Understanding ETFs:

A Comprehensive Guide With Focus On

SGX ETF Market Opportunities

By Billy Toh, Hailey Chung

CGSI.COM

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 TABLE OF
CONTENTS

Introduction to ETFs 04
Benefits of Investing in ETFs 15
How to Choose the Right ETF 26
ETF Strategies 33
Building a Diversified Portfolio with ETFs 40
SGX ETF Market Opportunities 48

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 Billy Toh
Billy is deeply committed to making investments accessible and understandable to everyone, a principle
that drives his engagement with the capital markets and his long-term investment strategies. He is currently
the Head of Content & Investment Lead for ProsperUs and an SGX Academy Trainer. His extensive
experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines
markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable
time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over
coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

Hailey Chung
As a lifelong learner, Hailey strives to simplify finance for everyday investors, making it relatable and
enjoyable. She desires to support investors with various background, whether they are grappling with
limited time and resources in seeking financial freedom or are sincere in stewarding their money well as a
token of gratitude for God's provision. Beyond the pursuit of profits, she advocates for investments aligned
with building a better world. As Manager of Content at ProsperUs, she leverages her journalism background
from The Edge Malaysia, where she honed her skills at the capital and corporate desk.

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 Introduction to ETFs

CGSI.COM

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 Introduction to ETFs
What Is An ETF?

An Exchange-Traded Fund (ETF) The main appeal of ETFs lies in

is a type of investment fund that their ability to offer investors a
is traded on stock exchanges, diversified portfolio without
much like individual stocks. the need to purchase each
asset individually. This can
ETFs are designed to track the significantly reduce the risk and
complexity involved in managing
performance of a specific
index, commodity, or basket of an investment portfolio.
assets. They hold a collection of
underlying assets such as
stocks, commodities, or bonds.

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 Introduction to ETFs
How Do ETFs work?

ETFs are structured to track the When you buy shares of an ETF, you One key feature of ETFs is their
performance of a specific index or are essentially purchasing a small arbitrage mechanism, which keeps
asset. For example, an ETF that piece of a large, diversified the ETF's market price close to its Net
tracks the S&P 500 will aim to portfolio. This diversification spreads Asset Value (NAV). Authorized
replicate the performance of that risk across various assets, reducing participants (usually large financial
index by holding the same stocks in the impact of any single asset's poor institutions) can create or redeem
the same proportions. Similarly, a performance on the overall portfolio. ETF shares in large blocks, called
commodity ETF may hold physical ETFs are managed by professionals creation units, in exchange for the
commodities like gold, oil, or use who make decisions about the underlying assets. If the ETF's price
futures contracts to replicate the portfolio's composition and deviates significantly from its NAV,
commodity performance. rebalancing to ensure it continues to these participants can step in to
track its benchmark accurately. exploit the price difference, aligning
the ETF's price with its NAV.

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 Introduction to ETFs
Importance of ETFs in Modern Investing

In today's fast-paced and complex financial markets, ETFs have become a crucial tool for both individual
and institutional investors. Their importance in modern investing can be attributed to several factors.

Diversification Accessibility Cost Efficiency Liquidity Transparency Flexibility

ETFs allow investors ETFs make it easier ETFs often have lower ETFs can be bought ETFs typically With a wide range of
to diversify their for investors to expense ratios and sold throughout disclose their ETFs available,
portfolios efficiently access various compared to mutual the trading day at holdings daily, investors can
and cost-effectively. markets and asset funds, making them market prices, offering transparency implement various
By holding a single classes, including an attractive option providing investors that helps investors investment
ETF, investors can international for cost-conscious with liquidity and the make informed strategies, including
gain exposure to a markets, specific investors. ability to respond decisions. hedging, income
broad range of sectors, and Additionally, the quickly to market generation, and
assets, thereby commodities, which trading flexibility of changes. sector rotation,
reducing the risk might be challenging ETFs allows for tailored to their
associated with to invest in directly. efficient portfolio specific goals and
individual securities. management. risk tolerance.

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 Introduction to ETFs
Key Terms

Net Asset Value (NAV): NAV is the value per Expense Ratio: The expense ratio is the annual fee that
share of the ETF, calculated by dividing the all funds charge their shareholders, expressed as a
total value of all the assets in the fund by the percentage of assets under management. This fee covers
number of shares outstanding. The NAV is the fund's operating expenses, including management
typically calculated at the end of each trading fees, administrative costs, and other expenses. A lower
day and serves as a reference point for the expense ratio means that more of the investor's money is
ETF's market price. working for them, leading to higher net returns over time.

Creation and Redemption: ETFs have a unique

creation and redemption process that helps to
Arbitrage: Arbitrage is a mechanism that helps to keep
maintain their liquidity and keep their market
the ETF's market price in line with its NAV. If the ETF's
price close to the NAV. Authorized participants
price deviates from its NAV, authorized participants can
can create new shares of the ETF by delivering a
step in to buy or sell the ETF shares and the underlying
basket of the underlying assets to the fund, or
assets to profit from the price difference. This arbitrage
they can redeem shares by receiving the
activity helps to bring the ETF's price back in line with its
underlying assets. This process helps to keep the
NAV and ensures that investors can buy and sell the ETF
ETF's supply and demand in balance and ensures
at fair prices.
that its market price does not deviate significantly
from its NAV.

