I was considering how I might structure a portfolio based purely on Exchange Traded Funds (ETFs) that are available on the SGX (Exchange Traded Funds - Navigating Through the Maze).The idea was to build a portfolio that is globally diversified across market regions, complemented by a smaller percentage in alternatives like commodity, and weighted with a home bias for Singapore.
I came up with the below.
Growth Portfolio
In general, ETFs that used the full replication method are preferred over those that are synthetic. Such ETFs hold underlying stocks that are reflective of the index it is attempting to track. Synthetic ones are using other more exotic means to track the index, such as by swaps. As such, they carry additional risks.
15% US - SPDR S&P500 US$ - XD [Full replication]
15% Europe - DBXT MSEurope US$ - Reinv [Full replication]
15% Asia ex-Japan - CIMB S&P Ethical Asia Pacific - XD [Physical replication - sample]
15% GEM - Lyxor EM Mkt US$ - Reinv [Synthetic] or DBXT MSEmer US$ - Reinv [Synthetic]
5% Japan - DBXT MSJap US$ - Reinv [Full replication]
20% Singapore - Nikko AM Singapore STI ETF - XD [Full replication] or SPDR STI ETF 100 - XD [Full replication]
5% ASEAN - CIMBASEAN S$ - XD [Physical replication - sample]
5% Commodity - Lyxor Cmdty US$ - XD [Synthetic]
5% Commodity - GLD US$ [Full replication]
Income Portfolio
However, if my aim is to have a portfolio that would give out a dividend income stream, I guess I would pick the following instead:
20% US - SPDR S&P500 US$ - XD [Full replication]
20% Europe - Lyxor Europe US$ - XD [Synthetic]
20% Asia ex-Japan - CIMB S&P Ethical Asia Pacific - XD [Physical replication - sample]
5% Japan - Lyxor Japan US$ - XD [Synthetic]
20% Singapore - Nikko AM Singapore STI ETF - XD [Full replication] or SPDR STI ETF 100 - XD [Full replication]
10% ASEAN - CIMBASEAN S$ - XD [Physical replication - sample]
5% Commodity - Lyxor Cmdty US$ - XD [Synthetic]
In this instance, I dropped the Global Emerging Market (GEM) as there does not seem to be any that gives out dividends. There is probably difficulty to efficiently replicate the GEMs. Instead, I've substituted in an ASEAN fund as a close proxy. Likewise, Gold was also dropped.
Rebalancing
In both cases, capital top-ups and dividends received would be reinvested during the build-up years (before retirement) by buying ETFs to bring the portfolio closer to the desired ratio annually (or twice yearly).
Do these look reasonable?
Warning: Both portfolios are purely 100% in equities and resources. There are no bond components suggested and these should be considered for more risk-balanced portfolios.
[Updated: 1 May 2015:
Replaced the Lyxor Asia ETF which was a synthetic replication with CIMB S&P Ethical Asia Pacific ETF which uses partial physical replication. Both are dividend paying.]
6 comments:
The SGX listed ETFs (apart from the STI ETFs) leave much to be desired in terms of costs and liquidity. I suggest you look at the ETFs on theLSE
Serendib,
Thanks for the suggestion.
Are there any taxation or inheritance tax issues holding ETFs bought on the LSE?
Other than STI, are there dividends of the other ETFs? Where to find the record of their divendends?
Those I indicated as XD above distributes dividends. Read my other article linked above on where to find dividend info.
What are your thoughts of having only 20% of the portfolio based in Singapore? In other words, only 20% is priced in S$ while 80% of the portfolio is being priced in US$. Is there too much currency exchange risk?
Also, any thoughts on Temasek Holdings' portfolio (based on geography) of:
Asia ex Singapore 42%
Singapore 28%
North America and Europe 17%
Australia and New Zealand 9%
Africa, Central Asia and Middle East 2%
Latin America 2%
Anonymous,
Not sure I understand your line of query. I do not profess to own any foresight, so I mitigate risk by diversification.
As far as Temasek Holdings' portfolio is concerned, I really don't see how it's useful to lay investors. You can neither follow them nor own the same portfolio. But broadly, going by your data, we can guess that they are maintaining roughly 40% Asia, 30% Singapore, 20% US/Europe and 10% others. There is perhaps more opportunity in the Asia/Emerging markets.
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