Top 5 ETFs to buy for Singapore Investors (2021)

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A couple of weeks ago, I wrote a post where I basically said that “Passive Investing is Dead”.

That got a lot of feedback from you guys, and I think there was a bit of a miscommunication on my part.

So just to clarify – I don’t mean that passive investing is dead, dead.

Passive / Index investing by its very definition tracks the index performance. Whatever the S&P500 returns that year, you will get, minus brokerage and ETF fees.

That doesn’t change, so passive investing will never really die.

Passive Investing: Looking at the bigger picture

But the broader macro context matters too.

The past 30 years was just a massive bull market in bonds, with US interest rates going from 15% to 0%.

In a secular bull market like that, all asset prices go up – both bonds and equities.

That’s great for index investing, because you hold the average, and the entire asset class goes up.

It’s a rising tide lifts all boats scenario, where the best strategy was to own the average.

So passive / index investing did very well the past 30 years, and outperformed many active strategies (especially the past 10 years when QE came into play).

But going forward, we’re moving into a rising interest rate scenario, where monetary policy no longer reigns supreme.

Rather, it is fiscal policy (government spending) that reigns supreme.

And my view is that in a fiscal dominated paradigm, passive investing will not outperform active investing to the same extent it did the past 30 years.

In other words – It *should* become easier for active investing to outperform passive investing going forward.

Take 2021 for example. Cyclical plays like energy and financials did very well this year. Growth tech didn’t do so well.

If you own the S&P500, you’re owning the average, so the cyclicals go up, but tech underperforms, so you get average performance.

If you active invest there is room to tilt the allocation towards cyclicals and capture more upside.

Really depends on the kind of investor you are

But, and here’s the big caveat – it really depends on the kind of investor you are.

To succeed at active investing, you need to get the calls right.

So if you recognized in early 2021 that cyclicals would outperform, you would have done well.

But if you didn’t, or got the call wrong, passive investing would have been a better option.

So yes, there will always be a place for passive investing, for investors who don’t want to active invest.

Don’t forget, when you get average index returns, you’re already outperforming 50% of the other investors out there.

Top 5 ETFs to buy for Singapore Investors

With that in mind, let’s look at the top 5 ETFs to buy for Singapore Investors.

Where possible, I picked the Irish domiciled ETFs for superior withholding tax treatment for Singapore based investors (15% vs 30% for US domiciled). You can read more about how this works here.

Arranged in no particular order:

iShares Core MSCI World UCITS ETF (IWDA)

Ah, the IWDA… the classic ETF that all passive index investors in Singapore will know and own.

It’s Irish domiciled so you get the superior withholding tax treatment.

And it’s an all world ETF, so you just buy it, and it gives you exposure to US (65%), Japan, (7%), and most of the developed world.

One problem with the IWDA is that it was designed in a different age, when China was not a big part of the global economy.

Back then, the G7 was still a big thing.

So its asset allocation reflects that, with countries like Japan / UK having a bigger proportion than China.

In today’s world, that doesn’t make so much sense when China is very clearly a big part of the global economy.

But as a buy 1 ETF and dollar cost average (DCA) for the next 30 years, it’s probably as good as it gets for Singapore investors.

Returns are very strong too, 1 year returns are a mind blowing 54%, assuming you bought at the March lows.

10 year returns are 9.9%, which are very, very strong for a passive strategy.

Expense Ratio is dirt cheap at 0.2% as well.

What more do you want in an ETF?

Pair this up with a China ETF and you’re pretty much done with investing for the next decade.

Update: Some readers have pointed out there is an alternative in the VWRA (Vanguard FTSE All-World UCITS ETF), with very similar expense ratio, but comes with a built-in 5% exposure to China.

Definitely another option to consider if you want built in China exposure.

Personally I think 5% exposure to China is way too low for a Singapore investor, so with IWDA you can manually add China exposure via a separate ETF. Ultimately down to personal preference.

iShares Core MSCI China ETF 2801

I included Vanguard Total China ETF (3169) in my recent article on where to invest $100,000.

Unfortunately, as some of you have pointed out, Vanguard is pulling out of HK and will be delisting those ETFs in the coming year or two, so it’s probably best to avoid Vanguard for the time being.

The next best thing I found was MSCI China.

I like it because it has exposure to the onshore China listed A shares, and Hong Kong H shares, and the US listed shares.

Expense Ratio is not cheap at 0.61%, but that’s usually the case for an ETF that has exposure to onshore A shares.