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 Introduction to ETFs
Examples of ETFs

SPDR S&P 500 ETF (SPY): This is one of the most well- Vanguard Total Bond Market ETF (BND): This ETF tracks the
known and widely traded ETFs. It tracks the performance of performance of the Bloomberg Barclays U.S. Aggregate Bond
the S&P 500 Index, which includes 500 of the largest publicly Index, which includes a broad range of U.S. investment-
traded companies in the U.S. By investing in SPY, investors grade bonds. BND provides investors with exposure to the
can gain exposure to the overall U.S. stock market. fixed income market, offering regular income and lower
volatility compared to equities.

iShares MSCI Emerging Markets ETF (EEM): This ETF tracks

the performance of the MSCI Emerging Markets Index, which Invesco QQQ Trust (QQQ): This ETF tracks the performance
includes companies from developing countries such as of the Nasdaq-100 Index, which includes 100 of the largest
China, India, and Brazil. EEM provides investors with non-financial companies listed on the Nasdaq Stock Market.
exposure to emerging markets, which can offer higher QQQ provides investors with exposure to the technology
growth potential but also come with higher risks. sector and other high-growth industries.

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 Introduction to ETFs
Exploring Different Types of ETFs

Let's explore the main categories of ETFs, each tailored to different investment strategies and objectives.

Type of ETF Description Example

Designed to mirror the performance of a specific index. These
Index-Tracking ETFs
aim to provide returns like their target index.
These ETFs mirror an index with weights based on market
Market-Cap Weighted ETFs SPDR S&P 500 ETF (SPY)
capitalization, favoring larger companies.
Focus on stocks that pay regular dividends, providing a regular
Dividend ETFs Vanguard Dividend Appreciation ETF (VIG)
stream of cash flow.
Hold stocks from companies within the same industry, allowing
Sector ETFs investors to gain exposure to specific sectors such as energy or Financial Select Sector SPDR Fund (XLF)
technology.

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 Introduction to ETFs
Exploring Different Types of ETFs

Type of ETF Description Examples

Employ professional managers to oversee the portfolio, aiming
Actively Managed ETFs to outperform a benchmark index. This active management
allows for rapid adaptation to changing market conditions.

Traditional Actively Managed Disclose holdings daily, enabling market makers and authorized
Avantis U.S. Equity ETF (AVUS)
ETFs participants to value the portfolio efficiently.
Allow managers to maintain some confidentiality by providing a
Semi-Transparent Active ETFs proxy portfolio, protecting proprietary strategies while offering JPMorgan Equity Premium Income ETF (JEPI)
sufficient transparency to investors.
Provide passive exposure to benchmark bond indices, holding
Bond ETFs collections of various fixed-income securities across different
categories and maturities.
Offer exposure to fixed-income securities issued by government
Government Bond ETFs agencies, including floating rate bonds and inflation-linked iShares 20+ Year Treasury Bond ETF (TLT)
bonds.
Consist of debt issued by public or private companies to raise
Corporate Bond ETFs funds, typically offering higher yields than government bond Vanguard Total Corporate Bond ETF (VTC)
ETFs but with higher credit risk.
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 Introduction to ETFs
Exploring Different Types of ETFs

Type of ETF Description Examples

Invest in physical commodities like agricultural goods, natural
Commodity ETFs resources, and precious metals, or in commodities futures
contracts.

Hold assets such as gold, silver, and platinum, either directly or

Precious Metals ETFs SPDR Gold Shares (GLD)
through derivatives based on their prices.

Invest in oil and natural gas futures contracts. These can be

SPDR S&P Oil & Gas Exploration and Production
Energy ETFs influenced by geopolitical events, supply-demand dynamics,
ETF (XOP)
and regulatory changes.

Invest in agribusiness stocks involved in production, processing,

Agricultural ETFs or retail, as well as in physical commodities through derivatives VanEck Agribusiness ETF (MOO)
such as futures and options.

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 Introduction to ETFs
Exploring Different Types of ETFs

Type of ETF Description Examples

Employ advanced investment tactics beyond simple index
replication. These offer diverse payout structures, can perform
Complex ETFs
unpredictably under various market conditions, and utilize
derivatives or short selling.

Aim to amplify the daily movement of an index or benchmark,

Leveraged ETFs seeking returns of 1.5:1, 2:1, or even 3:1, using financial ProShares UltraPro QQQ (TQQQ)
instruments like swaps and futures.

Designed to replicate the opposite daily movements of an index

Inverse ETFs or benchmark, rising when the underlying index falls. These are ProShares UltraPro Short QQQ (SQQQ)
used to profit or hedge against market declines.

Aim to replicate the trading activity and strategies of traditional

hedge funds but with the liquidity and transparency typical of
Hedge Fund ETFs Global X Russell 2000 Covered Call ETF (RYLD)
ETFs, allowing everyday investors to access hedge fund
strategies.

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 Introduction to ETFs
Conclusion

In conclusion, ETFs offer a wide range of investment

options, from broad market exposure and sector-specific
investments to complex strategies and asset classes like
bonds and commodities. By understanding the specific
features and risks of these ETFs, investors can better align
their portfolios with their financial objectives and risk
tolerance.

As ETFs continue to evolve, they provide innovative ways

for investors to access diverse investment opportunities
with flexibility and efficiency.

