful to investors keen to branch to international opportunities with ETFs but lack the knowledge or expertise. Using the number of ETFs available globally, the FSM ETFestival will also help us sieve through the market.
Using A Local Brokerage Firm You Trust On The Next Leg Of Your Investing Journey
One from the reason to start our overseas investing journey via locally listed ETFs is because it's easier. We can take a passive approach to investing and we'd be slightly more familiar with being able to trade on the SGX and buying and selling while using SGD.
Similarly, we should look for ease of use and familiarity when selecting a brokerage firm to start our overseas investing journey with. FSMOne.com is a good platform to start investing both locally and overseas. Once we build more investing knowledge, we are able to also use FSMOne.com to invest in overseas-listed ETFs and stocks. Utilizing the same brokerage firm provides us an introduction to our entire portfolio within one platform.
From 5 April 2021, FSMOne.com makes it a sweeter deal for investors to trade utilizing their platform by charging a set commission rate of $8.80 whenever we invest in SGX-listed stocks and ETFs. While most brokerages typically charge a percentage of our trade amount and enforce a minimum commission, FSMOne.com charges a set amount, regardless of your investment size. We are able to also link our CDP Account online to savor this flat $8.80 commission payment when selling our stocks currently held in CDP.
This is a boon for investors who are investing both small and big amounts. For those investing a few thousand dollars, this $8.80 flat rate is lower than many other minimum brokerage fees charged in the market. At the same time, for those investing tens of thousands or more, this flat fee is excellent as it places a cap in your commission charges.
For investors who want to start investing in ETF, whether locally or overseas, through a dollar-cost average method where we invest a little amount each month, we can make use of the FSMOne ETF Regular Savings Plan (RSP) to purchase 57 ETFs locally and globally. We are able to start investing, and gaining overseas exposure, from less than $50 a month. Moreover, we can may also increase this amount, stop investing or sell our investments at any point. Transaction cost is kept really low, at 0.08% or a the least SGD 1, HKD 5 or USD 1 per transaction when buying ETFs via the FSMOne ETF Regular Savings Plan (RSP). This will make it cost-effective for those of us who only intend to invest a small sum each month but would like to do so regularly.
FSMOne.com also helps investors maximise returns using its FSMOne Auto-Sweep Account, by \”sweeping\” all our excess cash from sales proceeds, bond maturities, dividends and coupons towards earning better returns in money market funds. This eliminates any time period when our funds are not invested to earn a better-than-bank rate of interest.
When we want to invest again, without needing to do anything extra, our funds will be automatically transferred from this account into any investment trades we make.
Do observe that non-SGD denominated cash, as well as funds we deposit into our FSMOne Account but don't give any instructions to \”auto-sweep\” into investments, will not be automatically invested.