Addiction to unit trusts must end
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
To comment on this blog, go to the Investor Central blog.
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
To comment on this blog, go to the Investor Central blog.
Labels: ETFs, Exchange Trade, mutual funds, unit trusts
"Trust" me
No I'm not asking you to trust me personally, I'm talking about trusts listed on the exchange. We have everything these days from ships to property, planes (soon with GE Altitude Aircraft Leasing about to list), and in my opinion in ten years just about everything imaginable will be listed. Why? Well I think the direction is already there.
Buses, Trains, Parks, Roads, you name it, soon it will have a trust and it will be available on an exchange near you to take a stake in.
Tell us what you think about trusts. Are they a good investment? Do you like them? Do you hate them? Post away below everyone and be sure to come back in ten years and tell me if I was wrong or not!
-Curtis Bergh
Buses, Trains, Parks, Roads, you name it, soon it will have a trust and it will be available on an exchange near you to take a stake in.
Tell us what you think about trusts. Are they a good investment? Do you like them? Do you hate them? Post away below everyone and be sure to come back in ten years and tell me if I was wrong or not!
-Curtis Bergh
Labels: SGX, unit trusts
ETFs: Finally Coming Into Their Own
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
ArchivesRecall, 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
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