G3B vs CFA vs MBH vs A35 – investing with SGD-denominated ETFs

POSB Invest Saver introduced 2 more ETFs onto their Regular Savings Plan for retail investors to dollar cost average (DCA) every month into 4 SGD-denominated ETFs – up from 2 previously – with a minimum sum of just $100 every month.

The introduction of the NikkoAM-StraitsTrading Asia ex Japan REIT ETF (CFA) and the Nikko AM SGD Investment Grade Corporate Bond ETF (MBH), investors now have the option to invest in Asia ex-Japan REITs (real estate) as well as investment grade bonds denominated in SGD, in addition to the two existing ETFs (G3B – Nikko AM STI ETF and A35 – ABF Singapore Bond Index Fund).

Notwithstanding the above, FSMOne also launched their Regular Savings Plan for ETFs earlier this month, with up to 40 ETFs listed on SGX, HKEX and US stock exchanges available for application, with a minimum investment amount of S$50 and commission of 0.08% (minimum S$1).

I will do up a separate post on investing with FSM One in the coming weeks as I will be moving my DCA investments onto FSM One starting from next month.

In this post, we will look into talking a bit more about the 4 SGD-denominated ETFs.

Why invest in SGD-denominated ETFs

ETFs (Exchange Traded Funds) continue to see strong growth and momentum globally, popularised in recent years by robo-advisors and passive indexing strategies that have much lower costs vis-a-vis actively managed funds and unit trusts.

For the Singaporean investor, investing in SGD-denominated ETFs will remove foreign-exchange risks associated with your portfolio – especially important if you want to retire in Singapore and support your lifestyle with SGD-denominated assets.

CFA – NikkoAM-StraitsTrading Asia ex Japan REIT ETF

The NikkoAM-StraitsTrading Asia ex-Japan REIT ETF – quite a mouthful, I know so let’s call it CFA (the ticker) for short – is an option for investors looking to invest in the APAC real estate market – primarily for long-term capital growth and dividends.

It tracks the FTSE EPRA Nareit Asia ex Japan Net Total Return REIT Index, with a one-year annualised tracking error of 0.19%.

Quick Facts:

  • Total Expense Ratio: 0.60%
  • Dividend distribution frequency: Quarterly
  • Listing date: 29 March 2017
  • Fund size: S$193.78 million as of 11 Nov

Investment holdings as of 11 Nov: 

Name % assets
Ascendas Real Estate Investment Trust 9.91%
Link Real Estate Investment Trust 9.62%
CapitaLand Mall Trust 9.52%
CapitaLand Commercial Trust 7.85%
Mapletree Commercial Trust Units Real Estate Investment Trust Reg S 6.59%
Mapletree Logistics Trust 5.95%
Suntec Real Estate Investment Trust 5.85%
Mapletree Industrial Trust 5.14%
Mapletree North Asia Commercial Trust 4.23%
Keppel REIT 3.77%

What I like:

  • Quarterly dividend payouts – very good for retirees or those who want steady income
  • Exposure to the real estate sector in Asia as another form of diversification
  • Higher yields compared to bonds
  • Avoid stock picking (think Eagle Hospitality Trust saga)

What I don’t like

  • High TER and management fee – a lot of the returns is lost compared to buying individual REITs
  • Concentrated exposure to Asia’s real estate sector

With tax transparency treatment announced to extend the tax transparency treatment for Singapore-listed REITs (S-REITs) to Singapore-listed REIT ETFs, REIT ETFs like CFA can enjoy un-taxed distributions in the hands of the trustee and pass on higher dividend yields to retail investors.

MBH – Nikko AM SGD Investment Grade Corporate Bond ETF

MBH is a new addition to the SGD-denominated bond ETF landscape, having being listed only recently on 27 August 2018 to some cheer, as our only SGD-denominated bond ETF (A35) was rather uninteresting.

MBH opens up investment opportunities into the SGD-denominated investment grade corporate bond space, where investors who previously wanted to invest in SGD-denominated bonds had to be accredited, with a minimum transaction size of $250K.

It tracks the iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index, covering corporate bonds (both local and foreign) as well as quasi-government bonds.

In the chart above, you can see that it invests in mainly high quality corporate bonds with high credit ratings with a majority (~75%) being Singapore issuers.

While it provides a higher yield than the extremely safe Singapore government bonds, the spread of 1% might not be worth taking if you feel that these companies have much higher risk of default and the returns doesn’t justify the risk.

In terms of holdings, you can see that the top holdings are mostly high quality corporates like local banks or government linked institutions like Temasek and LTA.