As with any China ETF, the tech names are a big part of it, with big exposure to the usual Tencent, Alibaba, Meituan, JD, Baidu etc.

Historical performance is again very strong, but don’t place too much emphasis on these numbers.

As investors we invest in the future, not in the past. Historical numbers don’t mean much.

One thing to note is that the fund size is not big, about 5 billion HKD. So don’t expect the same kind of liquidity you get with the SPY.

The other problem is that the China market isn’t as efficient as the US yet. So this isn’t like a S&P500 or NASDAQ100 where you get very efficient exposure to the China economy.

China’s economy is still developing and opening up, and the industry is not as mature in the US.

Expect more volatility and inefficiencies in markets like that.

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STI ETF (G3B)

I know what you guys are thinking.

STI ETF? C’mon FH!

But really, if you want 1 ETF to gain broad exposure to the Singapore economy, the STI ETF is pretty decent stuff.

And with a dirt cheap 0.20% expense ratio too.

The problem with the Singapore stock exchange is that it’s all old-world companies.

The SGX today is a value investor’s dream – a bunch of banks, and a bunch of real estate / telco plays.

It’s exactly why the SGX was the worst performer in the region last year when growth was king, and it’s the best performer this year when value is king.

Regular readers know my view on the STI.

I think that if you are willing to stock pick, you can just buy the 3 local banks and buy the REITs and replicate a big chunk of the STI ETF’s exposure, while stripping out the stuff you don’t want.

But it definitely requires a lot more work, so if passive is what you want, the STI is a solid choice to look at too.

Short term performance isn’t as good because this is a more value-oriented index, so it didn’t do so well in 2020.

Performance since inception is a strong 8.8%, but don’t forget that includes the 2000s period when the Singapore blue chips grew very strongly (eg. Singtel, DBS, SGX etc).

These days, tech and software is going to eat the world, so the big question is whether the STI companies can adapt to this new paradigm.

If they can, there will be big growth going forward. Otherwise, it may be more of the past 10 years.

S&P500 (VUSD or SPY)

Of course, no list of ETFs will be complete without the S&P500.

If you need to buy 1 ETF to get exposure to the US economy, it has to be the S&P500.

In fact, the companies on this list (Apple, Microsoft, Amazon etc) are so global that you can argue that in reality you’re getting exposure to the global economy.

A fantastic index, very efficient, very competitive, and very solid returns.

For Singapore investors the Irish domiciled VUSD (listed on the London Stock Exchange) is good for long term holdings because of the superior withholding tax treatment.

Total returns are just very strong across the board.

The past 10 years was all about the FAANG, and that really powered the S&P500.

Expense Ratio is a dirt cheap 0.07%.

There’s a lot of talk about how the US stock market is very overvalued, and the next 10 years will see better returns from Emerging Markets.

I’m not so sure if I agree with this one. I think the US is still a very competitive market, and there are a lot of tools they can use to maintain their economy going forward.

Short term, the US is not going away, and some exposure to the US is required.

NASDAQ 100 (QQQ or VGT)

The final one on this list is the NASDAQ100.

If you want something more tech heavy, this is the one for you (QQQ or VGT).

The S&P500 gives you exposure to the top 500 companies in the US, while the NASDAQ gives you exposure to the top tech companies.

Expense Ratio is very cheap at 0.2%.

Not much to say about this one.

It’s the S&P500, but for US technology.

Honourable Mention – Which ETFs failed to make this list?

There are a couple of other ETFs that almost made this list, but didn’t for some reason or other.

Special honourable mention to them here.

Hang Seng Tech 

Hang Seng Tech is a great way to get exposure to the HK listed China tech companies.

But the problem with this index is that it doesn’t include the US listed China shares, or the onshore A shares.

It’s definitely an ok index, and will improve over time as more China companies move their dual list in Hong Kong.

Very cheap fees as well.

But for now, as a single ETF to get exposure to China, I still prefer those that include the US and onshore A shares.

You can buy it via the HK listed 3067.HK (iShares Hang Seng Tech ETF) or the Singapore listed HST (Lion OCBC Hang Seng Tech).

Difference between the two is:

  • Lion OCBC Hang Seng Tech has a higher expense ratio (0.68% vs 0.25%), is Singapore listed.
  • iShares Hang Seng Tech ETF has a lower expense ratio (0.25% vs 0.68%), is HK listed, better liquidity.