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 Benefits of Investing in ETFs

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 Benefits of Investing in ETFs

1 2 3 4 5
Cost- Flexibility Liquidity
Diversification Transparency
Effectiveness

6 7 8 9 10
Accessibility Performance Innovation and Risk ESG Investing
and Efficiency Growth Management

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 Benefits of Investing in ETFs

Broad Market Exposure: One of the most investments with specific economic trends or
significant benefits of ETFs is their ability to personal interests. Sector ETFs can provide
1 provide broad market exposure. By purchasing a
single ETF, investors can gain access to a wide
exposure to a basket of companies within an
industry, reducing the risk associated with
range of assets, sectors, or geographies. For investing in a single company while still
example, a Total Market ETF might hold benefiting from the overall growth of the sector.
Diversification thousands of stocks across various industries,
offering immediate diversification. This broad
exposure helps mitigate the risk associated with International Diversification: Global
individual securities, as the performance of any diversification is another critical advantage of
single stock has a smaller impact on the overall ETFs. Investors can easily access international
portfolio. markets through country-specific or regional
ETFs. This exposure helps spread risk across
different economies and can provide
Sector and Industry Diversification: ETFs also opportunities for growth in emerging markets.
allow for targeted diversification within specific International ETFs allow investors to benefit
sectors or industries. Investors can choose ETFs from global economic trends without the
that focus on technology, healthcare, energy, or complexities and costs associated with direct
other sectors, enabling them to align their foreign investments.
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 Benefits of Investing in ETFs

Lower Expense Ratios: One of the standout creation and redemption process of ETFs allows

2 features of ETFs is their cost-effectiveness. ETFs

generally have lower expense ratios compared to
for in-kind transactions that help avoid triggering
capital gains taxes. This tax efficiency can result
mutual funds. The expense ratio is the annual in lower tax liabilities for investors, enhancing
Cost- fee that all funds charge their shareholders, and their after-tax returns.
Effectiveness it covers the fund's operating expenses. Lower
expense ratios mean that more of your money is
working for you, rather than being eaten up by Reduced Trading Costs: ETFs trade like stocks
fees. This cost efficiency is a significant on exchanges, which means they can be bought
advantage, especially for long-term investors. and sold throughout the trading day at market
prices. This flexibility allows investors to avoid
the front-end and back-end loads often
Tax Efficiency: ETFs are also known for their tax associated with mutual funds. Additionally,
efficiency. Unlike mutual funds, which may many brokers now offer commission-free trading
distribute capital gains to investors at the end of for ETFs, further reducing the cost of investing.
the year, ETFs are structured in a way that
minimizes these distributions. The unique

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 Benefits of Investing in ETFs

3
Daily Holdings Disclosure: ETFs offer a high Real-Time Pricing: Because ETFs trade on
level of transparency, which is crucial for exchanges, their prices are updated
investors who want to know exactly what they throughout the trading day. This real-time
own. Most ETFs disclose their holdings daily, pricing contrasts with mutual funds, which are
Transparency allowing investors to see the underlying assets priced at the end of the trading day based on
in the fund. This transparency provides the net asset value (NAV). Real-time pricing
confidence and clarity, making it easier for allows investors to react quickly to market
investors to make informed decisions and align events and execute trades at the current
their investments with their financial goals. market price, providing greater control and
flexibility in managing their investments.

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 Benefits of Investing in ETFs

Intraday Trading: The ability to trade ETFs stream, while growth ETFs target companies

4 intraday is a significant advantage over mutual

funds, which can only be traded at the end of
with high growth potential. This variety allows
investors to tailor their portfolios to their
the day. Intraday trading allows investors to specific objectives and risk tolerance.
take advantage of short-term price movements
Flexibility and execute trades based on current market Access to Alternative Assets: ETFs also
conditions. This flexibility is particularly provide access to alternative assets such as
valuable for active traders and those looking to commodities, real estate, and currencies.
implement specific trading strategies. These asset classes can offer diversification
benefits and potential hedges against inflation
and other economic risks. Commodity ETFs,
Variety of Investment Strategies: ETFs offer a for instance, allow investors to gain exposure to
wide range of investment strategies to suit gold, silver, oil, and other physical
different investor needs. Whether you're commodities without the need to buy and store
looking for growth, income, or preservation of the actual assets. Real estate ETFs provide
capital, there's likely an ETF that fits your exposure to real estate investment trusts
strategy. For example, dividend ETFs focus on (REITs), offering a way to invest in property
high-yielding stocks, providing a steady income markets with the liquidity and ease of trading
on the stock exchange.
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 Benefits of Investing in ETFs

High Liquidity Levels: Liquidity is a crucial exit positions without significantly impacting
5 factor for any investment, and ETFs generally
offer high liquidity levels. Because they trade
the market price. It also provides the flexibility
to respond to changing market conditions and
on major stock exchanges, ETFs can be adjust portfolios as needed.
Liquidity bought and sold quickly and easily. This high
liquidity ensures that investors can enter and

Low Minimum Investment: ETFs are purchased in small quantities, allowing

6 accessible to a wide range of investors due to
their low minimum investment requirements.
investors to start with a modest amount of
capital. This accessibility makes ETFs an
Unlike mutual funds, which may require a attractive option for beginner investors and
Accessibility substantial initial investment, ETFs can be those with limited funds.

