Singapore's Financial Scene
Singapore’s financial scene is vibrant and dynamic, making it one of the top destinations for both seasoned and newbie investors. One of the country’s crown jewels is its vast array of investment funds, each catering to different needs, risk profiles, and investment horizons. Let’s take a journey through the most prevalent types of investment funds available in the Lion City..
Unit Trusts (or Mutual Funds)
Investment funds pool money from multiple investors and invest it in a diversified portfolio of assets. These funds are managed by professional fund managers who make investment decisions based on the fund’s objectives, strategies, and risk tolerance. Let’s delve into the different aspects of investment funds:
Key Characteristics of Unit Trusts
Diversification
By pooling funds from many investors, unit trusts can invest in a broad range of assets, providing diversification and potentially reducing the risk for individual investors.
Professional Management
Unit trusts are managed by professional fund managers who make investment decisions based on research and analysis. This allows individual investors to benefit from expert knowledge without having to manage their investments actively.
Liquidity
Investors can typically buy or sell units of the trust on any business day, providing a level of liquidity. The value of the units is determined by the net asset value (NAV) of the fund, which is calculated daily.
Accessibility
Unit trusts allow individual investors to access markets or asset classes that might be difficult or expensive to access individually.
Income Distribution
Many unit trusts distribute income, such as dividends or interest, to investors. The frequency of these distributions can vary, with some funds distributing monthly, quarterly, or annually.
Variety
There are many types of unit trusts available, each with its own investment objective and strategy. This includes equity funds (investing in stocks), bond funds, money market funds, balanced funds (mix of stocks and bonds), and sector-specific funds, among others.
Fees and Charges
Investors in unit trusts typically incur fees, which can include management fees, administration fees, and sales charges. It’s essential for investors to be aware of these fees as they can impact the overall returns
Unit Trusts in Singapore
- Offers over 500 investment fund options.
- Ease of getting started with just a DBS bank account.
- Options to invest a lump sum amount or make monthly investments through DBS iBanking.
- A one-stop shop for investment vehicles with over 1,000 unit trust options.
- Financial advisors are available to assist with queries.
- Charges only the net asset value, making it a popular purchasing platform.
- Low barrier to entry for existing UOB customers.
- Funds can be selected based on six categories or using the funds selector tool.
Exchange Traded Funds (ETFs)
An ETF, or Exchange-Traded Fund, is a type of investment fund and exchange-traded product that is traded on stock exchanges, much like individual stocks. ETFs hold multiple underlying assets, not just one like individual stocks.
Key Characteristics of ETFs
Diversification
ETFs typically hold a collection of stocks, bonds, or other assets, which means they offer a way for investors to diversify their portfolios without having to buy each individual asset. For instance, an ETF might track a specific stock index, such as the S&P 500, and thus hold shares in all the companies that make up that index.
Liquidity
ETFs are traded on major stock exchanges, which means they can be bought and sold throughout the trading day at market prices, just like individual stocks.
Cost-Efficient
ETFs generally have lower expense ratios compared to mutual funds. This is because most ETFs are passively managed and aim to replicate the performance of an index rather than outperform it.
Transparency
ETFs disclose their holdings daily, allowing investors to see exactly what assets are held within the fund.
Flexibility
Like stocks, ETFs can be purchased on margin, sold short, or held for the long term, giving investors a lot of flexibility in how they use them in their investment strategies.
Dividends
Just like stocks, ETFs can pay out dividends. If the underlying assets of the ETF pay dividends, those dividends are typically passed on to the ETF shareholders.
Tax Efficiency
Due to the unique structure of ETFs, they can be more tax-efficient compared to mutual funds. This is because the creation and redemption process of ETF shares usually takes place in-kind, which means that the ETF itself doesn’t have to sell securities and potentially generate capital gains.
Variety
There are ETFs for nearly every asset class and investment strategy. Whether you’re interested in a specific industry, commodity, bond type, or global market, there’s likely an ETF that meets your needs.
ETFs in Singapore
SPDR Straits Times Index ETF (SGX: ES3)
Description: This ETF aims to replicate the performance of the Straits Times Index, which represents the performance of the top 30 companies listed on the Singapore Exchange.
LION-PHILLIP S-REIT ETF
Description: This ETF provides exposure to the real estate investment trust (REIT) sector in Singapore, tracking the performance of the Morningstar® Singapore Yield Focus IndexSM.
iShares MSCI Singapore ETF
Description: Managed by BlackRock, this ETF tracks the MSCI Singapore Index, which consists of stocks traded primarily on the Singapore Exchange.
