Thursday, June 26, 2008

US Exchange Traded Fund (ETF)

As of now most of my CPF-OA and CPF-SA money are invested in unit trusts. Only some of my CPF-OA money is invested in stocks. And a major portion of my cash is invested in Singapore stocks while the balance in high yield deposits.

I have faith in my own country’s economy and since I do have home ground advantage of our local stocks, which is why I choose to put substantial amount of money in them. However I do see some risks in investing in a single country market like Singapore.

An important rule of investing is to diversify. It is not advisable to put all your money in a single country market. As such I am looking for opportunities to invest in global stocks.

However being a small time investor, it may not be efficient to invest in global stocks on my own. Furthermore you don’t live in that country and you may not have sufficient knowledge in those stocks. Therefore I decided to look at ETF listed in the overseas exchanges to gain exposure.

Why do I choose ETF instead of unit trusts? The main reason is definitely cost. And as all the ETF listed in SGX market are not liquid, recently I went all the way to US exchanges to look out for ETF. They really amazed me with a list of active ETF there.

I did make use of ETF screener at Morningstar website for ETF that tracks international indexes and with expense ratio less of 0.4%. It gave me a list of choices as below.

Fund NameMorningstar CategoryExpense Ratio (%)P/EPTBYield (%)Total Assets ($m)Standard Deviation (%)Sharpe Ratio (%)Trading VolumeInception Date
BLDRS Asia 50 ADR IndexDiversified Pacific/Asia0.3----1.5611415.930.8148,70111/13/2002
BLDRS Developed Markets 100 ADR IndeForeign Large Blend0.37.761.152.6715011.660.9217,23411/13/2002
BLDRS Emerging Markets 50 ADR IndexDiversified Emerging Mkts0.3----1.5993021.051.5314,71211/13/2002
BLDRS Europe 100 ADR IndexEurope Stock0.37.971.182.94411.810.954,37411/13/2002
DJ Euro STOXX 50 ETFEurope Stock0.310.261.542.8347612.31.14622,52810/15/2002
DJ STOXX 50 ETFEurope Stock0.310.261.573.211611.380.868,76010/15/2002
iShares MSCI EAFE Growth IndexForeign Large Growth0.414.482.370.921,449----52,6068/1/2005
iShares MSCI EAFE IndexForeign Large Blend0.3412.421.682.6147,56510.911.0810,528,0418/14/2001
iShares MSCI EAFE Value IndexForeign Large Value0.410.751.273.331,077----69,6268/1/2005
iShares S&P Global 100 IndexWorld Stock0.412.132.051.811,3569.610.6270,50912/5/2000
SPDR MSCI ACWI (ex-US)Foreign Large Blend0.3512.91.841.89309----16,8811/10/2007
SPDR S&P BRIC 40Diversified Emerging Mkts0.416.153.25--347----68,3296/19/2007
SPDR S&P World ex-USForeign Large Blend0.3512.531.71.7826----1,1004/20/2007
Vanguard Emerging Markets Stock ETFDiversified Emerging Mkts0.2513.022.211.927,52919.671.31591,0013/4/2005
Vanguard Europe Pacific ETFForeign Large Blend0.1211.461.58--3,894----473,1777/20/2007
Vanguard European Stock ETFEurope Stock0.1210.821.653.2636,29611.121.16271,6633/4/2005
Vanguard FTSE All-World ex-US ETFForeign Large Blend0.2511.861.670.882,716----242,3923/2/2007
Vanguard Pacific Stock ETFJapan Stock0.1213.411.412.4716,88112.180.86128,8963/4/2005

Some of the ETF expense ratios are as low as 0.12% per annum compared to our StreetTRACKS STI which is at 0.3% and Lyxor MSCI Asia Pacific ex Japan which is at 0.65% per annum. From the list, I can invest in a minimum of one ETF that can cover the global market.

I have short listed Vanguard Emerging Markets ETF and iShares MSCI EAFE Index which will form a supplementary portfolio of my long term investment using cash. Currently I am in the process of setting up my access to trade in US markets with DBS Vickers and OptionsXpress.

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