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 Benefits of Investing in ETFs

Competitive Returns: ETFs often deliver Lower Turnover Rates: ETFs typically have

7 competitive returns compared to traditional

mutual funds. Many ETFs aim to replicate the
lower turnover rates than actively managed
mutual funds. Turnover rate refers to the
performance of a specific index, such as the frequency with which the assets within a fund
Performance S&P 500, by holding a portfolio of assets that are bought and sold. Lower turnover rates
and Efficiency closely matches the index. This passive can result in lower trading costs and reduced
management approach can result in tax liabilities for investors, as fewer capital
performance that closely tracks the gains are realized. This efficiency contributes
underlying index, providing investors with to the overall cost-effectiveness of ETFs and
reliable returns that reflect the broader enhances their appeal as a long-term
market. investment vehicle.

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 Benefits of Investing in ETFs

Continuous Product Innovation: The ETF Growth in Assets Under Management: The

8 industry is characterized by continuous

innovation and growth. New ETFs are regularly
growth of assets under management (AUM) in
the ETF industry reflects their increasing
introduced to the market, offering exposure to popularity among investors. Over the past
Innovation and emerging sectors, innovative themes, and decade, ETFs have seen significant inflows, with
Growth unique investment strategies. For example, investors recognizing their benefits and
thematic ETFs focus on trends such as clean incorporating them into their portfolios. This
energy, artificial intelligence, and blockchain growth has led to increased competition among
technology, providing investors with ETF providers, resulting in lower fees, better
opportunities to invest in cutting-edge products, and improved services for investors.
industries. This constant innovation ensures
that investors have access to a diverse and
evolving range of investment options.

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 Benefits of Investing in ETFs

Mitigating Specific Risks: ETFs can be used Hedging Strategies: ETFs also enable
9 as effective risk management tools. By
providing diversified exposure to a broad range
investors to implement hedging strategies to
protect against market downturns and
of assets, ETFs help mitigate specific risks volatility. For example, inverse ETFs are
Risk associated with individual securities. This designed to move in the opposite direction of a
Management diversification reduces the impact of adverse specific index, allowing investors to profit from
events affecting a single company or sector, declining markets. Similarly, leveraged ETFs
providing a more stable and resilient amplify the returns of an underlying index,
investment portfolio. offering the potential for higher gains (and
losses) over short periods. These specialized
ETFs provide investors with tools to manage
risk and enhance returns in various market
conditions.

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 Benefits of Investing in ETFs

Growing Demand for ESG ETFs: As investors Performance and Impact: ESG ETFs have
10 increasingly prioritize sustainability and social
responsibility, ESG-focused ETFs have gained
demonstrated that investing with a focus on
sustainability can also deliver competitive
popularity. ESG ETFs invest in companies that returns. Many ESG ETFs have performed well
ESG Investing meet specific environmental, social, and relative to traditional benchmarks, debunking
governance criteria, allowing investors to align the myth that responsible investing requires
their investments with their values. These ETFs sacrificing financial performance. Additionally,
provide exposure to companies that are leaders by directing capital towards companies with
in sustainability, ethical practices, and strong ESG practices, investors can encourage
corporate governance, offering a way to invest positive change and contribute to a more
with a positive impact. sustainable and equitable future.

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 How to Choose the Right ETF

CGSI.COM

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 How to Choose the Right ETF

Selecting the right ETF can be a critical factor in achieving This chapter provides a comprehensive guide to help you
your investment goals. With thousands of ETFs available, it make informed decisions when choosing ETFs.
can be overwhelming to determine which ones align best with
your financial objectives.

Analyzing ETF
Assessing Investment Understanding Evaluating ETF Liquidity
Costs (Expense,
Goals ETF Holdings Performance Considerations
Ratio, Spreads)

Choosing the right ETF requires careful consideration of your By following this comprehensive guide, you can make
investment goals, understanding the ETF's holdings, informed decisions that align with your financial objectives
evaluating its performance, analyzing costs, and assessing and build a diversified, efficient, and effective ETF portfolio.
liquidity.

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 How to Choose the Right ETF
Assessing Investment Goals

Defining Your Objectives: The first step in choosing the Risk Tolerance: Assess your risk tolerance, or your ability to
right ETF is to clearly define your investment goals. Are you withstand fluctuations in the value of your investments.
seeking long-term growth, income generation, capital Some ETFs are more volatile than others, so it's important to
preservation, or a combination of these? Understanding choose those that match your comfort level with risk.
your objectives will help you identify ETFs that align with
your financial plans.

Time Horizon: Consider your investment time horizon – the Income Needs: If you require regular income from your
period you plan to hold the investment before needing the investments, look for ETFs that focus on dividend-paying
funds. Short-term investors might prioritize liquidity and stocks or bonds. Income-generating ETFs can provide a
stability, while long-term investors can afford to take on steady cash flow, which is especially beneficial for retirees
more risk for potentially higher returns. or those seeking passive income.

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 How to Choose the Right ETF
Understanding ETF Holdings

Portfolio Composition: Examine the holdings of the ETF to Sector and Geographic Exposure: Consider the sector and
understand what assets it contains. Look for a detailed list geographic exposure of the ETF. For example, an ETF that
of the securities or assets the ETF invests in, which is focuses on technology stocks or emerging markets will have
typically available on the ETF provider's website. Ensure that different risk and return characteristics than one that invests
the holdings align with your investment goals and risk in consumer staples or developed markets. Ensure that the
tolerance. exposure matches your investment strategy.

