Nikko AM - Diversifying Your Investment Portfolio With ETFs

Part 2 of Nikko AM advertistment on Today newspaper. If you want to achieve the below easily, consider this :

POSB 
- Regular Savings Plan (RSP) @ 0% sales charge (until 31 Dec 2013)
- Minimum investment sum of $100 monthly
(not sure about the initial investment, $1000 if I'm not wrong)

Fund Name 
- Nikko AM Balanced Funds - MyHome Fund HomeGrowth
- 80% into the Nikko AM Singapore STI ETF; and
- 20% into the ABF Singapore Bond Index Fund.
- Management Fee 0.5% p.a. from Fund Factsheet

Extracted from POSB Website

How does RSP work?

- With a RSP you make fixed monthly investments, regardless of market conditions
You avoid the uncertainties of market timing, by not speculating on the “right” time to invest your capital as a lump sum
- By investing a regular sum each time, you have the benefit of “dollar cost averaging” through buying fewer investment units when prices rise but more units when prices fall
- Over time, your average unit cost is lower than the average market price of the security during the same period of time

Singapore REIT ETF?

Browsing through the search queries that brings visitors to my blog, I always come up plenty of content ideas. The area of Real Estate Investment Trusts (REITs) is one that I'm personally interested in.

Just a day or two ago, one of the the search keyword that led visitors to my Index Investing Blog is "drop in reits singapore". I guess somebody must have been spooked by the sharp drop on Thursday?

While the Straits Times Index dived 61.20 (1.77%), the FTSE ST Real Estate Index recorded a drop of 26.67 (3.17%) in comparison.

Now, does people seriously think that the only way REITs can go is up? The interest rate is low in the current environment, but it does not mean it will remain this way. Read about REITs' vicious cycle of interest rate risk here. If you're serious about REITs investing specifically in Singapore, pick up Building Wealth Through REITs by Bobby Jayaraman, and you'll know more about Singapore REITs than 90% of the investors out there. Learn, and understand what you're investing in.

Coincidentally, another search term that brought visitors here was "singapore reit etf". To the best of my knowledge, there is no such product. The closest one you can get is Phillip Singapore Real Estate Income Fund by Phillip Capital (fund size S$46m). 

Is it an ETF? No.

Will you incur additional expenses as a result? Yes.

Is it worth it? Depends on the individual.

From the perspective of a small-time investor who believes in both the capital-appreciation and dividends-paying characteristics of REITs, it is an accessible way to invest (e.g. S$200/monthly regular savings plan) and buy into 20 REITs or more. 

"Low" cost.

Instant diversification. 

Quarterly dividends.

No worries over REITs rights issue.

Of course, these come at the price of fund management fee / sales charge etc.

Lastly, there are global REITs ETFs (e.g. VNQI:US and VNQ:US) such as those offered by Vanguard. Do take note that you're going to take a severe hit (30%) in terms of tax withholding for dividends covered in my previous post.

On a side note, Vanguard has recently listed its first Hong Kong-domiciled exchange traded fund (ETF). Will they be coming the the shores of our beloved country? I sure hope so!

Double Your Money In 10 Years with STI ETF

Ser Jing Chong from The Motley Fool constructs a theoretical portfolio with fuss-free maintenance. The portfolio, starting from 2003, requires a person to invest only $500 at the start of every month into the SPDR Straits Times Index ETF (SGX: ES3)!

Now, of course you know that's not enough to purchase 1 lot (1,000 shares) of SPDR Straits Times Index ETF. See what he comes up with below - it might surprise you!

Article : How To Double Your Money In 10 Years

Source : The Motley Fool (18th March 2013)
Author : Ser Jing Chong

People invest for all kinds of different reasons; some invest to see their child through university; some invest to buy their dream car or set foot on Europe for a snowy vacation; and some invest because it is just so much fun (that’s us at the Motley Fool!). But, for whatever reason that people invest, the desired outcome’s always the same – we want our money to grow.

The stock market’s actually one of the best places to grow our money and build lasting long-term wealth as we benefit from the growth of Singapore’s economy through ownership of corporate Singapore. But not everyone has the time or the ability to study individual companies and invest accordingly. For such individuals, the next best alternative would be low-cost index funds or ETFs that track market indices, a move that Warren Buffett approves of as well.

