I find it difficult to understand why Singaporeans still like to throw their money at mutual funds, when they have similar but better listed products to choose from. In my personal view, Exchange Traded Funds, and the very similar Zero Certs launched recently by ABN AMRO, combine the best of both unit trusts and stocks, yet despite copious marketing dollars being spent on promoting them they have seemingly not taken off in a big way. The reason for this may well be that Singaporeans are either too lazy or too unsophisticated for them. They would rather get hassled over the counter by a salesperson dressed up as a bank teller to buy this or that unit trust than to check out the cheaper alternatives which are listed on the market.

Recall, ETFs are unit trusts that act like stocks. They track a range of underlying stocks, therefore providing diversification, but without the upfront fees of mutual funds. Plus, they are as liquid, transparent and easily bought and sold as stocks.

Personally, I'm still smarting over the 5% upfront sales charge DBS hit me with some years ago when I bought the so-called '8' funds they were marketing for Frank Russell. It didn't help that the funds performed awfully at first, although that was probably due to the post-bubble crash, SARS, Iraq and all the other stuff that, until March 2003, kept our market from rising.

This, incidentally, would also be my counter-argument to the notion that actively managed funds outperform the benchmark. The evidence is that, yes, some funds do outperform but you never know which one ahead of time, and funds rarely outperform year in year out.

Fact it, you can now buy so many markets and themes it's embarrassing to be caught buying unit trusts – even if FundSupermart.com has a lower sales charge below 3%. The country themes offered by Lyxor and ABN AMRO for their products are at worst interesting. (I have omitted links to their sites lest I be accused of advertising for them).

I'm also pleased to see an article in The Edge some months ago is on the way to be proven wrong. In it, the magazine headlined a story "ETF woes on the SGX" and basically said that Singapore's ETF market was too small and too illiquid, and serious players would rather go into US-listed ETFs. (Reminded me a lot of R Sivanithy writing off the Singapore market in a Business Times article many years ago because there were so many penny stocks it was becoming irrelevant. It turns out, they were just cheap. I wonder how often he ate those words since then.)

A quick check on the volumes chart of the ETFs today show volumes aren't exactly huge (charts below). But half of the ETFs have at least been traded. That's more than I can say for the ABN AMRO Zero Certs. But if the ETFs are any indication, we may see some movement soon among these, to once again prove the naysayers wrong.


Mark Laudi

Labels: ABN AMRO, DBS, ETFs, Frank Russell, R Sivanithy, The Edge, unit trusts, Zero Certs