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 overlook about that when the USD-SGD price has typically been sturdy during the last decade; however older, wiser buyers could inform you in any other case:

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

USD Returns, SGD Payments

Let’s speak in regards to the elephant within the room. Most of us spend in SGD. Our mortgages, groceries, kopi cash—every little thing is priced in native foreign money.

If all of your investments are in USD, you is perhaps taking an extreme quantity of foreign money danger with out even realising it! This hit house for me in the course of the market correction in April 2025. In the event you had invested within the S&P 500 and another person had invested within the STI, you is perhaps shocked to search out that your US investments really delivered decrease returns after changing it again to SGD—due to 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 if you happen to had chosen to put money into an area ETF monitoring the STI over a US ETF monitoring the S&P 500. 

In contrast to the US Fed which adjusts rates of interest, our Financial Authority of Singapore (MAS) doesn’t handle financial coverage that means. As a substitute, our central financial institution makes use of change price 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 change price of the SGD. Particularly, MAS seems to be at how the SGD performs towards a basket of different main currencies (like USD, MYR, CNY, and so on). This is named the Nominal Efficient Trade Price (NEER). This determines how sturdy or weak SGD is in comparison with a bunch of currencies that matter to us—normally from nations we commerce rather a lot with.

Learn extra right here: Singapore's Trade Price-Primarily based Financial Coverage

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

In current months, you might need heard in regards to the theme referred to as “De-dollarisation” – which refers back to the development of buyers 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 once we put money into US ETFs as a Singaporean investor?

In the event you’re new to change traded funds (ETFs)—they’re principally a basket of shares that observe 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 decide or repeatedly monitor the marketplace for particular person inventory efficiency.

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

Desk: Writer’s personal compilation. 

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

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

And if you happen to’re investing for the long term, holding over USD 60,000 in US-domiciled property (together with US ETFs) leaves you in danger for property tax implications. Must you go 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 buyers bypass this by choosing Irish-domiciled variations like CSPX for tax effectivity (drops to fifteen% withholding tax as a substitute of 30%), even such a transfer can not remove your foreign money danger.

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

Search for ETFs that commerce in SGD.

Investing as a Singaporean

Many Singapore buyers 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 broadly talked about on-line by international finance creators as in comparison with protection on our native market.

However that doesn’t imply it’s best 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 complete suite of ETFs primarily designed for Singapore-based buyers such as you and me.

A few of their key ETFs embody:

Nikko AM’s new Amova E Fund ChiNext Index ETF is a superb 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%, but it surely does assist to mitigate an excellent portion of it vs. having the funding in RMB.

Over the past 3 many years, they’ve expanded their ETF choices to the purpose the place an investor as we speak may even construct a complete core-satellite ETF portfolio with their merchandise! Whether or not you’re searching for publicity to equities, bonds, sure sectors and even to faucet on development in China, there’s a ETF for that.

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

No want to fret in regards to 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 as we speak.

On the similar time, buyers ought to pay attention to 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 business declines can nonetheless impression efficiency.

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

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.

Once you dwell, spend and pay your payments in SGD, it’s best 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 might be rebranded as Amova Asset Administration. Identical trusted crew, new title. “Amova” combines “Alpha” and “Transfer” – a nod to their purpose of serving to you progress forward in your monetary journey with smarter investing.

1 Distributions usually are not 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 could decide that such distributions needs to be paid from the capital of the Fund. Any distribution is predicted to end in a right away discount of the Fund’s internet asset worth per unit. Please discuss with the respective Fund prospectus and Product Highlights Sheet for additional particulars.

Disclosure: This submit 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 targets. I extremely advocate that you just use this as a place to begin to perceive extra in regards to the varied ETFs provided by NikkoAM which you should use 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 resolve whether or not it matches into your funding targets 

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