More Singapore investors holding ETFs, with millennials the most exposed: Survey

SINGAPORE - Exchange-traded funds (ETFs) are gaining traction in Singapore, with more investors here holding ETFs in their portfolios, compared with their peers in other countries, according to a survey.

Millennials – aged 28 to 43 – are also more likely to invest in ETFs than investors in other age groups, the poll released on July 22 found.

The survey by US-listed asset manager State Street Global Advisors interviewed individual investors in Singapore, the US, Australia and Japan. State Street Global Advisors is the fourth-largest asset manager in the world, with US$4.34 trillion (S$5.84 trillion) under its care.

ETFs are a class of investment products that are listed and traded on a stock exchange.

They allow an individual to invest with ease in different regions or markets; in different asset classes such as stocks, bonds, real estate investment trusts (Reits) and gold; or in themes such as sustainability.

A total of 254 individuals in Singapore with investable assets of US$250,000 and above took part in the survey. The poll also covered 260 individuals in Australia, 220 in Japan and 319 in the US, all with investable assets of US$250,000 and above.

The 2024 ETF Impact Survey found that six in 10 individual investors in Singapore have ETFs in their portfolios. That is higher than in other markets surveyed – 45 per cent of investors in the US and Australia invest in ETFs; while in Japan, 48 per cent own ETFs.

The poll builds on research done with individual investors in November and December of 2022. At that time, Singapore also had the most number of ETF investors among the four countries, with 54 per cent of respondents holding ETFs.

State Street Global Advisors also broke down the findings by age group. Millennials in Singapore are the biggest ETF holders – 67 per cent of them have some form of exposure to the product. This compares with 56 per cent for Generation X (aged 44 to 59) and 48 per cent for baby boomers (aged between 60 and 78).

A similar trend is observed across all the countries surveyed – more millennials have ETF investments as opposed to baby boomers, who hold the least ETFs.

Mr Jermyn Wong, head of intermediary South-east Asia at State Street Global Advisors, said investors are drawn to ETFs because they offer the benefits of diversification.

An investor can buy into an ETF and gain access instantly to various markets or to a basket of stocks, bonds or commodities, thereby helping to spread out his investment risks. In addition, ETFs trade freely on a stock exchange. This flexibility in trading means an investor can enter or exit his investment at any time during the trading day.

Mr Wong also noted that ETFs have lower costs or expense ratios, compared with actively managed unlisted unit trusts.

The expense ratio indicates how much in total fees are incurred by the ETF or unit trust on an annual basis. It includes management fees, custody, fund administration and other expenses, but excludes marketing costs. A high expense ratio could impact returns.

State Street Global Advisors noted in its report that as the younger generations progress professionally and accumulate or inherit wealth, they will continue to increase allocations to ETFs. Products that cater to their values and investment goals, such as sustainability ETFs, will be in demand, the asset manager added.

As for young investors who are just starting out and unsure about which stock to pick or which fund to invest in, Mr Wong said ETFs are a good way to gain exposure to the markets or a specific asset class like stocks, bonds or commodities.

He added that ETFs are easy to access and investors can buy and sell these products if they have a brokerage account.

The new investor also does not have to worry about single-stock risk, where a stock he picks might not do well, since ETFs tend to be well diversified.

But the most important factor, according to Mr Wong, is that investors can start at “very, very small sizes”. They need to put in only a small amount to start investing in ETFs.

“For our locally listed ETFs on the Singapore Exchange (SGX), the minimum investment amount is one share. Most of our ETFs range from $1 or even less, to higher. So one share effectively means $1. That is your minimum starting amount,” he said.

However, he added that “if the broker is going to charge you a minimum fee, and you invest only $1, it might not necessarily make sense”.

The majority of investors in Singapore surveyed – 82 per cent – agreed that ETFs have improved the overall performance of their portfolios. Similarly, the majority of investors in the US (65 per cent), Australia (74 per cent) and Japan (68 per cent) said ETFs have a positive impact on their investment portfolios.

ETFs also made them better and more confident investors, according to 78 per cent of investors in Singapore, 54 per cent in the US, 70 per cent in Australia and 57 per cent in Japan.

However, there are some caveats. As an ETF is generally more diversified and hence less volatile, it also means that potential returns can be lower, Mr Wong said. An investor can pick a stock that can double in price in a short period of time, but this is unlikely to happen with an ETF within a short timeframe. “You do not get that sort of upsized returns,” he added.

An ETF which tracks a particular index, such as the S&P 500 Index, will also follow the ups and downs of the market benchmark.

Mr Wong noted that Singapore investors who buy into US-listed ETFs may potentially be subject to 30 per cent withholding tax on dividends that they receive.

There are 46 ETFs on the SGX as at June 2024, up from 39 in June 2023. According to investment research firm Morningstar, as at Dec 31, 2023, there are 9,149 ETFs globally with US$11.1 trillion worth of assets under management. That represents 11.25 per cent of investable assets worldwide.