SGX’s ETF market highlights report for 2Q 2023 is out. And it provides an interesting look at how investors allocate their money.
Let’s take a look at the market highlights.
This article was written by a Financial Horse Contributor.
ETF Market Highlights (2Q 2023)
First, a quick overview of the SGX ETF market. It collectively holds S$11 billion in AUM, up 2% Quarter on quarter.
Asian bond and REIT ETFs recorded net inflows of S$397 million, while equities and gold ETFs recorded net outflows of S$90 million.
The top three asset classes by AUM are Asian Fixed Income (24%), Singapore Equities (21%) and Singapore Fixed Income (16%).
Within those asset classes, here are the top 10 ETFs by AUM.
Bonds comprised 3 of the top 5 ETFs: Singapore, China, and Regional Bond ETFs. The other two were the Straits Times Index ETF and SPDR Gold Shares ETF.
Measured by Daily Trading Turnover, it’s a slightly different picture, led mostly by equities ETFs. The Lion-OCBC Securities Hang Seng TECH ETF, 10th in AUM, takes first place with S$3.22M in average daily volume. Gold ETF also saw higher trading activity, possibly because of higher volatility in 2Q.
Multi-asset ETFs serve as portfolio construction and risk management tools
STI ETFs recorded net sales, India Climate Transition ETF clocked 14% returns in 2Q 2023
In 1H 2023, STI eked out a slight return of 1.2%. SGX recorded S$43M in sales of the Straits Times Index (STI), with combined AUM declining 4% to S$2.1 billion.
Trading activity in China Equities in 1H 2023 increased from the previous half. Daily turnover value of these ETFs went up 17%. The Lion-OCBC Securities Hang Seng Tech ETF, which tracks the 30 largest tech-themed companies listed in Hong Kong, was the most popular.
One reason could be that investors were optimistic when e-commerce players like JD.com beat sales forecasts during China’s mid-year 618 shopping festival. It was the first major shopping event since China reopened and is an important indicator of domestic consumer spending.
The Lion-OCBC Securities Hang Seng Tech ETF had the highest turnover, but the top-performing ETF in total returns in 2Q 2023 was iShares MSCI India Climate Transition ETF. It returned 14% in 2Q. The ETF aims to tap into a “historic investment opportunity” in India’s climate transition.
India aims to reach net zero emissions by 2070, an ambitious goal given that 80% of its power still comes from fossil fuels. The ETF portfolio will decarbonise over time and picks companies with good environmental, social, and governance (ESG) practices.
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Investors’ interest return in China and Asian bond markets
SGD Bond ETFs recorded minor outflows of S$3 million in 2Q2023, bringing combined fund flow in 1H2023 to S$6.2 million.
One of the more popular bond ETFs was the ABF Singapore Bond Index Fund. It returned 0.5% this quarter and attracted inflows of S$6 million. Conversely, the Nikko AM SGD Investment Grade Corp Bond ETF had the largest outflow, with S$7.6 million in net redemptions.
Asia bond ETFs were more popular in Q2, with inflows of S$335 million. Investors increased their exposure towards government and credit bonds in the region. This included ETFs like the iShares USD Asia High Yield Bond ETF and iShares JPM USD Asia Credit Bond Index ETF. These ETFs comprise high-yield bonds or debt instruments issued by regional governments and corporates. They performed well in Q2, returning 1.9% and 4.3% respectively.
China bond ETFs were also popular, with an inflow of S$25 million. as investors grew more optimistic about the Chinese government and bank bonds. The CSOP FTSE Chinese Government Bond ETF hit a two-year high in monthly investments. This ETF is the world’s largest Chinese government bond ETF.
REIT ETF Performance
REITs grew in popularity with investors, with 5 REIT ETF AUMs crossing $876 million in 1H 2023. UOB APAC Green REIT ETF was a relatively bright spot, given that a rising interest rate environment impacts the entire asset class.
The REIT, which targets real estate that aims to lower carbon and other greenhouse gas emissions, returned -1.27% in 2Q, compared to an average of -2.5% across the 5 REIT ETFs.
Two REITs – CSOP iEdge SREIT Leaders Index ETF, Lion-Phillip S-REIT ETF and NikkoAM-StraitsTrading Asia ex Japan REIT ETF – posted above 5% dividend yield.
Commodities – Gold ETF reached 52-week high
The SPDR Gold Shares ETF performed strongly in 1H 2023. It was the fifth best-performing stock on SGX with a 5.57% return. The ETF reached a 52-week high of S$251.37 on 5 May 2023.
The Gold ETF’s popularity is driven by recession, inflation, and risk aversion. Gold allows investors to diversify their portfolios as it maintains a low correlation with main global indices. It also acts as a safe haven asset if rising interest rates trigger a recession and affect corporate earnings.
Conclusion
SGX’s 2Q 2023 ETF market report paints an interesting picture of Singapore’s investment landscape. With AUM at S$11 billion, the ETF market continues net growth despite varied asset flows.