Weighting Methodology: Understand the ETF's weighting

methodology. Some ETFs are market-cap weighted,
meaning larger companies have a greater influence on the
ETF's performance. Others may use equal weighting or other
strategies to balance their holdings. Each methodology has
its implications on risk and return.

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 How to Choose the Right ETF
Evaluating ETF Performance

Historical Performance: Review the ETF's historical Volatility and Risk Metrics: Examine the volatility and risk
performance to gauge how it has performed over time. While metrics of the ETF, such as standard deviation, beta, and
past performance is not indicative of future results, it can Sharpe ratio. These metrics help you understand the ETF's
provide insights into how the ETF has managed different risk profile and how it might behave in various market
market conditions. Look for consistent performance and scenarios. Higher volatility may be acceptable for growth-
how the ETF compares to its benchmark. oriented investors, while conservative investors might prefer
lower volatility.

Benchmark Comparison: Compare the ETF's performance

to its benchmark index. The benchmark serves as a
standard to evaluate the ETF's returns. Ideally, the ETF
should closely track its benchmark, with minimal tracking
error. Significant deviations may indicate issues with the
ETF's management or strategy.

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 How to Choose the Right ETF
Analyzing ETF Costs (Expense, Ratio, Spreads)

Expense Ratio: The expense ratio is Bid-Ask Spread: The bid-ask spread Trading Commissions: Consider the
the annual fee charged by the ETF, is the difference between the highest trading commissions charged by your
expressed as a percentage of the price a buyer is willing to pay (bid) and broker when buying or selling ETFs.
fund's assets. It covers the fund's the lowest price a seller is willing to Many brokers now offer commission-
operating expenses, including accept (ask). Narrow spreads indicate free trading for ETFs, which can
management fees and administrative better liquidity and lower trading significantly reduce your costs. Be
costs. Lower expense ratios are costs. Wider spreads can erode sure to understand any fees
generally better, as they leave more of returns, especially for frequent associated with your brokerage
your investment returns intact. traders. Check the average spread for account and how they impact your
Compare the expense ratios of similar the ETF and compare it with other overall investment.
ETFs to ensure you're getting a cost- options.
effective option.

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 How to Choose the Right ETF
Liquidity Considerations

Trading Volume: Assess the average daily trading volume of Market Impact: Consider the potential market impact of
the ETF. Higher trading volumes indicate better liquidity, your trades. Large trades in less liquid ETFs can significantly
making it easier to buy or sell shares without impacting the affect the market price, resulting in higher costs. If you plan
market price. Low trading volumes can result in wider bid- to trade substantial amounts, ensure that the ETF can
ask spreads and increased transaction costs. accommodate your trades without causing price
distortions.
Creation and Redemption Mechanism: Understand how
the ETF's creation and redemption mechanism works.
Authorized participants can create or redeem ETF shares in
large blocks, known as creation units, to match supply with
demand. This mechanism helps keep the ETF's market price
close to its net asset value (NAV) and ensures liquidity. ETFs
with efficient creation and redemption processes are
generally more liquid and stable.

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 ETF Strategies

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 ETF Strategies

ETFs offer a versatile platform for implementing various This chapter explores some of the most popular ETF
investment strategies. Whether you're a conservative strategies and how they can be applied to achieve your
investor seeking income or an aggressive trader looking for investment goals.
growth, there's an ETF strategy to match your needs.

Core and Satellite

Sector Rotation Hedging with ETFs
Strategy

Income Generation
Thematic Investing
with ETFs

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 ETF Strategies
Core and Satellite Strategy

Core Holdings: The core and satellite strategy involves Benefits of Core and Satellite: This strategy provides a
building a portfolio around a core of broadly diversified ETFs balance between stability and growth. The core offers broad
that represent the foundation of your investment. These diversification and steady returns, while the satellites allow
core holdings typically include broad market indices such for targeted exposure and the potential for higher gains. It
as the S&P 500, total market ETFs, or large-cap ETFs. The also provides flexibility to adjust the satellite positions
goal is to achieve stable, long-term growth through broad based on market conditions and investment opportunities.
market exposure.

Satellite Investments: Around this core, you add satellite

investments in more specialized or targeted ETFs to
enhance returns or manage risk. Satellites can include
sector-specific ETFs, international ETFs, or thematic ETFs.
These investments are designed to capitalize on specific
market opportunities or trends.

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 ETF Strategies
Income Generation with ETFs

Dividend ETFs: Dividend ETFs focus on stocks that pay Preferred Stock ETFs: Preferred stock ETFs invest in
regular dividends, providing a steady income stream for preferred shares, which are hybrid securities with
investors. These ETFs typically hold a diversified portfolio of characteristics of both stocks and bonds. Preferred stocks
high-yielding stocks, which can include blue-chip pay fixed or floating dividends and have priority over
companies, REITs, and utilities. Dividend ETFs are popular common stocks in the event of a company's liquidation.
among retirees and income-focused investors. These ETFs offer higher yields than common stocks and can
enhance an income-focused portfolio.
Bond ETFs: Bond ETFs invest in fixed-income securities
such as government bonds, corporate bonds, and municipal
bonds. These ETFs provide regular interest payments and
can help diversify an income-focused portfolio. Bond ETFs
come in various durations and credit qualities, allowing
investors to tailor their exposure to interest rate and credit
risk.

