How to choose the best ETF as a SRS investor

What happened?

Here’s one of the best-kept secrets in Singapore - you can lower your tax bill by using the Supplementary Retirement Scheme (SRS). 

The SRS is a voluntary savings scheme that encourages you to save for retirement while reducing your taxable income. 

For Singaporeans and PRs, you can claim up to S$15,300 in income tax relief when you contribute to your SRS account. 

However, funds in your SRS account will only earn an interest of 0.05% per annum. 

This has led many to ask – what are some investment options we can consider with our SRS funds? 

What are your ETF investment options for SRS funds? 

If you have been investing with your CPF funds, you may have realised that you can only invest in a short list of government-selected ETFs. 

However, you can choose from the entire suite of SGX-listed ETFs when investing with your SRS funds. 

In fact, ETFs has grown in popularity as an investment option amongst SRS investors. 

According to the SGX, the combined asset size of ETF holdings directly held by SRS investors has doubled between December 2019 and December 2022.

There are 43 ETFs listed on SGX with a combined AUM of S$11 billion as of end November 2023.

These ETFs provide exposure to different asset classes such as equity, fixed income, REITs and commodity. They also provide exposure to different geographies such as Singapore, China and other key global markets. 

This means that you have a range of ETFs to select for your portfolio and to manage risks.  

How to select the best ETF for your SRS funds

If you are wondering how you should choose the best ETF to invest in, we will be sharing a few ways to narrow down the list of ETFs to consider for your SRS funds. 

Some of the factors we can consider include:

• Most popular ETFs for SRS investors
• Latest ETF choices for SRS investors
• Highest dividend yield ETFs for SRS investors

#1 – Which are the most popular ETFs for SRS investors?

We recently came across a list of top traded ETFs by SRS investors, which provides a good reference on what other investors are doing with their SRS funds. 

Research has shown that lower-cost funds tend to have better returns than higher-cost funds. The total expense ratio “TER” (which represents the annual fees you pay the ETF issuer to operate the ETF)  of top 10 most traded ETFs ranges from as low as 0.09% to 0.62% while typical unit trust may have a TER that exceeds 1% before factoring in the sales charges. 

ETFs held in SRS account also do not incur any additional custodian or management fees. Hence the only recurring fees that you may pay for holding the investments for long term is simply its TER.

Top 10 traded ETFs by SRS investors from January to October 2023 

Here’s what we noticed about the list of top 10 traded ETFs by SRS investors:

Preference for investing in a familiar market

ETFs with Singapore Equities, REITs and bonds as underlying dominate the list of the top 10 traded ETFs, which we believe reflect a preference for investing in a familiar market. 

This would include the SPDR Straits Times Index ETF (ES3) and NikkoAM Singapore STI ETF, which track the top 30 companies listed on the SGX.

ETFs which offer exposure to Singapore REITs also remain highly popular amongst SRS investors, inline with the strong inflows in Singapore REIT ETFs year-to-date. SGX-listed ETFs with S-REITs as underlying include the Lion-Phillip S-REIT ETF and NikkoAM-Straits Trading Asia ex-Japan REIT ETF.

Lastly, Singapore bond ETFs have also caught the attention of investors as bond yields reached multi-year highs in 2023. SGX-listed ETFs with Singapore bonds as underlying include the Nikko AM SGD Investment Grade Corporate Bond ETF (MBH) and ABF Singapore Bond Index ETF (A35).

SPDR S&P 500 ETF to invest into U.S. largest companies

SPDR S&P 500 ETF (S27) is ranked among top 3 traded ETF by SRS investors. 

At a total expense ratio of 0.09%, this is the only S&P 500 tracking ETF available today for SRS investors to invest directly into the top U.S. companies that include Apple, Microsoft and Amazon to provide potential long-term capital growth. 

Gold ETF as a way to hedge volatility in market  

Gold prices recently reached a record high earlier this month, driven by rising geopolitical tensions and investor expectations that the Fed may be cutting interest rates in 2024. 

The SPDR® Gold Shares ETF with over $60 billion in AUM is cross-listed in Singapore and available to trade in two currencies - USD and SGD, ticker code O87 and GSD.

#2 – Which are the newly added ETFs for SRS investors?

The number of ETFs listed on the SGX has grown in the past year, providing more options for investors looking to invest in ETFs using their SRS funds. 

Here are a few themes that the newly added ETFs allow investors to gain access to.

Long-term growth potential of China

ETFs with China equities as underlying also continue to be popular amongst SRS investors as investors seek to diversify long-term investments into the world’s second largest economy and position for its post-covid recovery.

Besides the more popular China focused ETFs e.g. Lion-OSPL Hang Seng TECH ETF (HST), There are 4 new additions of China focused ETFs available for SRS investors.

