Personally, I am rather interested in the FTSE Xinhua China 25 ETF as I believe China will become the largest economies in the world in the future. This gives local investor a chance to tap on the growth of China in the long run by holding a stake in Chinese equities. The FTSE Xinhua China 25 Index is designed to represent the performance of the China blue chip stocks. It includes the largest 25 Chinese companies listed on the Hong Kong Stock Exchange, ranked by total market capitalisation and that are sufficiently liquid to be traded.
There are many ETFs that tracks the FTSE Xinhua China 25 Index worldwide. One of them is the iShares FTSE Xinhua China 25 Index Fund and the total operating expenses is slightly higher at 0.74% which is comparable to the db x-trackers offered by Deutsche Bank. It seems that all the 4 ETFs are already listed on SGX as you can see the snapshot of the SGX website I took below.
One thing to take note of is that the 4 ETFs under the db x-trackers are trading in US dollars and you should take note of currency risk. What I mean is that due to currency flutucation between the Singapore Dollar i.e. SGD and US Dollars i.e. USD, you may be subjected to some losses. For example, you bought one of the ETFs when the exchange rate is 1.5 SGD to 1 USD. After holding the ETF for a period of time, you may wish to sell your ETF and the exchange rate at the point of selling is 1.3 SGD to 1 USD. Thus due to the difference in exchange rate, you may make a small loss.
One of more interesting ETFs in the db x-trackers will be the S&P 500 Short ETF which is an inverse ETF. As such, if the S&P 500, which is one of the major US indices goes up, the S&P 500 Short ETF will goes down. This ETF will prove to be useful for those who are hedging their holdings or for those who wish to do some market timing. Otherwise, I don't think this ETF will be useful.
The reason why ETFs can be useful and profitable to investors is because stock indices tend to rise in the long run as seen by past instances. Since index ETFs track the stock indices, we would expect them to rise in the long run too. On the contary, since the S&P 500 is an inverse ETF, one should not buy and hold it unless they have reasons as discussed in the previous paragraph. For those who wish to do market timing, I would advise them not to as it is always difficult to time and predict when will the market turn around.
I do hope that there will be more ETFs coming up that tracks the major US indices. It seems strange to me that they can launch an inverse ETF that tracks the S&P 500 but yet they cannot launch an ETF that tracks the S&P 500. Similarly, I have yet to see an ETF that tracks the Dow Jones Industrial Average. Hopefully, there will be such ETFs being launched in the future.
Posts
S&P500 can be tracked using the infinity series S&P500.
ReplyDeleteyes, no etf yet but i think inverse etf are in short supply
Hi,
ReplyDeleteI guess you are referring to the Infinity Series S&P 500 index fund. Actually it is a pretty good option except for the fact that the total expense ratio is close to 1% if I'm not wrong. I don't understand why they are charging such a high management fee. If it was lower, I would definitely consider it.
Besides, that raise up another point. The long term performance of the S&P 500 is better than STI so perhaps that would offset the difference in the total expense ratio.
Having an inverse ETF is definitely good as it gives market players more choices.
Kay
Just one question,
ReplyDeleteIf I buy ETFs of foreign countries, for example, Lyxor Korea ETF, is there any additional risk of foreign exchange risk.
1. Assume the Kospi index did not change at all, however KRW (Korean Won) loses value.
Does (1) affect ETF value?
Conversely, if Korean won appreciates, assuming no change in Kospi index, does the value of ETF increase by the same amount?
This comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteHi,
ReplyDeleteAs taken from the Lyxor Kospi ETF prospectus,
Foreign exchange risk. Foreign exchange trading risks include, but are not limited to, exchange rate risk, interest rate risk and potential interference by foreign governments through regulation of local exchange markets, foreign investment, or particular transactions in foreign currency. The Holder will be exposed to the fluctuation of KRW (being the currency of the stocks comprising the Index) against USD since the securities comprising the replicated index basket are denominated in KRW while the NAV of the Units are denominated in USD. Therefore the NAV of one Unit could change one day to the next according to the USD / relevant currency exchange rate fluctuations even if the value of the Index is kept unchanged during the same period. The Fund will have exposure to fluctuations in the aforesaid currency exchange rates. In particular, Holders are exposed to the risk arising from a decline in the KRW against the USD.
I hope this helps.
Kay
Sorry, confused newbie here.. I've noticed that there are cross listed ETFs on the SGX that track the S&P 500 (like ishares). But there's no price/vol data and it seems like it can't be traded. What's the story here? Pls enlighten!
ReplyDeleteHi,
ReplyDeleteI guess you are referring to the IS S&P500 10US$ and IS DJ USTECH 10US$. Honestly, I have no idea too. I was looking at these counters a long time ago as I was interested in buying ETFs that tracks the DJIA and S&P 500 and I am puzzled by the lack of selling and buying quote price. It seems that these counters has been like this for a long time.
Kay
Hi Kay,
ReplyDeleteJust following up on the query you were answering earlier, for the DBXT FTChina25 ETF, there is only a buy price but not the sell nor the last done price.
My question will be: Does that mean that there is currently no demand in the market, thus not having any price for the sell and last done?
Will that also mean that selling this ETF will also be much harder as there is no demand for it?
Pls advise.
Thanks
Hi Yellowmeadow,
ReplyDeleteI am interested in the DBXT FTChina25 ETF too. In the case where there is a low liquidity of a counter, you have to observe whether the appointed market maker is active in buying and selling from interested parties. As such, if the market maker is active, even if there is no demand in the market, at least the market maker can still carry out transactions with you. Besides that, you have to see whether the spread i.e. the difference between the buy price and sell price is significant as this is also an extra layer of cost.
Thus, if the market maker is active, you may consider buying it. However, it's not a guarantee that the market maker will be active in the future. The best option is always that the liquidity is created by the demand of the market.
Kay
Just a Curious Comment,
ReplyDeleteIf the liquidity of the ETF is low in SG, why not acquire it in US stock exchange?
Hi Kay,
ReplyDeleteThanks for the info.
When you meant looking at whether the market maker is active in buying and selling, is there any specific way to tell or confirm on that?
With regards to DBXT FTChina25 ETF, do you reckon its having an active market maker then?
Thanks once again.
Hi,
ReplyDeleteAcquiring the ETF on the US stock exchanges is a solution indeed since the US stock market is very liquid. Unfortunately, it's not the perfect solution. You have to consider currency fluctuation risk and extra transaction costs such as currency spread depending on which brokerage you choose, brokerage fees and custodian fees.
Hi Yellowmeadow,
ReplyDeleteWhat I do is that I will observe if there is a buying price and selling price during the trading hours and observe the details of the transactions such as the volume of the transaction. Unfortunately, I must admit that this is a rather empirical way of deciding if the market maker is active but so far I don't really have other ways of telling it so I will appreciate if anyone can suggest a better way.
With regards to the DBXT FTChina25 ETF, I can't answer whether it's having an active market maker as I have not been observing this counter. I hope this helps.
Hi Kay
ReplyDeleteThe index is listed on SGX with a indicator "10US" as in:
DBXT FTChina25 10US$
Do you know what the indicator means? Tks for your time as always.
Singlish
Hi Singlish,
ReplyDeleteIf I understood what you meant, 10 means the number of shares for one lot for this counter while US stands for the currency in which this counter is trading in.
Kay
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ReplyDeleteGreat information. I got lucky and found your site from a random Google search. Fortunately for me, this topic just happens to be something that I've been trying to find more info on for research purpose.
ReplyDelete