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 ETF Strategies
Sector Rotation

Identifying Economic Cycles: Sector rotation involves Tactical Adjustments: Sector rotation requires ongoing
shifting investments among different sectors based on analysis and monitoring of economic indicators, market
economic cycles and market conditions. For example, trends, and sector performance. Investors need to be
during periods of economic expansion, cyclical sectors proactive in making tactical adjustments to their portfolios,
such as technology, industrials, and consumer shifting allocations to sectors that are expected to
discretionary tend to outperform. Conversely, defensive outperform while reducing exposure to underperforming
sectors like utilities, healthcare, and consumer staples may sectors.
perform better during economic downturns.

Using Sector ETFs: Sector ETFs provide a convenient way to

implement sector rotation strategies. By investing in sector-
specific ETFs, investors can easily adjust their exposure to
different parts of the economy. Sector ETFs allow for precise
targeting and quick adjustments based on changing
economic conditions.

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 ETF Strategies
Thematic Investing

Identifying Trends: Thematic investing involves focusing on Benefits of Thematic Investing: Thematic investing allows
long-term trends and themes that are expected to drive investors to capitalize on long-term growth opportunities
future growth. These themes can include technological and align their portfolios with their interests and beliefs. By
advancements, demographic shifts, environmental investing in thematic ETFs, investors can gain exposure to
sustainability, and other transformative trends. Thematic dynamic sectors and industries that have the potential to
ETFs provide exposure to companies that are positioned to outperform traditional markets.
benefit from these trends.

Popular Themes: Some popular thematic ETFs include

those focused on artificial intelligence, clean energy,
biotechnology, and e-commerce. These ETFs invest in
companies that are at the forefront of innovation and are
expected to experience significant growth as their
respective themes evolve.

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 ETF Strategies
Hedging with ETFs

Understanding Hedging: Hedging involves using financial Volatility ETFs: Volatility ETFs, such as those tracking the
instruments to offset potential losses in an investment VIX (Volatility Index), offer exposure to market volatility.
portfolio. ETFs can be used as effective hedging tools to These ETFs can serve as a hedge against market uncertainty
manage risk and protect against adverse market and sharp price swings. By including volatility ETFs in a
movements. Common hedging strategies include using portfolio, investors can mitigate the impact of market
inverse ETFs, volatility ETFs, and sector-specific ETFs. turbulence.

Inverse ETFs: Inverse ETFs are designed to move in the Sector-Specific Hedging: Sector-specific ETFs can also be
opposite direction of a specific index or benchmark. They used for hedging purposes. For example, if an investor is
provide a way to profit from declining markets or protect concerned about potential losses in the technology sector,
against losses in a bearish environment. Inverse ETFs can be they can invest in a defensive sector ETF, such as utilities or
used to hedge against market downturns, providing consumer staples, to offset the risk. This approach provides
downside protection for a portfolio. targeted hedging without the need to liquidate existing
positions.

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 Building a Diversified Portfolio
with ETFs

CGSI.COM

40
 Building a Diversified Portfolio with ETFs

ETFs have become increasingly popular among

investors due to their low costs, transparency, and
flexibility. Combining the benefits of stocks, unit
trusts, and index funds, ETFs offer a compelling
investment option for building a diversified portfolio.

Growth of Retail Investors in the ETF Market

According to a study published in “Retail ETF
Investing” by academic and researcher David
Gempesaw and his team, retail investor trading
volume in ETFs more than doubled from 2010 to
2021, averaging $5.8 billion per day over the full
period. This trend highlights the increasing
preference for ETFs among individual investors.

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 Building a Diversified Portfolio with ETFs
Key Differences Among Investment Vehicles

ETFs Stocks Unit Trusts Index Funds

Listing & Trading Listed on exchanges Listed on exchanges Unlisted Listed on exchanges
Diversified
Broad-based Single company
Diversification (broad market index or Broad market index
exposure focus
specific strategy)
Transparency High Moderate Moderate High
Tradability Real-time trading Real-time trading End-of-day pricing End-of-day pricing

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 Building a Diversified Portfolio with ETFs
Key Differences Among Investment Vehicles

ETFs vs. Stocks ETFs vs. Unit Trusts/Mutual Funds

Both ETFs and stocks are traded on stock ETFs and unit trusts (or mutual funds) are both managed by
exchanges, allowing for familiar trading techniques professional fund managers and offer similar levels of diversification.
like stop-loss orders, limit orders, and margin However, ETFs provide greater transparency by publishing their
purchases. However, ETFs provide diversification holdings daily, allowing investors to see exactly what they own.
by holding a basket of securities through a single
ETFs also offer superior tradability, allowing investors to enter and
trade. On the other hand, buying shares of exit positions at any time during trading hours at real-time market
individual companies provides exposure only to prices. In contrast, unit trusts have a fixed portfolio structure defined
those specific companies. by the fund manager and can only be transacted at end-of-day prices
For example, an ETF tracking the Straits Times Index through agents.
(STI) includes constituent stocks from various ETFs are cost-effective due to their low expense ratios while unit
sectors. This makes ETFs accessible to investors trusts come with higher costs. Moreover, ETFs tend to have lower
with smaller amounts of capital who seek capital gains distributions compared to unit trusts due to their
diversified investments. passive tracking of an index.

