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.
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