Real Estate Investment Trusts (REITs)
REITs, or Real Estate Investment Trusts, are companies that own, operate, or finance income-producing real estate across a range of property sectors. They provide a way for individual investors to earn a share of the income produced through real estate ownership without actually having to buy or manage the property themselves.
Key Characteristics of REITs
Income Generation
REITs are known for paying high dividends. They are required by law to distribute at least 90% of their taxable income to shareholders annually in the form of dividends.
Liquidity
Unlike actual real estate properties which can take months to sell, REITs are traded on major stock exchanges, making them highly liquid assets.
Diversification
- REITs can provide diversification to an investment portfolio because real estate often reacts differently to market conditions compared to other asset classes like stocks or bonds.
Transparency
Since they are publicly traded, REITs are subject to the same regulatory requirements as other publicly traded companies, ensuring transparency and regular disclosure.
Taxation
REITs have a unique tax structure. They avoid corporate income tax as long as they distribute the majority of their income to shareholders. However, the dividends received by the shareholders are usually taxable.
Types of REITs
Equity REITs
The most common type of REIT. They own and manage income-producing real estate properties like apartments, office buildings, shopping centres, and hotels. Income is mainly generated from the rent they collect.
Mortgage REITs (mREITs)
Instead of owning property, they finance real estate, earning income from the interest on their investments.
Hybrid REITs
These trusts combine the investment strategies of equity REITs and mortgage REITs, owning properties and holding mortgages.
REITs in Singapore
Mapletree Logistics Trust
Dividend yield: 4.86%
DPU (Distribution Per Unit): 6.69¢
NPI (Net Property Income): S$157.19M
Aggregate leverage ratio: 36.8%
Net asset value per unit: S$1.41
Description: Mapletree Logistics Trust is one of the largest logistics S-REITs with a diversified portfolio across countries such as Singapore, Australia, Hong Kong, Japan, China, Malaysia, and South Korea.
Parkwaylife REIT
Dividend yield: 2.74%
DPU: 14.08¢
NPI: S$121.9M
Aggregate leverage ratio: 36.4%
Net asset value per unit: S$2.33
Description: Parkwaylife REIT is a healthcare REIT known for owning renowned hospitals in Singapore such as Parkway East Hospital, Gleneagles Hospital, and Mount Elizabeth Hospital. It also owns medical facilities and nursing homes in Japan and Malaysia.
CapitaLand Integrated Commercial Trust
Dividend yield: 4.63%
DPU: 5.36¢
NPI: S$541.1M
Aggregate leverage ratio: 40.4%
Net asset value per unit: S$2.06
Description: It is Singapore’s largest retail REIT and owns shopping malls such as Bugis+, Bugis Junction, Tampines Mall, and others. It also has integrated developments and Grade A office buildings
Private Equity Funds
A private equity (PE) fund is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity. Unlike public equity, which is openly traded on stock exchanges and can be bought by a wide range of investors, private equity involves directly investing in companies or buying out companies, making them private.
Key Characteristics of Private Equity Funds
Direct Investment in Companies
PE funds invest directly in companies, often acquiring significant stakes. These companies are typically not publicly traded, or the goal of the PE fund is to delist them.
Investment Horizon
PE investments are typically long-term in nature, often spanning 5 to 10 years or more. The idea is to invest in a company, grow and improve its operations, and then exit the investment at a profit, either by selling the company to another buyer or taking it public.
Strategies
There are various strategies within private equity, including:
- Leveraged Buyouts (LBOs): This involves buying companies using a significant amount of borrowed money.
- Venture Capital: Investing in early-stage companies with growth potential.
- Growth Capital: Investing in more mature companies that need capital to expand or restructure.
- Distressed Investments: Investing in companies that are near or in bankruptcy.
Value Addition
PE firms often play an active role in the management of the companies in which they invest. They might bring in new management, improve operations, or implement new strategies to enhance the value of the company.
Exit Strategies
After growing and improving the company’s operations, PE firms aim to exit their investments at a profit. Common exit strategies include selling the company to another firm, initiating an initial public offering (IPO), or selling the stake to other investors.
Funding
PE funds raise capital from institutional investors like pension funds, endowments, and wealthy individuals. These investors commit their capital to the PE fund for the fund’s duration.
High Returns and Risks
Given the nature of the investments and the active role PE firms play, the potential returns can be high. However, the risks are also significant, given the uncertainty associated with turning around or growing companies.