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 Building a Diversified Portfolio with ETFs
Key Differences Among Investment Vehicles

ETFs vs. Index Funds

Both ETFs and index funds aim to replicate the ETFs often have lower minimum investment requirements
performance of a specific market index, offering broad compared to index funds, making them more accessible to
market exposure and low costs. However, they differ in smaller investors. ETFs also tend to be more tax-efficient
trading flexibility and liquidity. ETFs are traded on stock due to their structure, which allows for in-kind
exchanges and can be bought or sold throughout the redemptions that minimize capital gains distributions.
trading day at market prices, while index funds can only be
purchased or redeemed at the end of the trading day at the
fund's net asset value (NAV).

44
 Building a Diversified Portfolio with ETFs

Asset Allocation Basics Factors to Consider in Asset Allocation:

Asset allocation is the process of spreading investments 1. Risk Tolerance: Assess your ability to handle market
across various asset classes — such as equities, bonds, volatility and potential losses.
and cash equivalents — to balance risk and reward based
2. Investment Horizon: Determine the length of time you
on an investor’s goals, risk tolerance, and investment plan to hold your investments.
horizon. A well-constructed asset allocation strategy can
help reduce risk and improve returns by diversifying 3. Financial Goals: Define your short-term and long-
investments. term financial objectives.
4. Market Conditions: Consider current economic and
market conditions.

45
 Building a Diversified Portfolio with ETFs

Sample ETF Portfolios for Different Risk Levels

Conservative Balanced Aggressive

60% Bond ETFs 40% Bond ETFs 20% Bond ETFs

30% Equity ETFs 50% Equity ETFs 70% Equity ETFs
10% Cash or Short-term 10% Alternative ETFs 10% Higher-risk Assets like
Bond ETFs (REITs/Commodities) Commodities or Leveraged ETFs

Rebalancing Your ETF Portfolio: Rebalancing involves periodically adjusting your portfolio to maintain your
desired asset allocation. This process involves selling assets that have performed well and buying those that
have underperformed to restore the original allocation.

46
 Building a Diversified Portfolio with ETFs

Monitoring and Adjusting Your Portfolio

Steps to Rebalance
Continuous monitoring and periodic adjustments are crucial to ensure your
portfolio remains aligned with your financial goals and market conditions.
Review Your Portfolio: Regularly check
your portfolio's performance and
Key Monitoring Activities: Adjustments:
allocation.
• Performance Review: • Adding or Removing ETFs:
Regularly review the Based on performance and
performance of your ETFs market outlook.
Set a Rebalancing Schedule: Choose a
fixed interval (e.g., annually or semi- and overall portfolio. • Changing Asset Allocation:
annually) or set a threshold (e.g., 5% • Market Analysis: Adjust allocation in response
deviation from target allocation). Stay informed about market to changing risk tolerance or
trends and economic financial goals.
developments. • Tax Considerations:
Execute Trades: Sell overperforming • Goal Assessment: Manage your investments to
assets and buy underperforming ones to
Re-evaluate your financial optimize tax efficiency.
realign with your target allocation.
goals and adjust your strategy
if needed.
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 SGX ETF Market Opportunities

CGSI.COM

48
 SGX ETF Market Opportunities

The Singapore Exchange hosts (bonds), commodities (such

73 ETFs, including those listed as gold, silver, and oil), and
in dual currencies. As of May real estate investment trusts
2024, these ETFs collectively (REITs). These ETFs offer
manage assets under geographical exposure to
management (AUM) totaling markets such as Singapore,
US$7.89 billion locally and Southeast Asia, China, the US,
US$579.21 billion globally. and several emerging markets.
Additionally, SGX offers two
leveraged and inverse products,
with an AUM totaling US$2 The dominant asset classes by
million locally and globally. AUM on SGX are fixed income
and equities, followed by REITs
and gold. Institutional investors
SGX-listed ETFs cover various make up 63% of the AUM
asset classes, including market segmentation, with Source: SGX (As of Q1 2024)

equities (stocks), fixed income retail investors accounting for

22%.
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 SGX ETF Market Opportunities
New ETF Listings on SGX in 2024

In 2024, the SGX introduced several new ETFs to its growing roster, providing investors with enhanced
opportunities for diversification and growth across various markets.

1 2 3
Lion-OCBC Phillip-China Lion-Nomura Japan
Securities APAC Universal MSCI Active ETF (Powered
Financials Dividend China A 50 Connect by AI)
Plus ETF ETF

50
 SGX ETF Market Opportunities
New ETF Listings on SGX in 2024

Investment Trading
ETF Name Listing Date Objective Manager Trading Name Stock Code
Advisor Currency
This ETF tracks the iEdge APAC Financials
Lion-OCBC Dividend Plus Index, investing in the 30 largest
Lion Global OCBC Lion-OSPL APAC Fin S$
Securities APAC and most tradable companies listed in the Asia
13-May-24 Investors Securities SGD/USD (YLD) / Lion-OSPL APAC YLD / YLU
Financials Pacific region. It aims to provide access to
Limited Private Limited Fin US$ (YLU)
Dividend Plus ETF stable dividend payouts and growth within the
financial sector.

