5 ETFs You Can Invest Through CPF Investment Scheme April 28, 2020
Many of you already knew that you can use your CPF monies to invest via the CPF Investment Scheme (CPFIS). According to the information provided by CPF Board, any CPF member who fulfils the following criteria is eligible to participate in CPFIS:
- at least 18 years old
- not an undischarged bankrupt
- have more than $20,000 in his OA and/or
- $40,000 in his SA (does not require the opening of a CPFIA account)
However, there are still many people who do not know that they can invest in Exchange Traded Funds (ETFs) using their CPFIS-OA. Currently, there are five CPF-approved ETFs listed on SGX:
- SPDR Straits Times Index ETF (SGX: ES3)
- Nikko AM Singapore STI ETF (SGX: G3B)
- ABF Singapore Bond Index Fund (SGX: A35)
- SPDR Gold Shares (SGX: O87)
- Nikko AM SGD IG Corporate Bond ETF (SGX: MBH)
Invest in Index – Straits Times Index
Both SPDR STI ETF and Nikko AM Singapore STI ETF comprise of 30 blue chip stocks in Singapore to replicate STI’s performance. They are among the most traded ETFs on SGX as they allow investors to diversify their investments across different sectors such as Financials, Industrials, Telecommunications, Consumer Goods and Services. The ETF’s performance is dependent on the return of the index (in this case STI) that it is tracking and the value of the 30 component stocks.
A novice investor may find that the STI ETF is the simplest way to get exposure to the Singapore equities market. Given the nature of the CPF account, the investment time horizon of an individual can range from a few years to over a few decades. This fits in to the nature of long term investment using index funds. The SPDR STI ETF has an annualised return of 5.32% since its inception in 2002, while the Nikko AM STI ETF annualised return is 6.80% since its inception in 2009. Both ETFs beat the interest rate of 2.5% or 4% offered by CPF for the Ordinary Account and Special Account. However, investors must take note that interest rates for CPF deposits are fixed whereas there are no guaranteed returns for investing in ETFs. In addition, investors are entitled to dividends distributed semi-annually for both STI ETFs and the annualized dividend yield is in the range of 2% to 4%, depending on the performance of the underlying assets of the fund.
Other asset classes: Bonds and Gold
Investors can also invest in ETFs that track other asset classes such as Bonds and Gold. The ABF SG Bond ETF is one such ETF that allows investors to gain access to a basket of high-quality bonds issued primarily by the Singapore government and quasi-Singapore government entities. It is the first ETF bond fund in Singapore and invests in the constituents of the iBoxx ABF Singapore Bond Index. Investors are entitled to dividends distributed annually. The dividend yield is around 1% to 2%.
On the other hand, the SPDR Gold Shares ETF allows investors to gain exposure to Gold which is often considered as a safe haven. The investment objective of the Trust is for the shares to reflect the performance of the price of gold bullion, less the Trust’s expenses. This Gold ETF is backed by physical gold and has a total net asset of over USD 50 billion. Investors can only invest up to 10% of their investible savings in Gold ETF using their CPFIA.
Inclusion of the Nikko AM SGD Investment Grade Corporate Bond ETF into CPFIS
Nikko AM SGD Investment Grade Corporate Bond ETF has been included into CPFIS since 22 April 2020.
It is Singapore first’s Investment Grade Corporate Bond ETF. Investment grade credit rating indicates a low risk of credit default, making Investment Grade Corporate Bonds a relatively safe investment vehicle for investors.
Historically, Corporate Bonds are traded OTC in large notional amounts and are out of reach for most retail investors. With the inclusion of Nikko AM SGD Investment Grade Corporate Bond ETF into CPFIS, investors can now have easy and low-cost access to corporate bonds via their CPF monies.
To better manage one’s risk, a combination of the above ETFs allows investors to invest in the different asset classes (Equities, Bonds and Gold) and to diversify their investment risk. An investor can assign different weightings to the 3 asset classes accordingly to his/ her risk appetite and investment objective. Together, the combination of these ETFs represents a relatively safe investment for investors. Investors can invest in either one of the two STI ETFs or the bond ETFs to gain exposure to both equities and bond markets in Singapore. To further hedge against possible market risks and volatility, investors can also invest in the SPDR Gold Shares. Gold generally has a negative correlation with stocks and other financial instruments based on historical data, making it ideal for investors to purchase them to reduce volatility and market risks. To better illustrate, in a bearish market where stocks and bonds are performing badly, Gold tend to have an inverse relationship with the two other asset classes’ indices. The paper gain from the Gold’s index performance can be used to offset the paper losses incurred by the other two asset classes.
Example of Portfolio Model:
In conclusion, the five ETFs available offer a good foundation for novice and experienced investors alike to build up their portfolio and gain exposure to the equities market. Instead of letting your CPF monies lay idle to garner 2.5% or 4% interest rates, the investments offer you a way to be vested in the market while minimizing the risks. For all investments, investors must also be prepared to incur paper losses if market conditions are unfavourable. However, a long-term investment will work in your favour through index investment coupled with a simple model portfolio construction.
Summary of ETFs included under CPFIS
|SPDR STI ETF||Nikko AM STI ETF||ABF SG Bond Index Fund||Nikko AM SGD IG Corporate Bond ETF||SPDR Gold Shares|
|Inception Date||11 Apr 2002||24 Feb 2009||31 Aug 2005||27 Aug 2018||18 Nov 2004|
|Total Net Assets||SGD 903.39 M||SGD 297.52 M||SGD 961.24 M||SGD 526.74 M||USD 57.81 B|
|CPF Risk Classification||Higher Risk||Higher Risk||Low to Medium Risk||Low to Medium Risk||Higher Risk|
|CPFIA investible savings||100%||Up to 10%|
Note: Data in the above table is taken from the respective ETF Manager websites and CPF website. Data is accurate as on 27/04/2020 and subject to changes in the future.
-  https://www.cpf.gov.sg/Members/Schemes/schemes/optimising-my-cpf/cpf-investment-schemes
-  https://www.spdrs.com.sg/etf/fund/spdr-straits-times-index-etf-ES3.html
-  http://www.nikkoam.com.sg/etf/sti
-  http://www.nikkoam.com.sg/etf/abf
-  https://www.spdrs.com.sg/etf/fund/spdr-gold-shares-O87.html
About the author
Mr. Joel Lim
Joel graduated from Singapore Institute of Management, University of London with a First Class Honours in Business. He was the recipient of SIM University of London’s Top Student Bronze Award in 2017 and was the worldwide examination topper for the “Financial Management” module in 2016. Joel was also commended by University of London for his excellent performance in the 2014 Examinations.
Joel is involved in ETF education, providing trading ideas and support to traders, dealers and fund managers. Joel also works closely with ETF issuers to educate retail investors about new ETFs during the Initial Offering Period.