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Why 2019 is the Best Year to Invest in ETF Singapore

ZUU Online SG logo ZUU Online SG 20/3/2019 Racheal Muriithi
a clock on the wall © Pixabay

Many investors feel that investment is about speculation of the market performance before putting in your foot. Exchange Traded Fund (ETF) Singapore investors have been watching the coming down of the Strait Times Index (STI) as from the beginning to nearly the end of 2018. The Singapore Exchange Limited (SGX) reported that STI generated a return of -5.9% as of November 2018. This performance was a gradual drop from 22% return in 2017.

Is this performance a red flag to avoid ETFs in 2019? Nonetheless, it isn’t. Regardless of the performance decline, Singapore remains the best performing nation in ETFs offering the best dividends yields globally. While at its lowest performance, STI offered a yield of 4.6%  and this was ahead of Asia’s key stock index yield of 3.0%.

Though Singapore domestic growth has been significantly affected by the US-Sino trade tensions, the government is optimistic about economic growth. Its forecast demonstrates the possible growth of the economy. Many recessions stem from the United States which is the dominant player in the world trade. If the year 2018 was an experience of recession it is not bound to last for long. The recent recession experienced lasted for ten months.

Therefore, if we go by the latest history, Singapore economic growth is tangible. Though the year 2018 experienced poor return overall, the first six months showed higher than expected performance. This is a sign of promising market performance. Thus, 2019 is the year to invest in ETF Singapore for ETF-interested investors.

The Best Approach to ETF Investment

First, let’s understand what ETFs are. They are investment funds traded on the Singapore Stock Exchange. They track the performance of an index and provide access to a basket of assets. Through ETFs, investors gain access to the performance of the assets that comprise an underlying index.

Though the majority of ETFs aim to track stock indexes, there are those that invest in commodity markets, bonds, currencies and other assets classes. Many ETFs allow investors to use income, speculation and hedging strategies. A significant advantage of ETFs is that they provide exposure to international markets and some asset classes that may be inaccessible individually.

ETFs pool together money from different investors and the fund manager can invest the fund in assets they believe in giving return to the investors. Before you can put your money in an ETF, it is essential to understand its key characteristics. It will help you to identify the right funds. Here is what to consider.

The Fund is Investing Where

Investing in ETFs does not necessarily mean you are diversifying your portfolio broadly. This understanding requires that you learn where the fund is going to invest. You should seek to know this stance using these parameters.

Asset classes: Is the fund investing equities alone, bonds or commodities or a mix of a variety of these? Are they classes of assets that you will be happy to own? Industries: This refers to the economic sectors in which the fund can invest. Is it in automobile, technology or healthcare. The localities involved: This entails the regions in which the funds invest. Whether globally, in developed countries, or a single country like Singapore.

The Index Focus

It is quite vital to consider the index this ETF will track. Establish if it will provide excellent exposure to your preferent equities. You can apply the useful rule of the thumb that the more the Equities an index tracks, the better it represents that market. An index of a broad market signifies a larger diversification. Also, if an index concentrates on a specific sector, it gets riskier.

The Method of Investment

The investment strategy used in a fund should communicate the approach fund manager will take. It could be tracking an index or investing in equities of the best companies in a country. There also others like traditional active stock-picking and more. An illustrative example is managers who build their portfolio using Economic Science and evidence. They do this in the effort to create more value for their clients.

For instance, they can focus on buying more stocks from firms with characteristics like small size, profitable and valuable. They capitalize on these factors because they are scientifically proven to be factors of return that improves yield over the long term. Such fund managers believe this approach prevails even during unpredictable market environments.

While you understand the investment methodology, it is essential to know the track record of the fund manager. The knowledge of the two factors will help bring sense about your investment. In times of volatility, you will not struggle to retain your investment.

The Fund Provider

Considering the fund manager is as important as choosing the fund itself. A fund provider manages every fund. While you select the fund, it is the fund manager who determines the actual investments that comprise the fund. They choose a portfolio of securities that best replicate the underlying index. The fund manager should have the expertise, experience and excellent track record in the ETF industry.

You should understand the service model applicable to the fund provider. Do they support financial advisors, and what level of trading support and investor education do they give? Also, consider the total asset under management and how they compare with competitors. Find out if the provider has any risk management strategy in place.

The Fees to Pay

You will need to pay service managers for their service in your investment. This requires you to know the Total Expense Ratio which measures the annual fee payable for holding the ETF. A sum of administrative, operational, legal and marketing costs will eat into your return. You should therefore, consider a fund that will help you carry home a good return.

Due diligence is critical to be successful in ETF investing. Select an ETF that fulfills your investment goals. If ETFs are your course of Investment, don’t allow the recent market conditions to hinder you. 2019 is the year to take the plunge.

Here is more for you:

How Risk-averse Investors can Benefit from Fixed Deposit Singapore-Learn the Tax Benefit

Best ETFs in Singapore 2019

Investor Sentiment Survey 2019

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