Private Equity Funds in Singapore
Novo Tellus Capital Partners
- Headquarter: Singapore, Central Region, Singapore
- Founded: 2010
- Industry focus: Finance, Financial Services, Venture Capital
- Details: Novo Tellus Capital Partners specializes in control buyout investments in small and medium-sized businesses.
Temasek Holdings
- Headquarter: Singapore, Central Region, Singapore
- Founded: 1974
- Industry focus: Angel Investment, Finance, Financial Services, Venture Capital
- Details: Temasek is an investment firm focused on delivering long-term, sustainable profits.
Crescent Group (Crescent Point)
- Headquarter: Singapore, Central Region, Singapore
- Founded: 2005
- Industry focus: Emerging Markets, Finance, Financial Services
- Details: The Crescent Group is primarily focused on the Asia-Pacific and Middle East regions, specializing in lending money and offering strategic advice to top technology firms.
Hedge Funds
Hedge funds and alternative assets refer to a broad category of funds that can invest in a wide variety of companies, structures, and asset classes, both listed and unlisted. These funds often employ different strategies to achieve returns for their investors.
Key Characteristics of Hedge Funds
Accredited or Qualified Investors
Hedge funds in Singapore are typically only open to accredited or qualified investors. This ensures that the investors have a certain level of financial sophistication and can bear the risks associated with hedge fund investments.
Variety of Investment Options
Hedge funds offer a wider variety of investment options compared to traditional investment funds. They can invest in equities, fixed income, commodities, derivatives, and even illiquid assets like real estate or private companies.
Higher Risk
Due to their broader investment mandate and strategies, hedge funds can carry a higher level of risk compared to traditional mutual funds. However, the aim is to achieve higher returns.
Organisational Structure
Hedge funds can be structured in various ways, including as limited partnerships or limited liability companies. The structure can influence the fund’s operations, tax implications, and investor rights.
Fee Structure
Hedge funds typically operate on a “2 and 20” fee structure, meaning they charge a 2% management fee and a 20% performance fee on any profits earned. However, this can vary among funds.
Domestic (Onshore) vs. Foreign (Offshore) Funds
hedge funds can be categorized as either onshore or offshore, depending on their registration and where their primary operations are located. Offshore funds are typically set up in tax-friendly jurisdictions and cater to international investors, while onshore funds cater to local investors.
Hedge Funds in Singapore
Intermediate Capital Group
Managing Capital: $50 billion
Clearwater Capital Partners
Managing Capital: $1.4 billion
Keshik Capital
Managing Capital: $50 million
Fixed Income Funds
Investing a fixed sum of money regularly can help individuals grow their wealth over time. This disciplined approach to investing offers several benefits, including not having to time the market, not requiring extensive knowledge or expertise, starting with a small investment amount, and leveraging a dollar-cost averaging strategy.
Key Characteristics of Fixed Income Funds
Regular Income
These funds typically pay periodic interest to investors, which can be monthly, quarterly, semi-annually, or annually. This interest is often referred to as “coupon payments.”
Principal Repayment
At the end of the bond’s maturity, the issuer is obligated to repay the principal amount (or face value) of the bond to the bondholder.
Diverse Portfolio
Fixed Income Funds can invest in a variety of debt instruments, including government bonds, corporate bonds, municipal bonds, treasury bills, and other money market instruments.
Risk and Return
Generally, fixed income funds are considered less risky than equity funds. However, they are not entirely risk-free. The main risks associated with fixed income funds include interest rate risk, credit risk, and inflation risk. Typically, the higher the potential return, the higher the risk.
Interest Rate Sensitivity
The value of fixed income securities tends to move inversely with interest rates. When interest rates rise, bond prices usually fall, and vice versa.
Credit Quality
Bonds are often rated by credit rating agencies based on the issuer’s creditworthiness. High-quality bonds (like government bonds) are usually considered safer but offer lower yields, while lower-quality bonds (like junk bonds) offer higher yields but come with higher risks.
Prominent Fixed Income Investment Platforms in Singapore
POSB Invest Saver/ DBS Invest Saver
Offers four broad ETF investments listed on the Singapore Exchange (SGX), including the Nikko AM Singapore STI ETF and the ABF Singapore Bond Index Fund.
Saxo Regular Savings Plan
Collaborates with BlackRock to offer managed portfolios that are Defensive, Moderate, and Aggressive.
Robo-Advisory Firms
Platforms like StashAway, AutoWealth, Syfe, UTRADE Robo, UOBAM Invest, OCBC RoboInvest, DBS digiPortfolio, MoneyOwl, and Endowus offer various portfolios based on risk profiles and investment objectives.