Top 10 holdings MBH as of 11 Nov 2019
Sector allocation MBH as of 11 Nov 2019

Quick Facts:

  • Total Expense Ratio: 0.30%
  • Dividend distribution frequency: Annually
  • Listing date: 27 August 2018
  • Fund size: S$499.53 million as of 11 Nov

What I like:

  • Another option for a bond fund for investors looking for SGD-bond exposure
  • Diversification option to Singapore equities with its low correlation
  • No currency risk given the bonds are SGD-denominated
  • The best alternative for a 3-fund Bogleheads portfolio bond allocation for the above reasons

What I don’t like:

  • Yields are not that much of an attractive return, given SSBs have been very popular bond-like instruments with no liquidity and capital risk
  • Annual distributions – it’s a pity distributions that are annual, given retirees would be the biggest investors of such bond ETFs and they would need a more frequent income flow

G3B – Nikko AM Singapore STI ETF

G3B tracks the Straits Times Index (STI), which consists of the top 30 companies ranked by market capitalisation listed on the Singapore Exchange.

These 30 companies tend to be blue chips stocks, or companies with a strong track record of dividend payouts.

Top 10 investment holdings as of 24 Nov 2019
Sector allocation as of 24 Nov 2019

Quick Facts:

  • Total Expense Ratio: 0.30%
  • Dividend distribution frequency: Semi-Annually
  • Listing date: 24 February 2009
  • Fund size: S$316.80 million as of 24 Nov

What I like:

  • Attractive dividend yields
  • Broad market exposure to Singapore’s largest companies by market cap – partake in Singapore’s (and also the region’s) success

What I don’t like:

  • Limited investment universe – only 30 stocks and it is heavily skewed towards financials and industrials industry
  • Missed opportunity to invest in up and coming growth sectors like technology

A35 – ABF Singapore Bond Index Fund

A35 is the first exchange-traded bond fund in Singapore, which tracks the iBoxx ABF Singapore Bond Index, which includes a variety of high quality bonds issued by the Singapore government and Singapore government-linked entities like Temasek, LTA and HDB.

The Singapore government is credit rated AAA by all 3 credit rating agencies (Moody’s, S&P and Fitch) – supported by strong foreign reserves and government surpluses.

During times of market stress, the bond fund performs consistently well and shows resilience over time.

Quick Facts:

  • Total Expense Ratio: 0.26%
  • Dividend distribution frequency: Annually
  • Listing date: 31 August 2005
  • Fund size: S$906.05 million as of 24 Nov

What I like:

  • Solid as a rock in good and bad times

What I don’t like:

  • Low yields – long-term investors can get much better returns elsewhere

CFA vs G3B vs MBH vs A35

Charting the performance of the 4 ETFs, from January 2018 to today (Nov 2019)

Since Jan 2018, CFA (in dark blue) has been exceptional in its growth compared to G3B, especially this year. Its stock price (excluding dividends) has returned close to 9% vs -3.14% for G3B, at a lower volatility.

With limited data to backdate given CFA is relatively new, there’s only so much analysis we can do. REITs have done relatively well in the first half of this year thanks to lower interest rates and the ongoing trade war which made investors turn risk-off.

In Q3 2019, you can see the share prices of REITs have traded down while the STI ETF traded up as trade uncertainty stabilises. While there is no evidence on consistent outperformance of REIT stocks, it has shown this year that they are a safe harbour during times of distress.

A35 – being the safest in the portfolio and also the anchor, showed very minimal returns with little volatility.

In the US, VNQ – for Vanguard Real Estate ETF (in dark blue) actually underperforms the S&P500 ETF (in light blue) in the 5 year timeframe.

VNQ vs SPY

So while one asset class works for one region, it might be a different story elsewhere in the world.

That’s because the constituents of the country’s indices are vastly different. The S&P 500 – as of November 2019 – has 500 stocks in its universe and is weighted towards Technology (26%), Financials (16%), Healthcare (13%) and Consumer cyclical (13%) sectors.

The STI – as of November 2019 – has only 30 stocks in its universe (due to how the index is setup) and is heavily weighted towards financials (42%), industrials (19%) and real estate (17%).

Buying both ES3 and CFA will weight you heavily towards the real estate sector – given that ES3 has already a 17% weightage in real estate. By adding CFA into your portfolio, you’re taking on greater real estate exposure (and its corresponding risks) in your portfolio.

Concluding thoughts

Investing in a diversified portfolio of stocks, bonds and real estate has never been easier. With RSPs, it is also now an easy way for investors to maintain discipline and adopt a long-term strategy when investing in the market.

Derrick is a digital native, finance geek and avid photographer. He loves spontaneity but is a control freak at the same time.

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