Top 5 ETFs to buy for Singapore Investors (2021)
A couple of weeks ago, I wrote a post where I basically said that “PassiveInvesting is Dead”.That got a lot of feedback from you guys, and I think there was a bit of amiscommunication 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 ETFfees.That doesn’t change, so passive investing will never really die.
Really depends on the kind of investor you are
But, and here’s the big caveat – it really depends on the kind of investor youare.To succeed at active investing, you need to get the calls right.So if you recognized in early 2021 that cyclicals would outperform, you wouldhave done well.But if you didn’t, or got the call wrong, passive investing would have been abetter option.So yes, there will always be a place for passive investing, for investors whodon’t want to active invest.Don’t forget, when you get average index returns, you’re already outperforming50% 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 SingaporeInvestors.Where possible, I picked the Irish domiciled ETFs for superior withholding taxtreatment for Singapore based investors (15% vs 30% for US domiciled). You canread more about how this works here.Arranged in no particular order:
1: Hang Seng Tech ETF is China’s Nasdaq
As you probably know, an ETF only tracks the performance of an underlyingindex. In this case, the Lion-OCBC Securities Hang Seng TECH ETF tracks HangSeng TECH Index. The index was only launched recently on 27 July 2020 and ittracks the 30 largest TECH-themed companies listed in Hong Kong as listedbelow. Many are familiar names, you may not be familiar with Sunny Optical orSMIC, but you definitely heard about Alibaba, Tencent, and Xiaomi.One unique “selling point” about the Hang Seng Tech index is that it has anIPO Fast Entry rule. It means Qualified IPOs can be included in the indexshortly after listing. To a certain extent, this rule was tailor-madespecifically for ANT IPO, whose recent mega IPO debut was unfortunatelysuspended by China’s regulators. I don’t think there will be any other companythat meets the “qualification” in the near term.Some blogs and stockbrokers refer to the Hang Seng Tech index as China’sNasdaq index. This is not accurate. You need to understand Hang Seng Techindex is only tracking the companies listed in Hong Kong, and there arethousands of other tech companies listed in Shang Hai and Shenzhen exchanges.The real Nasdaq-styled market in China is ChiNext in Shenzhen and the STARmarket in Shanghai. * ChiNext started in 2009 and it is geared more towards growth-oriented innovative and start-up enterprises. Now they have 880 stocks with 10 trillion RMB market capitalization. * STAR Market is relatively new and touts the priority to “hard technology” companies. These include next-generation infotech such as internet-of-things, artificial intelligence, big data, and new energy. They now have 133 listings worth a total of Rmb2.8 trillion.Although Hang Seng Tech Index does include some of the best China technologycompanies, it is not a good representative of China’s technology sector whichis far broader.Every index has its own methodology. That is why there is no true passiveinvesting.Related reading: why ETF investing is not passive investing.If you are into the technical details, the Hang Seng TECH Index consists ofGreater China-incorporated stocks that specifically have high businessexposure to the internet, fintech, cloud computing, e-commerce, and digitaltechnology themes.The 30 largest stocks must meet these criteria and are ranked by marketcapitalization. Constituents are weighted by free-float market capitalization,subject to a cap of 8% on any individual stock. The major positions of theindex include well-known Chinese names such as Alibaba, Tencent, Xiaomi,Meituan Dianping, Sunny Optical, JD.com. Other familiar holdings includeLenovo, NetEase, and Ping An Healthcare & Technology.
3: Buying Hang Seng TECH for long term holding
I can’t say this won’t work out well, but throughout my conversation with myclients and readers, I find that one of the biggest mistakes of retailinvestors is that they are focusing too much on the product than the price.Related Reading: Why long term investment is a bad strategy.If you seek investment advice online, you will typically see something likethese: * “Buy Tesla’s shares because it has great potential.” * “Buy Apple shares because it sells great products.” * “Buy ABC company because the pandemic boosts its earnings.”Well, these may be legitimate claims, but it does not factor in your uniquepersonal circumstance and risk tolerance level. It also does not consider theopportunity costs should you buy at a higher price.The truth is that you can buy the stock of a great company but still losingmoney. Of course, you can also buy a loss-making company yet make a fortune.My point is when you assess an investment opportunity such as Hang Heng TechETF, not only do you need to study the merit of the product, but you shouldalso pay attention to the market price.From a valuation perspective, China’s tech companies are severely undervalued.For example, Amazon is trading at 93 times P/E ratio based on 12 monthstrailing PE and 66 times forward P/E (based on Dec 2020 estimate). Oncontrary, Alibaba is trading at 47 times trailing P/E and 26 times ofestimated P/E. So why? Are all the institutional investors dumb or are you toosmart?> “My philosophy is that all stocks are bad. There are no good stocks unless> they go up in price.” – William O’NeilLet me go back to the early statement I made, it is not to say that China’stech companies are better or worse than their US counterparts, but they are“undervalued” for a reason because they are under different market conditions.I will discuss this more in the future, subscribe at the end of this articlefor future updates.Related Reading: Should you invest in Chinese tech stocks after China’s techcrackdown?