To find out more about the kind of returns an investor could have obtained, I constructed a theoretical portfolio with fuss-free maintenance. The portfolio, starting from 2003, requires a person to invest only $500 at the start of every month into the SPDR Straits Times Index ETF (SGX: ES3). The SPDR STI ETF tracks the movement of the Straits Times Index (SGX: ^STI) by holding shares in a similar composition as the index and an investor in the ETF would effectively be investing in Singapore’s stock market.

The investment strategy would be familiar to some as a form of Dollar Cost Averaging, where an investor mechanically invests a fixed sum of money into an investment instrument at regular intervals. We won’t go into the relative merits of a DCA approach vs Investing-in-a-lump-sum approach here but let’s just say that the former is a lot more achievable for regular folks like you and me.

After spending a nice weekend afternoon engaging in exciting number crunching, some interesting results for the portfolio, without accounting for any dividends, emerged. They are shown below:

• The $6,000 invested in 2003 would have turned into $13,500 by 2013 – an investor’s money would have more than doubled in 10 years, excluding dividends (which would surely have improved returns).
• To date, every year from 2003 has seen positive returns besides 2007. The returns from the year of investment to 2013 have ranged from 2003’s 125% to 2007’s -4.3%, with the lowest positive return for a full-year being 2011’s 7.8%.
• The compounded annualised return for the portfolio stands at 5.6%, after taking into account the time at which the investments take place. While that figure is hardly eye-catching, it has beaten Singapore’s average historical inflation rate of 1.7%, according to MAS. The dividends from the ETF also provide additional returns each year which can be used for re-investment, juicing returns further, or for income. The SPDR STI ETF’s current dividend yield stands at 2.42%.
• The total amount of $61,500 ($500 for 123 months) that has been invested since Jan 2003 to March 2013 would be worth $83,778 now.
• Staying invested in the stock market for long periods of time helps to improve returns. 2003 and 2004 (72.7% return) provided the best returns for the 10 year period.

STI ETF Purchase [19-Mar-2013]

I don't really have a fixed date that I execute my monthly purchase of STI ETF, though usually I'll do it at the second half of the month. Just a personal routine that's all.

Got an SMS this morning when my order was filled, which caused me to take a double-take. The day before, I had placed a limit order of 100 share(s) at S$3.32. Imagine my surprise when my order was filled at S3.15!

Today must be my lucky day!

Bought via Standard Chartered Online Trading Account

Nikko AM Singapore STI ETF Order Price : $3.32
Average Price : $3.15 !!!
Order Quantity : 100 share(s)
Order Type : Limit Order
Status : Filled

Taking a look at Yahoo! Finance for today's data, you would see the following :

Close : 3.33
Prev Close : 3.31
Open : 3.15
Bid : 3.31
Ask : 3.33

STI ETF Purchase [25-Feb-2013]

Bought via Standard Chartered Online Trading Account

Nikko AM Singapore STI ETF Order Price : $3.34
Order Quantity : 100 share(s)

Trade Consideration : $334.00 [$3.34 x 100]
Client Commission : $0.67 [$334.00 x 0.2%]
SG Clearing Fee : $0.13
Client GST : $0.06

Total Transaction Amount : $334.86

STI ETF Purchase [28-Jan-2013]

Bought via Standard Chartered Online Trading Account

Nikko AM Singapore STI ETF Order Price : $3.31
Order Quantity : 100 share(s)

Trade Consideration : $331.00 [$3.31 x 100]
Client Commission : $0.66 [$331.00 x 0.2%]
SG Clearing Fee : $0.13
Client GST : $0.06

Total Transaction Amount : $331.85

CPF Investment Account for Index Investing

Can you use money from your CPF to do index investing?
Yes!

If you are using your money from your CPF Ordinary Account (OA), you can open a CPF Investment Account with any one of the three CPFIS agent banks :

1. DBS Bank Ltd (DBS)
2. Oversea-Chinese Banking Corporation Ltd (OCBC)
3. United Overseas Bank Ltd (UOB)

Any amount in your CPF ordinary account (not including the first S$20,000) can be invested into Exchange-Traded Funds (ETF).

Important Things to Take Note

1. Transaction Charges - Check with individual banks for latest rates
2. Service Charges - S$2 service charge, per counter, every quarter

These two will quickly increase your cost if you're investing a small sum monthly!

