Background information on ETFs
In an ETF, no individual stocks are being bought from any particular company, but rather it is made up of numerous stocks from various companies. Even though an ETF may be considered a ‘basket’ of stocks, fund managers still manage and control it.
Although ETFs may seem like a good choice for your investment portfolio, there are some things to consider before you make a decision, such as the expenses and fees of an ETF. As with any other investment, there will always be costs and fees with investing in them. In most cases, when you invest in funds, they’re going to charge you what’s known as a ‘load’.
So now that we got the facts out, what are some of the different types of ETFs you can invest in here in Singapore?
An index-tracking ETF comprises stocks or bonds that track an index. An example would be the Straits Times Index, which tracks all the companies listed on the Singapore Stock Exchange (SGX). Since this tracks an index, it gets its value based on whatever is happening with that particular stock market. So depending on how well or poorly SGX performs will determine if your investments do well or do poorly as well. It means that if you were to go along with STI, there’s no guarantee that your investments will be profitable – you could lose money.
A geared ETF is a type of index-tracking ETF where the fund manager uses a gearing strategy to enhance its return for the investor. Gearing allows them to increase or decrease the returns from an index. For example, if they have $100 and want to amplify their earnings, it would mean they need to buy another $100 worth of stocks so that it’s constantly tracking their target market accurately. If there’s a drop in investment value, then this means that they would incur more fees as well; but if their investments go up in value, then there wouldn’t be any additional costs incurred because of this kind of structure.
An active ETF exposes investors to stocks in an index or stocks that track a commodity. For instance, if I wanted exposure in the gold market, all I would have to do was buy shares of an ETF that tracks gold prices. Since they’re trying to help you out with exposure, there may be costs involved when they buy or sell your investments for you. It means that when it comes to a time where they want to decrease the amount of exposure you have in this investment portfolio, they may hit you with additional fees, so it’s essential for you to read up on what these fees are before making any decisions!
Finally, we come down to a managed ETF – which is where the fund manager has complete control over what stocks they will decide to buy or sell. They give you advice on what kind of investment portfolio should suit your needs, and they make all the decisions for you, whether it’s about when to buy, when to sell or if there are fees associated with buying or selling stocks in this particular fund offer.
Various kinds of bond ETFs can be purchased here in Singapore, such as an Asian Bond Index Fund, Emerging Market Debt Fund, Global Aggregate Bond Index Fund (which tracks bonds from 31 developed countries), etc. Like how ETFs work with other forms of investing, the objective of these funds is to give more exposure to whatever market it is trying to track.
If you want to invest in a fund, one of the best ways you can go about doing so is by buying shares from an ETF. If anything, they give you exposure to various markets that have been shown to perform well over time! Give it a thought before buying into any investment portfolio – because more often than not, there will always be fees involved with every type of fund out there on the market today. Check here for more info!