With major indices and commodities falling to one of the all-time lows, it will be a good time to take a look at investing in one of the derivatives - the Exchange Traded Fund or in short, the ETF.
Many people will panic during a market downturn, and do not know which stock will be the next to be hit, but most of these people also like to make good use of this downturn to buy stocks at a bargain price. A good alternative will be to look at ETF.
What is ETF?
- It is a investment fund listed on a stock exchange.
- It tracks the performance of an index, commodity or bonds.
- It functions the same way as a normal stock, and can be bought or sold via your broker like a stock.
In short, it inherits the PROS of both stock and unit trust.
Benefits
- Diversification - It allows a wide exposure via a single instrument, e.g buying the STI ETF allows exposure to the STI which comprises of 30 stocks.
- Exposure to inaccessible market - It allows exposure to say Taiwan and India markets via the Lyxor Taiwan and IS MSCI India ETFs, where normal investors normally have no means to buy a stock in these countries.
- Lower cost - Instead of upfront charges of 3-5% for unit trusts, ETF will only incur the usual brokerage commissions of approximately 0.5% and clearing fee of 0.04%.
- Transparency & Flexibility - ETF can be bought or sold like a stock during normal trading hours and its live prices can be easily accessible, unlike unit trusts where investors can only buy or sell at the end of the day.
Risks
- Market Risk - It falls and rise like a normal stock
- Foreign exchange - Most ETF are denominated in USD and thus a fall in US/SGD will result in a loss in exchange rates.
- Tracking Error - There is a slight risk that the ETF will not be able to replicate the underlying exactly, though this is not expected to happen.
Fair Value of ETF
The estimate of the fair price of an ETF will be its NAV (Net Asset Value) per unit. The NAV per unit is the total value of all assets minus liabilities in the fund, divided by the number of outstanding ETF units.
NAV is calculated once at the end of each trading day. An estimate of the NAV, called indicative NAV (iNAV) is also calculated periodically throughout the trading day. You can find the NAV value of those ETFs traded on SGX by going into the "General Announcements" of each ETF
I personally do not find these NAV of any significant to an investor's investment decision. Since you are buying into a portfolio of stocks, it should usually be for middle to long term investment, thus just buy when the underlying market is down. You will reap the returns when the market is up in a few years time.
SGX ETFs
| Name | Underlying | Listed | Lot | Bank | Code |
| ABF S'pore Bond Index Fund | iBoxx ABF S'pore Bond Fund | 31 Aug 05 | 1000 | DBS | ABF SG Bond ETF |
| CIMB FTSE ASEAN 40 | FTSE/ ASEAN 40 Index | 21 Sep 06 | 100 | CIMB | CIMBFTASEAN40100US$ |
| iShares MSCI India ETF | MSCI India Index | 15 Jun 06 | 100 | Barclays | IS MSCI India 100US$ |
| Lyxor China Enterprise | Hang Seng China Enterprise Index | 19 Oct 06 | 10 | Lyxor | Lyxor China H 10US$ |
| Lyxor Commodities CRB | Reuters/ Jefferies CRB Index | 18 Jan 07 | 10 | Lyxor | Lyxor CMDTY 10US$ |
| Lyxor Hong Kong | Hang Seng Index | 1 Mar 07 | 10 | Lyxor | Lyxor HangSeng 10US$ |
| Lyxor MSCI AC APAC ex Japan | MSCI AC Asia Pacific ex Japan | 19 Oct 06 | 10 | Lyxor | Lyxor Asia 10US$ |
| Lyxor MSCI Korea | MSCI Korea Index | 7 Dec 06 | 10 | Lyxor | Lyxor Korea 10US$ |
| Lyxor MSCI Taiwan | MSCI Taiwan Index | 1 Mar 07 | 10 | Lyxor | Lyxor Taiwan 10US$ |
| Lyxor MSCI India | MSCI India Index | 5 Nov 08 | 10 | Lyxor | Lyxor MS India 10US$ |
| Lyxor MSCI Thailand | MSCI Thailand Index | 5 Nov 08 | 10 | Lyxor | Lyxor Thailand 10US$ |
| Lyxor MSCI Malaysia | MSCI Malaysia Index | 5 Nov 08 | 10 | Lyxor | Lyxor Malaysia 10US$ |
| Lyxor India Nifty | S&P CNX NIFTY index | 28 Mar 08 | 10 | Lyxor | Lyxor India Nifty 10 |
| Lyxor MSCI Apex 50 | MSCI Asia APEX 50 Index | 5 Nov 08 | 10 | Lyxor | Lyxor APEX50 10US$ |
| Lyxor ETF Commodities CRB Non Energy | Reuters/Jefferies CRB Non-Energy index | 5 Nov 08 | 10 | Lyxor | Lyxor CRBNonEng 10 US$ |
| streetTracks Gold Shares | Gold Spot Price | 11 Oct 06 | 10 | State Street | GLD 10US$ |
| streetTracks Straits Times Index Fund | Straits Times Index | 17 Apr 02 | 100 | State Street | STF ETF |
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