ETF – Page 20

The way we have constructed our ETF portfolio is such that we should have exposure to local equities, local bonds and international equities. In theory, a portfolio of 100% equities should provide the best returns for a couple of our age over the long-term. In practice, the volatility of the 100% equities portfolio can be a real test of your risk appetite. Turtle Investor has written a good post about how the ABF Singapore Bond Index Fund can act as a safe harbour during volatile times and I recommend it for an understanding of why we have it in our portfolio.

Our ETF portfolio is smaller than our share portfolio but we intend to build it up until both portfolios are about the same size. The idea is that the ETF portfolio has a lower dividend yield & volatility but the share portfolio has a higher dividend yield & volatility. A snapshot of our ETF portfolio can be found here.

I will try to provide end of month updates on our ETF portfolio as to the transactions we have undertaken for the month. Generally, we invest more in months where the markets are doing badly and less in months whether the markets are doing well. The aim is for the market value of the ETF portfolio to reach S$40,000 by 31 Dec 2016. I will be interested to see how our performance would be by the last update of the year.

I thought about re-writing my posts but decided against it. Might as well summarise the content I have been covering so far and go forward from here. It’s more fun that way! Exchange-Traded Funds (ETFs) have started to form a significant part of our investment portfolio. MoneySense has a good article on ETFs and I recommend it as an introduction to what they are. Basically, ETFs are open-ended investment funds listed and traded on a stock exchange, which track or replicate a specific index such as a stock index. Since ETFs are passively managed, their fees are usually lower than those of actively managed investment funds.

We have selected the following ETFs for our portfolio:

The first three ETFs are listed on the Singapore Stock Exchange (SGX) and the next eight ETFs are listed on the London Stock Exchange (LSE). The links provide information on the details and holdings of each ETF. The trading and dividend currencies of these ETFs are SGD, USD, EUR and GBP, which is a currency diversification strategy we use to reduce the foreign exchange risk of our portfolio. The holdings in some of the ETFs overlap but they largely cover the major equity markets – US, Europe (including UK), Emerging Markets and Developed Asia Pacific (including Japan). This is a global diversification strategy we use to reduce the concentration risk of our portfolio.

ETF Portfolio

Choice of ETFs