This ETF aims to track the performance of the

Phillip-China MSCI China A 50 Connect Index. The index Phillip China PHIL-CU MS CHINA
Universal MSCI represents the 50 largest securities across Capital Universal Asset A50 S$ (MCN) / PHIL-
20-Mar-24 SGD/USD MCN / MCS
China A 50 Global Industry Classification Standard sectors, Management Management CU MS CHINA A50 US$
Connect ETF reflecting the sector weight allocation of the (S) Ltd. Co., Ltd. (MCS)
Parent Index.

This historic first active ETF on SGX aims for

Lion-Nomura long-term capital growth through an actively Lion Global Nomura Asset A Lion-Nomura Japan
Japan Active ETF 31-Jan-24 managed portfolio of Japanese equity securities Investors Management SGD/USD S$ (JJJ) / A Lion-Nomura JJJ / JUS
(Powered by AI) diversified across sectors and market Limited Co. Ltd. Japan US$ (JUS)
capitalization.

51
 SGX ETF Market Opportunities
CGSI ETFs Listed on SGX

CGS International has expanded its ETF offerings on the SGX, launching two new ETFs to cater to investors
seeking exposure to high-growth and dynamic markets. These additions underscore CGS’s commitment to
providing diverse investment opportunities and enhancing market accessibility.

Manager: CGS International Manager: CGS International

Securities Singapore Pte. Ltd. CGS Fullgoal Securities Singapore Pte. Ltd.

1 CGS Fullgoal
CSI1000 ETF
Investment Advisor: Fullgoal
Asset
Limited
Management (HK) 2 Vietnam 30
Sector Cap
ETF
Investment Advisor: Fullgoal
Asset
Limited
Management (HK)

Trading Currency: USD/SGD Trading Currency: USD/SGD

Listing Date: 9 November 2023 Listing Date: 25 August 2023
Trading Name (Stock Code): Trading Name (Stock Code):
Objective: This ETF tracks the CGS FG CSI1000 US$ Objective: This ETF tracks the CGS VN 30 SC ETF US$
performance of the CSI1000 (GRU)/CGS FG CSI1000 S$ iEdge Vietnam 30 Sector Cap (VND)/CGS VN 30 SC ETF SG$
Index, investing in high-growth (GRO) USD Index (NTR) and invests in (VNM)
and innovative industries within the 30 largest and most liquid
the CSI 1000 constituents. companies listed on the Ho Chi
Minh Stock Exchange.

52
 SGX ETF Market Opportunities
ETF Performance Highlights on SGX

Source: SGX, CGS International (As of June 27, 2024)

53
 SGX ETF Market Opportunities
ETF Performance Highlights on SGX

1. Equities lead with focus on US and Indian 2. Commodities perform well, particularly gold
markets ETFs such as GLD SG$ (SGX:GSD) and GLD US$ (SGX:O87),
ETFs like SPDR S&P500 US$ (SGX:S27) and SPDR DJIA US$ linked to the LBMA Gold Price PM, delivered notable annual
(SGX:D07), tracking the S&P 500 Index and Dow Jones total returns of 18.65% and 16% respectively. This highlights
Industrial AverageSM (DJIASM) Index respectively, exhibited gold's resilience as a favored commodity during periods of
robust annual total returns of 28.05% and 20.12%. economic uncertainty.
Concurrently, Amundi MSIndia US$ (SGX:G1N) and IS INDIA
CLIMATE US$ (SGX:I98), centered on the MSCI India Net 3. Rising preference for sustainable investments in
Total Return Index and MSCI India ESG Enhanced Focus CTB Asia Pacific
Select Index, reported strong returns of 27.12% and 20.43%,
underscoring significant investor interest in US and Indian ETFs like CSOP LOW CARBON S$ (SGX:LCS) and CSOP
equities. LOW CARBON US$ (SGX:LCU), based on the FTSE Asia
Pacific Low Carbon Select Index, demonstrated strong
performance with returns of 18.97% and 16.81%
respectively. These ETFs reflect growing investor demand for
sustainable investment opportunities across the Asia Pacific
region.

54
 SGX ETF Market Opportunities
ETF Performance Highlights on SGX

4. Stability in Asian fixed income assets 5. Ethical investing gains momentum in Asia Pacific
region
The IS ASIA HYG US$ (SGX:O9P), which tracks the PRINCIPAL S&P AP DIV US$ (SGX:P5P), focusing on the
Bloomberg Asia USD High Yield Diversified Credit Index, S&P Ethical Pan Asia Select Dividend Opportunities Index,
posted a solid annual total return of 11.50%, highlighting the reported an annual total return of 11.15%. This ETF
resilience and attractiveness of Asian fixed income illustrates the increasing popularity of ethical investment
securities amidst global market volatilities. strategies that prioritize sustainable dividend opportunities
in the Asia Pacific market.
These top-performing ETFs on SGX, as of June 27, 2024, all
employing a passive management style, reflecting the
current market preference for low-cost, diversified
investment vehicles that mirror market indices and deliver
competitive returns.

55
 SGX ETF Market Opportunities
ETF Performance Highlights on SGX

The ETF volume and turnover

trend on SGX, from January to
May 2024, indicates that ETF
customers on SGX show a
preference towards equities.
Source: SGX, CGS International (As of May 2024)

56
 SGX ETF Market Opportunities
ETF Performance Highlights on SGX

Source: SGX, CGS International (As of May 2024)

57
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