TL;DR: Hang Seng TECH Index And Related ETFs
Here’s a summary of the article: * The Hang Seng TECH Index comprises the 30 largest technology companies listed on the Hong Kong stock exchange. * Some of the index components include companies such as Lenovo Group, NetEase, and Xiaomi. * One cannot invest directly in an index. However, there are four ETFs tracking the Hang Seng TECH Index that investors can buy into.* * *
What’s the Hang Seng TECH Index About?
The Hang Seng TECH Index was launched on 27 July 2020.And it tracks 30 of the biggest technology growth companies listed on theStock Exchange of Hong Kong.Those companies must be part of the industrials, consumer discretionary,healthcare, financials, or information technology sector.They must also have high business exposure to technology themes such as theinternet (including mobile), fintech, cloud computing, e-commerce, or digital.Other than the requirement above to be eligible, it must also meet at leastone of the following criteria: * It must be a technology-enabled business (e.g. via internet/mobile platform); or * Have a research and development (R&D) expense to revenue ratio of more than or equal to 5%; or * Possess year-on-year revenue more than or equal to 10%.Only companies incorporated in Greater China (mainland China, Hong Kong, Macauor Taiwan) and listed on the main board of the Hong Kong stock exchange willbe eligible for selection.The index is weighted by free-float market capitalisation, which refers to acompany’s total number of outstanding shares that can be publicly tradedmultiplied by its share price. The companies with the greatest marketcapitalisations will have the highest weights in the index.Index components will be reviewed and rebalanced every quarter (data cut-offoccurs end of March, June, September, and December).Based on back-tested performance over the past five years (as of 31 August2020), the Hang Seng TECH Index would have posted a gain of 155% versus theHang Seng Composite Index’s (similar to Singapore’s Straits Times Index)increase of just 16%.
What Are the Companies Part of the Hang Seng TECH Index?
Some of the companies from the index include well-known names like Alibaba,Tencent, Meituan Dianping, JD.com, and Xiaomi.Here’s a full list of the 30 components of the Hang Seng TECH Index and theirrespective weights:Name| Ticker| Approximate Weight (%)| Sector —|—|—|— Xiaomi Corporation| 1810| 11.16| Information Technology Meituan Dianping| 3690| 10.11| Information Technology Alibaba Group| 9988| 9.17| Consumer Discretionary Tencent Holdings | 700| 7.88| Communication Sunny Optical Technology | 2382| 6.44| Information Technology JD.com| 9618| 5.67| Consumer Discretionary Semiconductor Manufacturing International Corporation (SMIC)| 981| 4.65|Information Technology Kingdee International Software Group| 268| 4.46| Information Technology Alibaba Health Information Technology| 241| 4.38| Health Care Lenovo Group Limited| 992| 3.62| Information Technology Ping An Healthcare and Technology Co Ltd| 1833| 3.51| Health Care Kingsoft Corporation| 3888| 3.31| Information Technology AAC Technologies| 2018| 3.15| Information Technology BYD Electronic (International) Company| 285| 2.51| Information Technology ASM Pacific Technology Ltd| 522| 2.48| Information Technology NetEase Inc| 9999| 2.47| Communication China Literature Ltd| 772| 2.13| Communication ZhongAn Online P&C Insurance Co Ltd| 6060| 1.86| Financials Weimob Inc| 2013| 1.83| Information Technology ZTE Corporation| 763| 1.65| Information Technology Tongcheng-Elong| 780| 1.57| Consumer Discretionary Koolearn Technology Holding Ltd| 1797| 1.35| Consumer Discretionary Hua Hong Semiconductor| 1347| 1.23| Information Technology Maoyan Entertainment| 1896| 0.76| Consumer Discretionary XD Inc| 2400| 0.62| Communication HengTen Networks Group Limited| 136| 0.54| Consumer Discretionary FIT Hon Teng Ltd| 6088| 0.51| Information Technology Q Technology Group Co Ltd| 1478| 0.38| Consumer Discretionary NetDragon Websoft Holdings Limited| 777| 0.33| Communication Yixin Group Ltd| 2858| 0.25| Financials Source: Hang Seng Indexes (as of 31 August 2020)
How Can Investors Invest in Hang Seng TECH Index?
