The first way would be to buy the associated ETFs that tracks the S&P 500 directly such as the SPDR S&P 500 ETF or the iShares S&P 500 Index ETF directly on the American Stock Exchange or in short, AMEX. That will mean that you will have to open an account that allows you to trade stocks listed in the US with a local or foreign brokerage. There are a number of drawbacks to this approach. Firstly, if you open an account with a local brokerage, the brokerage fee is quite high at a typical commision rate of 0.4% or a minimum of around 20 USD. To add on, there is also a custodian fee which means that you will have to pay a small fee monthly to hold on to your US stocks. Secondly, there is currency risk since you are paying for the US stocks in USD. That means you will have to convert your SGD to USD and you may incur a loss when you buy and sell your US stocks depending on the prevailing exchange rate. Furthermore, you will also have to incur charges for exchanging your SGD to USD.
The second way would be to buy a unit trust that is available in Singapore that tracks the S&P 500. One such unit trust is the Infinity US 500 fund. However, there are drawbacks associated with this approach too. The main drawbacks are that the sales charge is rather high at 1% and the expense ratio is also rather hight at 1.17%. However, you will not be exposed to currency risk since this unit trust is quoted in SGD. The details of the Infinity US 500 fund can be seen below.
So which way will be the best approach to invest in the S&P 500 ? Fortunately, someone has carried out a study on this issue. Assistant Professor Roger Loh from SMU has written a paper regarding this and you can check out the paper he wrote, which can be retrieved from his webpage here. The conclusion of his paper was that it may be better to invest in the ETFs listed in the US directly rather than buying the unit trust that tracks the S&P 500 due to the high expenses associated with the latter.
Posts
Thanks. Exactly what I have been planning to do for years but not enough information to go about it.
ReplyDeleteHi Hendy,
ReplyDeleteI'm glad that you found the information to be useful but the credit should go to the author of that paper who did a study on this issue. I just happened to stumble upon his findings.
Kay
Hi Kay,
ReplyDeleteIf i decide to buy the SPY, must i have USD in a account with the brokers? or will the brokers charge us in SGD with their own exchange rate at that time?
and 1 lot for SPY is equals 10 shares? meaning roughly USD880+ according to market now?
Hi Sebestian,
ReplyDeleteIt depends on which brokerage your choose. If you choose local brokerages such as DBS Vickers or UOB Kay Hian, they will convert your SGD to USD under their own terms for the currency exchange rate. Perhaps you can try to open a USD account with them and look elsewhere for a favorable currency exchange rate.
If you choose foreign brokerages that has a local office here such as Saxo Capital or OptionsXpress, it should be the same as the previous case.
You can check out this relevant thread @ http://forums.sgfunds.com/viewtopic.php?p=156279#156279
For US market, there is no board lot size. You can just buy one share of any counters.
Kay
Are you sure you did you or the ori author did work.. Please check your SARS time line.. it is way out.. please check before posting...
ReplyDeleteHi,
ReplyDeleteThanks for your feedback. To be sure, I went to check the period when SARS broke out. The SARS period started from November 2002 and ended in July 2003 but I understand your point as the peak period of the SARS occurred mainly in 2003.
Regarding the S&P 500 post, I made no claims that the paper was written by me. At the end of the post, I made it clear that the solution to this issue was suggested by Asst Prof Roger Loh from SMU, who had investigated this issue and I added a link to the paper on his webpage.
I will be more than happy to correct any mistakes in my posts as I may unintentionally make some mistakes in my postings.
Kay
Hi Kay,
ReplyDeleteIn the post by the author, his examples was specifically with initial investment amount of at least 20,000.
If one were to use DCA without any huge amount upfront, how much would the difference in investment be like? Any rough way to Gauge, as the author did not show any specific ways of tracking.
Rgds & Tnks
Hi Sebestian,
ReplyDeleteUnfortunately, I don't think there is an easy way to gauge. One will have to do some kind of computation such as by using a spreadsheet using Excel to gauge the difference.
>However, you will not be exposed to currency risk since this unit trust is quoted in SGD.
ReplyDeleteThe S&P 500 invests in USD stocks so you are still exposed to currency risk. Just because the fund is quoted in SGD does not mean you are not exposed to currency risk!
This comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteHi,
ReplyDeleteYou have raised up a good point which I have also thought of it at times.
Specific to the Infinity US 500 Stock Index Fund, you may wish to take a look at pg 14 of the prospectus under section 10.2.4 Currency Risks.
The prospectus can be downloaded @ http://www.hsbc.com.sg/1/PA_1_4_S5/content/singapore/personal/investments/unit_trusts/pdf/profact/pros_ocbc.pdf
Kay
Hi Kay,
ReplyDeleteThere are a few S&P 500 ETF and other newly launched well diversified equity linked ETF on the SGX. I believe that it is better to buy ETF listed on the SGX as you need to US pay dividend tax for the same ETF on AMEX. 30% tax rate.
Also, you can never really eliminate currency risk from ETF tracking foreign stocks unless you do a complicated hedging program. This is because the underlying dividend and "value" are all based in foreign currency.
I am not a tax expert or investment specialist. Please correct me if I am wrong.
Oh yes, agree that buying ETF is way better than unit trust or hedge funds. Besides the huge cost and performance advantage, it is transparent... unit trust are actually allowed do quite a bit leveraging and also, although remote, there is a chance of Madoff style fraud.
Hi,
ReplyDeleteI'm not really sure if the dividends you received from ETFs listed on the SGX that are based in the US are exempted from US dividend tax. Perhaps the dividends that you are receiving are being taxed already before it is being distributed to you. If I'm not wrong, it depends on where the main ETFs is registered in.
The main problem to me is that the liquidity of those ETFs listed on SGX has not been encouraging. From what i've been observing, the liquidity of the majority of these ETFs are supported by appointed market makers but the liquidity is still rather lacking.
Kay
Thanks for sharing such great post, according to me it will surely help many people who want such good information about s&p 500.
ReplyDeleteHi Alex,
ReplyDeleteIt's my pleasure to be able to share with others information that will benefit them financially. I merely pointed out that someone has did a study on this before. The credit goes to the author of that paper.
Kay
would it be better if i invested in the vanguard S&P index funds through e-trade? Since singaporeans cannot buy directly, is there any difference between buying an etf or index fund via online brokers?
ReplyDeleteHi taa,
ReplyDeleteI'm more concerned with the custodian for the shares that you buy with the brokerage. In the event that the brokerage collapses, the shares will be held with the custodian. If the custodian is based in Singapore, it will be easier to do any processing and vice versa. My suggestion is that you should buy US shares with the local brokerages or at least be sure that the custodian for the foreign brokerages is based locally. I hope I have addressed your question correctly.
Kay