Investing gets “Smarter” With Phillip SING Income ETF May 12, 2020
In the universe of the Singapore Exchange (“SGX”), there are over 700 individual stocks to choose from. For the average retail investor, picking the right stock is akin to picking out needles in the hay. The difficulty further compounds when retail investors try to produce decent returns consistently over time.
The infographic below summarises some of the key disadvantages for most retail investors:
Importance of Diversification
Inherent to their small capital base, retail investors are less able to diversify their portfolio meaningfully on their own. This gives rise to the popularity of Exchange Traded Funds (“ETFs”), which offer access to diversified portfolios to retail investors.
As the name suggests, an ETF is an investment fund that is listed and traded on the stock exchange. ETFs typically track an index, such as a stock or bond index, and aims to produce returns that reflect the performance of the index or underlying assets.
The benefits of diversification can be simply explained. Consider a retail investor who has in-vested all his capital of $10,000 into a component stock to form Portfolio A. A 10% loss of the component stock will amount to a loss of $1,000 on his portfolio.
Now, consider Portfolio B which is made up of 10 components. A 10% loss on one component would amount to only $100 loss on the portfolio.
|Portfolio||No. of Components||Potential Loss|
As illustrated above, meaningful diversification minimises the risk of loss when one particular component stock performs badly. In fact, other investments that do well could potentially make up for the performance of the underperforming component.
A “smarter” way to accumulate SG stocks
The first index which local investors are acquainted with would most likely be the Straits Times Index (“STI”). The STI is a market capitalisation weighted index that tracks the performance of the top 30 companies on SGX.
Phillip SING Income ETF is one ETF that uses the STI as the underlying benchmark. ETFs help retail investors to overcome challenges in an effective and cost-efficient way. Instead of picking out individual stocks, investors actually buy into a basket of top-quality Singapore stocks, thereby unlocking the benefits of diversification.
However, unlike traditional market capitalisation based STI ETFs, Phillip SING Income ETF uses smart beta strategies to filter and score components. This is based on the selection criteria of quality, financial health (distance-to-default) and dividend income.
The top 30 constituents are then selected to form the portfolio and weightage is tilted towards higher scoring constituents. In this way, investors can view this strategy as a mean to position the portfolio towards stronger dividend income quality. We explain the index methodology as follows:
Check out the sector allocation of Phillip SING Income ETF in the infographic below:
Effectively, prospective investors are buying into familiar local companies such as DBS, Singapore Exchange, Singtel etc.
Wait, that’s not all! We have another smarter option for you!
You may invest in Phillip SING Income ETF via our Share Builders Plan (“SBP”). It is a regular fixed dollar amount investment plan, which enables you to buy shares on a consistent and incremental basis so as to build up a portfolio of securities for yourself eventually. Therefore, you do not need a huge amount of funds to invest in the stock market since SBP presents an opportunity for you to invest at smaller quantities.
By leveraging the Dollar Cost Averaging methodology, you invest in a fixed amount of funds consistently every month over a period of time, and the dollar cost averaging benefits you regardless of price fluctuations. You purchase more units when the price is lower and fewer units when the price is higher.
Grow your portfolio gradually and cultivate the habit of disciplined savings. You may begin investing from as low as $100 on a monthly basis.
That’s not all, we have something for your little ones too! Sign up for a Junior Share Builders Plan and receive 12 months handling fee rebates*.
HOW TO GET STARTED?
For existing POEMS clients, please click here to sign up!
For existing SBP Clients, please follow the following steps to add Phillip SING Income ETF into your investment instruction:
Log on to POEMS > Acct Mgmt> Regular Savings Plan(RSP) > Share Builders Plan > Invest-ment Instruction > Amend > Submit Password
Think BIG. Start small.
For more information on Share Builders plan, please email email@example.com.
About the author
Phillip Capital Management (PCM)
Phillip Capital Management(PCM) is an independent fund management company, and the Asset Management arm of PhillipCapital Group. We manage funds for both individual investors as well as institutions, and help our clients achieve their financial goals. Visit our PCM website to find out more.