Tuesday, November 10

Which ETFs on SGX are cash-based ?

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I have received a few queries on which ETFs on SGX are actually cash-based as compared to swap-based ETFs. As explained in a previous post here, swap-based ETFs carry an additional counterparty risk and have less transparency as compared to cash-based ETFs. As such, I have glanced through all the holdings of the ETFs that are listed on SGX. You can also find out for yourself by downloading their financial statements which are available in their annual reports or their quarterly reports or statements. Under these reports, the holdings of the ETF will usually be reflected under the portfolio statement. If the portfolio looks very different from the constituent stocks of the index that it is supposed to track, chances are that this ETF is not cash-based.

So how many ETFs listed on SGX are cash-based ? The answer is surprising low. Currently there are 42 ETFs listed on the SGX. The type of ETF for these ETFs are shown below.

Cash-based ETFs
  • ABF SG Bond ETF
  • CIMBFTASEAN40 100 US$
  • DaiwaFTShariaJ 100 US$
  • DBS STI ETF 100
  • STI ETF

Swap-based ETFs
  • All db x-trackers ETFs
  • All iShares ETFs
  • All Lyxor ETFs

I did not include GLD 10US$ as I'm not familiar with it although the prospectus seems to be suggesting that this ETF is holding physical gold indeed. The DIAMONDS 10 US$ and the SPDRS 10 US$ are inactive so I did not include these 2 ETFs too.

As you can see, only 5 ETFs listed on SGX are cash-based. The rest are mainly swap-based ETFs. This means that investors are only left with a few ETFs to choose from if they only wish to invest in cash-based ETFs.
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8comments

  1. AnonymousNovember 11, 2009 at 8:15 AM

    Hi Kay,
    Your post on the cash-based ETF is what i had always wanted to know. It is so informative.

    So, if i want access to the china market and Lyxor China is swap-based. Does it mean that it is better to invest in unit trusts despite the higher charges ? What will you do? Thanks

    Regards
    Phyllis

    ReplyDelete
  2. KayNovember 12, 2009 at 10:03 PM

    Hi Phyllis,

    I do not have an easy answer for this as you have pointed out the issue for unit trusts correctly. Swap-based ETFs carry counterparty risk while unit trusts have higher charges. Another method would be to purchase cash-based ETFs listed on the US market that tracks the China market but then again, there is the problem of estate duty and dividend are taxable at 30%. Thus this is something which you may have to consider.

    Kay

    ReplyDelete
  3. AnonymousNovember 17, 2009 at 12:47 AM

    Hi Kay,

    any idea what is the cheapest way to buy unit trusts? any other cheaper alternative to fundsupermart?

    thanks

    meng

    ReplyDelete
  4. KayNovember 17, 2009 at 8:55 PM

    Hi meng,

    I'm currently not vested in any unit trusts thus I'm not able to answer this question of yours.

    Kay

    ReplyDelete
  5. AnonymousNovember 21, 2009 at 6:14 PM

    Hi Kay,
    Could you kindly help me understand why STI ETF can do a 10 for 1 stock split in Jan 2008? More specifically, how does it achieve such a high price before the split? Then, the STI was just under 3500, I thot the STI ETF value should be approx 1/1000 of STI; ie S$3.50 maybe. Many thanks Kay.

    ReplyDelete
  6. KayNovember 21, 2009 at 10:24 PM

    Hi,

    Before the split, the price of the STI ETF should be approximately 1/100 of the Straits Times Index. I believe the reason for the split was to increase the liquidity of the STI ETF and it was very illiquid in the past.

    Kay

    ReplyDelete
  7. UnknownMarch 24, 2011 at 7:06 PM

    Hi Kay,

    I chanced upon your posts on the ETFs as I am beginning to trade on ETFs.

    Does it mean that swap-based ETFs are more vulnerable and exposed to more risk compared to the 5 cash-based ETFs?

    Thks,
    Jen

    ReplyDelete
  8. KayMarch 28, 2011 at 10:28 PM

    Hi Jen,

    If you are trading, I suppose it does not make much of a difference. Perhaps it only means a counter with fluctuating prices. The risk is more applicable towards those who invest in ETFs.

    The risk is that the counterparties of the ETFs fail to pay the difference for the ETF and the index that it is suppose to track. Current regulations limits the percentage of the assets of the ETF that is exposed to each counterparty. But when you have a systemic failure of the financial system as witnessed in the US financial crisis, no single financial institution is immune to the rundown.

    Kay

    ReplyDelete

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