The CSOP Huatai-PineBridge SSE Dividend Index ETF seeks to capture the performance of the SSE Dividend index, which focuses on 50 top dividend paying companies listed on the Shanghai Stock Exchange.

The CGS Fullgoal CSI 1000 ETF seeks to capture the performance of the CSI 1000 index, which focuses on smaller companies with high growth characteristics and potential with sectoral focus in healthcare, IT and industrial. 

The UOBAM Ping An ChiNext ETF offers exposure to the largest and most traded stocks on the ChiNext market, China’s equivalent of the NASDAQ housing China’s fast growing companies. 

The CSOP CSI STAR and ChiNext 50 Index ETF offers exposure to 50 securities of listed companies from SSE STAR market and SZSE ChiNext market. Through this ETF, investors will have the opportunity to diversify into nine emerging industries including new generation information technology, high-end equipment manufacturing and new energy amongst others.

For more details of China focused ETFs, visit the SGX sector report here.

Climate Change and Asia markets

The iShares MSCI Asia Ex Japan Climate Action ETF invests into the top 50% companies in each GICS® sector1 on the basis of their relative carbon emission intensity, emission reduction targets, green revenues, climate transition risk and steps taken to mitigate these risks.

The ETF also offer a cost-effective solution with a TER of 0.18% for investors to gain exposure to over 600 companies in major economies such as China, India, South Korea, Taiwan and other Asia countries.

Rise of emerging markets 

Vietnam has shown its fastest expansion in 25 years with an 8% YoY GDP growth in 2022, displaying strong post-pandemic economic recovery. 

The CGS Fullgoal Vietnam 30 Sector Cap ETF provides direct access to one of the fastest growing countries in ASEAN by investing into 30 largest stocks listed on Ho Chi Minh, Vietnam with free float market capitalization.

Southeast Asia (SEA) + India is the world’s third largest economy next to the US and China, and its economic growth rate will be the highest in 2023-2027 (Source: Morgan Stanley, Financial Times)

The CSOP iEdge Southeast Asia + TECH Index ETF offers exposure to the rapidly growing digital economy in Southeast Asia and India by holding a basket of stocks of companies that are involved in technology-related sectors such as e-commerce, ride-hailing & food delivery, fintech, online travel, and online media. 

#3 – Which ETFs offer the highest dividend yield?

For SRS investors who are looking to earn dividend income with your SRS funds, several ETFs on the SGX also offer attractive historical dividend yields of up to 8.5%¹.

The iShares USD Asia High Yield Bond ETF provides exposure to USD-denominated high yield bonds issued by Asian governments and Asian-domiciled corporations, and offers a historical dividend yield of 8.35% as of 30 September 2023. 

With their income generating assets, REIT ETFs offer some of the highest dividend yields amongst the ETFs listed in Singapore. The CSOP iEdge SREIT Leaders Index ETF offers a historical dividend yield of 7.70%, the Nikko Straits Trading Asia Ex Japan REIT ETF offers a historical dividend yield of 6.53%, and the Lion-Phillip S-REIT ETF offers a dividend yield of 6.06% as of 30 September 2023.

Lastly, the STI ETF also offers one of the highest dividend yields amongst ETFs listed in Singapore. The SPDR® Straits Times Index ETF offers a historical dividend yield of 4.51% as of 9 December 2023. 

Visit here for latest highlights of SGX listed ETFs and here for the ETF screener.

Should I invest in ETFs using SRS?

In case you are not familiar with the SRS, it is a voluntary scheme which encourages individuals to save for retirement, beyond their CPF savings.

To summarise, it has the following key features:

• Contributions to SRS are eligible for tax relief
• You can invest using the funds in SRS
• Investment returns are tax-free before withdrawal
• Only 50% of withdrawals from SRS are taxable at retirement
• The maximum withdrawal period is 10 years

ETFs provide instant diversification as they typically hold a basket of securities representing a particular index, sector, or asset class.

By investing in an ETF, you gain exposure to a diversified portfolio of stocks, bonds, or other assets, spreading your risk across multiple holdings.

This diversification can help mitigate the impact of poor performance from individual stocks and reduce the overall volatility of your investment portfolio.

How do I invest in ETFs using SRS?

Before you start investing using your SRS funds, you’ll need to satisfy the following criteria

• At least 18 years old,
• Not an undischarged bankrupt, and
• Not mentally disordered and therefore capable of managing yourself and your affairs

Thereafter, you can invest your SRS funds with a few simple steps:

• Apply for a SRS account
• Link your SRS account and trading account
• Execute your trade

Are there any ongoing broker promotions when I invest in ETFs using SRS?

It’s the time of the year for SRS top-ups, and a few brokers are running promotions if you trade SGX-listed ETFs using SRS.

*Terms and conditions of participating brokers apply. Please refer to their website for more details.