Topic: ETFs

Invest in one of the world’s richest countries with this 25-company fund

This country is one of the wealthiest and most competitive nation states on earth with low inflation, interest rates and unemployment as well as strong government finances.

COVID-19 will likely cause a short-term disruption to key export activities, but investors can expect significant long-term gains.

ISHARES MSCI SINGAPORE ETF (New York symbol EWS) tracks the performance of a basket of Singapore-listed companies.

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Financial services account for a high 47.7% of its assets, while Real estate (17.7%), Industrials (17.0%), Consumer (8.3%), Communication (6.5%), and Technology (2.8%) are other key segments.

The ETF holds a concentrated portfolio of 25 stocks. The top 10 holdings make up a high 72% of its assets. They are DBS Group (Financials; 16.8%), Overseas Chinese Banking Corp. (Financials; 14.3%), United Overseas Bank (Financials; 11.9%), Keppel (Industrials; 4.9%), Singapore Telecoms (Communications; 4.9%), Ascendas Real Estate 4.2%), Singapore Exchange (Financials; 4.6%), Wilmar International (Consumer; 4.0%), Singapore Technologies (Industrials; 3.2%), and Genting Singapore (Consumer; 2.9%).

The fund started up in March 1996 and charges investors a reasonable MER of 0.50%.

With an average of $17.9 million in units trading daily, the ETF provides you with good liquidity. It has a p/e of 10.2 based on the forward earnings of the stocks it holds. Investors receive a fluctuating bi-annual dividend. Over the past 12 months, that annual payment of $1.13 resulted in a high 6.3% yield.

The ETF has lost 23.3% for its investors over the past year compared to the 23.0% decline for the broad global equities index. Over the past five years, the fund is down 17.7% for investors compared to a 15.8% loss for the benchmark index.

A Malay trading port known as Temasek existed on the island of Singapore by the 14th century but the port eventually burned down in the 17th century and fell into obscurity.

The British founded modern Singapore as a trading colony on the site in 1819. It joined the Malaysian Federation in 1963, but became independent in 1965.

Singapore subsequently became one of the world’s most prosperous countries with strong international trading links. Its GDP per capita measures $65,000, one of the highest in the world.

State-owned enterprises play a substantial role in Singapore’s economy. The sovereign wealth fund, Temasek, holds controlling stakes in several of the countries’ largest companies, such as Singapore Airlines, Singapore Telecommunications, Singapore Technologies, and the DBS Group.

Singapore has a population of 6.2 million with a landmass only the size of Washington, D.C. Almost 75% of the population is ethnic Chinese, with 13% classified as Malay and 9% as Indian. The most widely spoken languages are English and Mandarin.

The economy measures $382 billion annually—the world’s 34th largest; on par with countries such as Norway and Israel. The services sector makes up 75% of the economy, while industry contributes 25%. The labour force is 3.7 million with a pre-COVID-19 unemployment rate of 2.4%.

The country is a global trading leader, so investors shouldn’t be surprised that exports of goods and services account for 73% of the gross domestic product (the monetary value of all finished goods and service produced by the country). Imports account for just 149%, making for a healthy trade surplus that supports future returns for ETF investors.

The Port of Singapore is the second-busiest in the world by cargo tonnage. Machinery, electronics, telecommunications equipment, and pharmaceuticals are major export products, and China, Japan, Malaysia, South Korea, and the U.S. are the main trading partners.

The country has experienced stellar economic growth since independence in 1965 with only brief occasional interruptions.

During the global financial crisis in 2008-2009, the economic growth rate declined but remained positive on an annual basis.

ETFs: Pandemic will hurt economic activity despite $37 billion in support

However, the COVID-19 pandemic is expected to cause a sharp drop in economic activity, with the Ministry of Finance now forecasting a contraction of between 1% and 4% for 2020. Domestic consumption, construction, manufacturing, tourism, and exports are not expected to recover fully for some time.

The government has also announced fiscal measures of more than $37 billion to support the economy. That equals about 10% of gross domestic product.

Singapore ranked first out of 141 countries in the 2019 Global Competitiveness Index, followed by the U.S., Hong Kong, Netherlands, and Switzerland. It scores particularly well on safety and security, public sector performance, infrastructure, healthcare, low taxes, open trade, a strong financial system, and an open labour market. Its challenges centre on its weaker entrepreneurial culture and its small domestic market.

For most of the past decade, the country’s budget was in either a small surplus or deficit. However, government finances will deteriorate in 2020 given the fiscal resources and stimulus dedicated to fighting COVID-19.

Government debt is somewhat high at 126% of GDP but the country has an AAA grading from S&P for long term unsecured debt issues. Only nine countries share that rating. Core inflation is low and stable at around zero per cent.

The Singapore dollar is fairly stable against the U.S. dollar and has fluctuated between $1.20 and $1.45 for most of the past 10 years.

To see renewed growth, Singapore will need a global recovery. But its highly developed, free-market economy and its open, low-corruption environment bode well for the long-term success of investors.

Recommendation in Best ETFs for Canadian Investors: Ishares MSCI Singapore ETF is a buy.


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