GLD or IAU (or GDX or GDXJ)

The gold ETFs are another very solid one.

You can get exposure to physical gold via GLD or IAU, and more leveraged exposure to the gold miners via GDX or GDXJ.

All very solid options if you want to make a play for Gold.

Gold is a bit of a niche play though, hence it didn’t make the list.

Russell 2000

The Russell 2000 is the small cap equivalent of the S&P500.

If you wanted to get exposure to the small cap space in US, this is the ETF for you.

Didn’t make the list because it’s a more of a niche strategy for Singapore investors.

If you’re using the Russell 2000 you probably already know what you’re doing, so this article wouldn’t be as helpful for you.

Thematic ETFs – like XLF or XLE (or ARK)

Thematic ETFs are another good one.

Things like XLF or XLE get you exposure to the US financial and energy sector respectively. Or SOXX for semiconductors. Or ARK for disruptive tech (but note this is an active ETF, not a passive index).

If you don’t want to stock pick, but you want to express a macro bet on a certain sector, these are great options.

Love to hear your thoughts – did I miss out any great ETFs from this list?

As always, this article is written on 9 April 2021 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patron.


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29 COMMENTS

    • Just to update – news is out and they will be delisted on 11 May. If you’re holding onto the ETF after that you will get a refund, but if you want your cash back earlier then you should exit before that.

      Hope this helps!

  1. About IWDA not containing China stocks, recently (since end 2019) there’s a new alternative with VWRA which follows the broader FTSE All-World Index. At 0.22 expense ratio, the premium over IWDA is very small and it includes more stocks including the big China ones.

    See https://www.vanguard.co.uk/professional/product/etf/equity/9679/ftse-all-world-ucits-etf-usd-accumulating

    And a screenshot of China holding in VWRA here: https://i.imgur.com/Vz40YK2.png

    The usual suspects are included:

    Tencent Holdings Ltd.
    Alibaba Group Holding Ltd. ADR
    Meituan Dianping Class B
    JD.com Inc. ADR
    Baidu Inc. ADR
    China Construction Bank Corp. Class H
    Industrial & Commercial Bank of China Ltd. Class H
    NIO Inc. ADR
    Ping An Insurance Group Co. of China Ltd.
    Pinduoduo Inc. ADR
    Xiaomi Corp. Class B

  2. Hi FH,

    I would like to make a case for CXSE as a replacement for the iShares Core MSCI China ETF:
    1) It provides exposure to A shares as well
    2) Better historical performance over the same time frame (1, 3, 5 years)
    3) Similar Top 10 holdings and Sector Representation
    4) No exposure to Chinese SOEs
    5) Both funds suffer from a small fund size and poor liquidity

    Its probably a good alternative for investors who are not keen on Chinese SOEs (e.g. the Chinese Banks). I suspect the better performance may be attributed to the lack of SOEs 😛

    • Interesting, thanks for raising this!

      SOEs are a controversial one indeed. Personally I’m comfortable with the SOE exposure, but yeah this could be great for investors who dont want that exposure.

  3. Hello,
    Great article. What your thought of using CPF ordinary &/or SRS fund to buy some of these similar product via Endowus?

    Thanks

  4. Dear FH,

    I forgot to ask, does these ETF pay dividend? Or it is something that we can only make by buying low & selling high?

    Thanks

    • Yes, they pay a dividend. But it differs based on the underlying assets. For Eg. S&P500 will have a higher dividend than NASDAQ which is more capital gains focussed.

    • Yup perfectly fine as well, comes with the China exposure too. 🙂

      Personally I think 5% exposure to China is too little for my liking, so I would prefer to add more exposure via a China dedicated ETF. So using IWDA + a dedicated China ETF could work.

      Really depends on personal preference.

    • IWDA has a much bigger AUM + liquidity for now. I think that’s worth the slightly higher expense ratio.

      But yeah, SWRD works too if you want the lower fees.

  5. For S&P500 ETF, did you consider VUSD tracking error vs 15% extra dividend withholding tax when comparing VUSD and SPY? (especially since SPY has a low dividend yield (comparable to tracking error)

    • Just pulled up the numbers, tracking error is 0.08%, which should still be lower than the withholding tax 15% on 1.5% yield.

    • If you do VWRA + Asia ETF wouldn’t that be overweighting Asia?

      I generally active invest so I don’t use all world ETFs that much. If I had to do it, probably IWDA + China ETF.

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