Here are three questions on the selection of portfolio constituents:
Q Why was STI exchange- traded fund (ETF) not used to get exposure to domestic equities instead of selecting individual stocks in the three portfolios? For the local market, is it better to do individual stock picking rather than buying into the STI?
A Buying a broadly diversified STI ETF is a good, simple and low-cost alternative for retail investors who wish to get exposure to the Singapore stock market.
Using an STI ETF is also particularly suitable for investors with smaller portfolio sizes and who wish to have diversification. The panel, however, recognised that some investors prefer to invest in individual stocks.
Including individual stock picking in the portfolios would allow greater sharing on the thought process in stock selection which could benefit readers.
Q For US market exposure, DBX MSCI USA 1C was purchased instead of SPDR S&P 500 or other ETFs tracking S&P 500 index. Why is there a preference for DBX MSCI USA 1C?
A The db x-trackers MSCI USA Index ETF (DBX MSCI USA 1C) and the S&P500 ETF are similar in that they both provide exposure to large US-listed companies.
Buying a broadly diversified STI ETF is a good, simple and low-cost alternative for retail investors who wish to get exposure to the Singapore stock market.
DBX MSCI USA 1C is slightly more diversified as it holds over 600 companies compared to S&P500 ETF which holds around 500. The total returns of both ETFs are also very similar since the launch of the portfolios in January last year.
The reason the panel decided to choose DBX MSCI USA 1C is because it tracks a total return index, meaning that the returns on the ETF include dividends which are reinvested.
Q Only one or two local Reits were selected for the simulated portfolios. Would an ETF such as NikkoAM-Straits Trading Asia ex-Japan Reit ETF offer a more diversified exposure?
A The NikkoAM-Straits Trading Asia ex-Japan Reit ETF was launched only on March 29 this year and was not available when the portfolios started in the new fiscal year from Jan 30, 2017.
Also, while the NikkoAM- ST ETF is substantially invested in S-Reits (over 70 per cent), there still is an allocation to other Asian markets like Hong Kong and Malaysia. The panel's preference was to include only locally listed Reits.