The Singapore Exchange's announcement last Friday, that trading in Exchange Traded Funds are at records, was heartening, but still pathetic. According to the media release, the value of SGX-listed Exchange Traded Funds set new weekly and monthly records in January: S$293.6 mln in the month, with S$128.9 mln in the week ending January 25. While records, these are tiny volumes. My critique isn't so much of the SGX, which has come a long way in introducing numerous new ETFs. My concern is more that Singapore investors are still largely ignorant suckers for the mutual trust industry and, more specifically, the banks which distribute their products.
The numbers announced by the SGX are certainly a big improvement, and is a credible counter to a rather pessimistic story in The Edge some months ago which pointed out that unsophisticated investors don't invest in ETFs, and sophisticated investors would turn to US-listed ETFs for their liquidity and the greater range available.

But look at the comparison: in the first two hours of trade today alone, more than S$600 mln worth of securities were traded on the SGX. So, the value of ETFs traded each month is less than roughly the total value of all securities traded each hour.

Clearly, not everyone who buys into unit trusts is unsophisticated. They are a valuable tool to diversify, and to have someone else look after your money if you have neither the time nor expertise.

But here's a typical scenario of the average Singaporean who buys unit trusts: they get glitzy marketing material from their bank proffering a unit trust which may or may not meet their investment needs. Not knowing any better, they go and sign up and pay 5% upfront fees and a 2% annual management fee for the priviledge.

Can you imagine how much better off they would be and how much greater the volumes of ETFs on the SGX would be if:

1. Singaporeans at large didn't hand over their cash and, in large parts, their responsibility for their investments to a bank teller who sold them a product over-the-counter

2. Singaporeans understood that the 5% sales fee goes to the bank, not the fund manager who relies on the bank to "distribute" (ie, sell) their fund

3. The SGX and ETF issuers understood how to market funds as expertly as the mutual fund industry

Unit trusts certainly have a place in the investment portfolios of most investors. But they should be purchased as part of a larger financial plan, not on spec from a bank teller.


Mark Laudi, who bought unit trusts through a financial planner for a lot less than a 5% upfront fee

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Labels: ETFs, Exchange Trade, mutual funds, unit trusts