Why SGD ETFs Deserve a Second Look

The second factor that many of us are likely to overlook is the foreign exchange publicity danger. It may be simple to neglect about that when the USD-SGD fee has typically been robust over the past decade; however older, wiser traders might let you know in any other case:

As current occasions have proven, investing in USD when your bills and value of residing are in SGD might not all the time be a smart selection.

USD Returns, SGD Payments

Let’s speak concerning the elephant within the room. Most of us spend in SGD. Our mortgages, groceries, kopi cash—the whole lot is priced in native foreign money.

If all of your investments are in USD, you could be taking an extreme quantity of foreign money danger with out even realising it! This hit dwelling for me in the course of the market correction in April 2025. If you happen to had invested within the S&P 500 and another person had invested within the STI, you could be shocked to seek out that your US investments truly delivered decrease returns after changing it again to SGD—because of the weakening of the USD.

Right here’s the illustrated calculations:

Additional studying: Through the current April 2025, you'd have made more cash as a Singapore investor when you had chosen to put money into an area ETF monitoring the STI over a US ETF monitoring the S&P 500. 

Not like the US Fed which adjusts rates of interest, our Financial Authority of Singapore (MAS) doesn’t handle financial coverage that method. As a substitute, our central financial institution makes use of trade fee coverage the place it adjusts the energy of SGD to fight imported inflation and handle our export costs.

As a substitute of fixing rates of interest, MAS manages the trade fee of the SGD. Particularly, MAS seems at how the SGD performs towards a basket of different main currencies (like USD, MYR, CNY, and so on). This is called the Nominal Efficient Change Fee (NEER). This determines how robust or weak SGD is in comparison with a gaggle of currencies that matter to us—normally from international locations we commerce quite a bit with.

Learn extra right here: Singapore's Change Fee-Primarily based Financial Coverage

That’s why, the SGD has remained robust through the years vs. many different currencies.

In current months, you might need heard concerning the theme known as “De-dollarisation” – which refers back to the pattern of traders transferring away from the USD and USD investments. This has led to the devaluation of the USD, which creates a double-whammy impact because the USD weakens whereas SGD strengthens.

In different phrases, what does that imply for me as a Singaporean investor? If our investments are in USD however our payments are in SGD, that’s not the wisest plan.

What occurs after we put money into US ETFs as a Singaporean investor?

If you happen to’re new to trade traded funds (ETFs)—they’re principally a basket of shares that monitor a particular index. They’re normally passive, low-cost, and self-correcting. When poor-performing firms drop out of the index, they get changed by higher ones. You don’t must inventory choose or constantly monitor the marketplace for particular person inventory efficiency.

However right here’s the factor: not all ETFs are created equal.

Desk: Creator’s personal compilation. 

*Word that for foreign money danger, SGD-denominated ETFs which have underlying investments in abroad itemizing venues aren't spared from international foreign money trade fluctuations, nonetheless, ETF managers that provide a SGD-hedged share class (such because the Amova E Fund ChiNext Index ETF) assist SGD traders mitigate FX dangers.

As you might know by now, nearly all of US-listed ETFs are in USD. If the USD weakens towards SGD (which has been taking place), your returns get eroded while you convert again.

And when you’re investing for the long term, holding over USD 60,000 in US-domiciled belongings (together with US ETFs) leaves you in danger for property tax implications. Do you have to cross away, your property is topic to as much as 40% of your funding, leaving your family members with lesser to inherit.

What’s extra, US-listed ETFs additionally include a 30% dividend withholding tax for non-US residents. Think about being paid $1,000 in dividends, however solely receiving lower than $700 after accounting for taxes and your brokerage’s international dividend-handling charges. Whereas some savvy traders bypass this by choosing Irish-domiciled variations like CSPX for tax effectivity (drops to fifteen% withholding tax as an alternative of 30%), even such a transfer can’t remove your foreign money danger.

What’s one technique to keep away from that danger altogether?

Search for ETFs that commerce in SGD.

Investing as a Singaporean

Many Singapore traders naturally gravitate in direction of the S&P 500 and US-listed ETFs when beginning their funding journey. In spite of everything, these funds are extra well-known and extensively talked about on-line by international finance creators as in comparison with protection on our native market.

However that doesn’t imply you need to skip on investing in your house nation totally. Nor does it imply that Singapore isn’t a beautiful place for returns.

The excellent news is, Nikko AM (quickly to be renamed Amova Asset Administration) has a whole suite of ETFs primarily designed for Singapore-based traders such as you and me.

A few of their key ETFs embody:

Nikko AM’s new Amova E Fund ChiNext Index ETF is a good instance—they didn’t simply slap a Chinese language index on an ETF and name it a day. They went a step additional to hedge it in SGD for us, and that’s uncommon.

Word: having a SGD-hedge doesn't take away FX dangers 100%, however it does assist to mitigate an excellent portion of it vs. having the funding in RMB.

During the last 3 many years, they’ve expanded their ETF choices to the purpose the place an investor right this moment may even construct a whole core-satellite ETF portfolio with their merchandise! Whether or not you’re in search of publicity to equities, bonds, sure sectors and even to faucet on development in China, there’s a ETF for that.

With this combine, you may get diversification in each bonds and equities throughout the Asia market, whereas staying totally invested in SGD.

No want to fret concerning the USD depreciating.

No shock tax implications.

Designed with the Singaporean investor in thoughts.

Conclusion

The ETF investing scene has modified drastically within the final decade, with new funds providing us extra entry to completely different markets and themes right this moment.

On the similar time, traders ought to concentrate on key dangers and concerns related to every of those ETFs. Market volatility, rate of interest modifications and foreign exchange fluctuations can have an effect on an ETF’s efficiency and result in potential capital loss. Whereas diversification reduces danger, it doesn’t remove it totally – financial downturns or trade declines can nonetheless affect efficiency.

And extra importantly, a globally diversified funding portfolio doesn’t must be 100% in foreign exchange.

I’m not saying to by no means put money into the S&P 500 or abroad ETFs. There’s a spot for them in each globally diversified portfolio, and even for myself, I personal each abroad ETFs and native ones.

However what I am saying is, don’t ignore the foreign exchange danger. Particularly not now, when the USD is exhibiting indicators of weak point.

Whenever you reside, spend and pay your payments in SGD, you need to take into consideration how your funding portfolio is catering for that.

So look past “simply the S&P 500”, and begin by ensuring your core investments embody locally-domiciled SGD ones.

P.S. From 1 September 2025, Nikko Asset Administration shall be rebranded as Amova Asset Administration. Similar trusted staff, new title. “Amova” combines “Alpha” and “Transfer” – a nod to their aim of serving to you progress forward in your monetary journey with smarter investing.

1 Distributions aren't assured and are on the absolute discretion of the Managers. If the funding earnings is inadequate to fund a distribution for the Fund, the Managers might decide that such distributions ought to be paid from the capital of the Fund. Any distribution is predicted to lead to a direct discount of the Fund’s internet asset worth per unit. Please confer with the respective Fund prospectus and Product Highlights Sheet for additional particulars.

Disclosure: This put up is dropped at you in collaboration with Nikko Asset Administration. All analysis and opinions are that of my very own, and shouldn't be taken as monetary recommendation on your particular state of affairs(s) as I do know nothing about your particular person monetary circumstances, danger tolerance or funding aims. I extremely suggest that you just use this as a place to begin to perceive extra concerning the numerous ETFs supplied by NikkoAM which you should utilize for SRS investing, after which click on into the respective hyperlinks above to retrieve the fund prospectus and efficiency in order that will help you determine whether or not it suits into your funding aims 

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