Nikko AM Singapore STI ETF - Dividends

Does Nikko AM Singapore STI ETF pay dividends?
Yes!

Of course, you might ask : how do I check the dividends history?

1. Go to Singapore Exchange website.
2. Click on Company Disclosure.
3. Click on Corporate Action.
4. Under Company Name, select Nikko AM Singapore STI ETF.

Dividend History

31 Oct 2012 SGD 0.035
11 May 2012 SGD 0.03
28 Oct 2011 SGD 0.035
13 May 2011 SGD 0.03
15 Oct 2010 SGD 0.03
12 May 2010 SGD 0.02
13 Oct 2009 SGD 0.03

When S$300 Isn't Enough To Purchase A Single Lot of STI ETF

A common problem faced by novice investors like myself - what if S$300 isn't enough to purchase a single lot (100 units) of Nikko AM Singapore STI ETF [ticker symbol G3B], which is already the bare minimum?

[Example]
The price of Nikko AM Singapore STI ETF at closing today is S$3.26 - the market kind of rallied after US averted the fiscal cliff, for now. You realize that S$300 is not enough for you to purchase one lot. You simply save the money and wait for next month.

If you're investing and not speculating, you're in this for the long haul. Not being able to invest monthly shouldn't matter to you at all.

[Reading material]
Drizzt from Investment Moat is an excellent writer, and his article that I've linked would be a great read for all index investors. Do spend some time going through his other articles too. I'm sure there is something for everyone to benefit from.

STI ETF Purchase [24-Dec-2012]

Bought via Standard Chartered Online Trading Account

Nikko AM Singapore STI ETF Order Price : $3.20
Order Quantity : 100 share(s)

Trade Consideration : $320.00 [$3.20 x 100]
Client Commission : $0.64 [$320.00 x 0.2%]
SG Clearing Fee : $0.13
Client GST : $0.05

Total Transaction Amount : $320.82

Passive Index Investing - What To Buy?

In order to perform passive index investing in Singapore, two of the vehicles you have access to are listed below. Both are Exchange-Traded Funds tracking the Straits Times Index (STI).

What is an Exchange-Traded Fund?

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. [read more from Wikipedia here]

While I'm at this, let me add on a third ETF that would be useful to you, and is also one that I'm intending to blog a bit on in future.

[1] SPDR Straits Times Index ETF | Price via Yahoo! Finance

Fund Information :
The SPDR® Straits Times Index ETF ("STI ETF"), Singapore's first locally created exchange traded fund which was formerly named streetTRACKS STI ETF, seeks to generate returns that closely correspond to the performance of the Straits Times Index ("Index"). The Fund is listed and traded like any share on Singapore Exchange Securities Trading Limited.

Lot Size : 1,000
A minimum purchase is going to cost $3,210 based on 24-Dec-2012 price, excluding brokerage fees etc.

[2] Nikko AM Singapore STI ETF | Price via Yahoo! Finance

Fund Information :
The Nikko AM Singapore STI ETF will initially invest in a portfolio of Straits Times Index (STI) stocks listed on the Singapore Exchange. It will mirror closely the performance of the STI. The STI is a market-weighted stock market index based on the performance of the Singapore stock market. It comprises of the most well-known and frequently traded shares on the Singapore Stock Exchange. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Straits Times Index or upon the Manager giving three (3) months' prior written notice to the Trustee and the Holders, such other index which tracks the performance of Singapore listed equity securities. The Fund will seek to achieve its investment objective by investing all, or substantially all, of its assets in Index Shares in substantially the same weightings as reflected in the Index.

Lot Size : 100
A minimum purchase is going to cost $321 based on 24-Dec-2012 price, excluding brokerage fees etc.

[3] ABF Singapore Bond ETF | Price via Yahoo! Finance 

Fund Information :
ABF Singapore Bond Index Fund (the "Fund") will initially invest in a portfolio of high quality, Singapore government and quasi government bonds. It will mirror closely the basket of bonds in the iBoxx ABF Singapore Bond Index. The target tracking error of the fund is set at not more than 0.4% per annum.

Lot Size : 1,000
A minimum purchase is going to cost $1,180 based on 24-Dec-2012 price, excluding brokerage fees etc.