One cannot invest directly in an index. However, there are ETFs tracking theHang Seng TECH Index that investors can invest in.Below is a table showing the various ETFs that investors can choose from:ETF| Ticker| Currency| Assets Under Management (HKD)| Ongoing Charges (%) —|—|—|—|— iShares Hang Seng TECH ETF | 3067 | HKD| 960.01M| 0.25% 9067| USD ChinaAMC Hang Seng TECH Index ETF| 3088| HKD| 393.66M| 0.60% 9088 | USD Hang Seng TECH Index ETF| 3032 | HKD| 319.09M| 0.87% CSOP Hang Seng TECH Index ETF| 3033 | HKD| 4.28B| 1.05% Source: Stock Exchange of Hong KongSoon, Singapore investors can have easier access to the Hang Seng TECH Indexvia Singapore Exchange (SGX).Lion Global Investors, a member of Oversea-Chinese Banking Corporation Limited(SGX: O39), will be listing an ETF — Lion-OCBC Securities Hang Seng TECH ETF —tracking the tech-focused index.The initial offering period runs from 23 November to 7 December, and thetarget listing date on the local stock market is 10 December.There are low barriers to entry as investors can trade as few as 10 units. TheETF will be available in both Singapore and US dollars.Here are important details of Lion-OCBC Securities Hang Seng TECH ETF:ETF| Ticker| Currency| Issue Price| Trading Board Lot Size| Expense Ratio —|—|—|—|—|— Lion-OCBC Securities Hang Seng TECH ETF| HST/HSS| SGD/USD| HK$7.75 (S$1.34)|10 units| Capped at 0.68% per year for 2 years from the inception of ETF Source: Lion Global InvestorsLion-OCBC Securities Hang Seng TECH ETF is an Excluded Investment Product(EIP). Therefore, investors do not have to specifically qualify to trade it,unlike a Specified Investment Product (SIP).Another plus point is that local investors can use their SupplementaryRetirement Scheme (SRS) to invest in Lion-OCBC Securities Hang Seng TECH ETF.To know the latest index holdings and understand the risks involved with eachETF, you should refer to the ETF’s website.For example, the iShares Hang Seng TECH ETF uses a representative samplinginvestment strategy that can result in a greater tracking error than a fullreplication investment strategy (used in STI ETFs).
Is Hang Seng TECH Index ETF for You?
If you would like to diversify your portfolio into fast-growing Chinese techcompanies, the Hang Seng TECH Index ETF could be it.However, do note that since the index components are growth companies, theindex doesn’t trade at a low valuation.As of 17 July 2020, the Hang Seng TECH Index had a price-to-earnings (P/E)ratio of 45x while the Hang Seng Composite Index’s P/E ratio stood at just12x.Source: Hang Seng IndexesInvestors should be comfortable paying a higher-than-normal valuation toinvest in the fast-growing Chinese tech companies.If you choose to go for the iShares Hang Seng TECH ETF due to its low expenseratio, you should also be satisfied with the ETF possibly using financialderivatives such as futures contracts and options to achieve its investmentobjective.(P.S. Don’t have a brokerage account to invest in the Hong Kong-listed ETFs?Do check out the best brokers backed by real user reviews if you wish to openan account!)
What is Hang Seng Tech Index?
Hang Seng Tech Index tracks the 30 largest tech companies listed on the HongKong stock exchange. This stock market index comprises of companies spanningin different technology industries including internet, fintech, cloud,eCommerce, and digital activities.
Top 30 Companies on the Hang Seng Tech Index in 2021
Hang Seng Tech index components go through a portfolio re-balancing. Overtime, the list may add or remove new candidates. The companies are screenedthrough strict criteria including whether they operate through a tech-enabledplatform (through internet or mobile), their research and development expensesto revenue ratio, revenue growth, and market cap.Company| Code —|— Ali Health| 241 Kingdee Intl.| 268 BYD Electronic| 285 ASM Pacific| 522 Tencent| 700 China Lit| 772 Tongcheng-Elong| 780 Ming Yuan Cloud| 909 SMIC| 981 Lenovo Group| 992 Kuaishou| 1024 Hua Hong Semiconductor| 1347 Koolearn| 1797 Xiaomi| 1810 PA Good Doctor| 1833 Weimob Inc.| 2013 AAC Tech| 2018 Sunny Optical| 2382 Autohome| 2518 Meituan| 3690 Kingsoft| 3888 ZA Online| 6060 JD Health| 6618 Haier Smartphone| 6690 JD.com| 9618 Bilibili| 9626 GDS Holdings| 9698 Baidu| 9888 Alibaba| 9988 NetEase| 9999
2. Traders with business exposure in China
If you want to have business exposure in China, and you believe its economyand tech businesses will continue to innovate, then you can trade with thesestocks. You should also consider being always updated with what’s going onabout the market and economy of China and Hong Kong.