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Phillip SING Income ETF – A “Smarter” Way To Accumulate SG Stocks

By March 30, 2020 April 1st, 2020 No Comments

Phillip SING Income ETF – A “Smarter” Way To Accumulate SG Stocks

Odds are often stacked against retail investors when it comes to stock-picking. In fact, in the universe of over 700 counters in the Singapore Exchange (“SGX”), stock-picking can tantamount to picking out needles in the hay. The difficulty further compounds when retail investors try to produce superior returns consistently.

A myriad of reasons contributes to the challenges for retail investors: Small capital base, Costs, Ability to Diversify, Lack of information.

Disadvantages To Retail Investors

  1. Small Capital Base

Generally, retail investors have smaller capital base which can be limiting to their investment options and strategies. Comparatively, institutional investors have the ability to gain access to investments that are not offered to retail investors. This trait further poses problems down the retail investors’ investment journey.

  1. Costs

One big disadvantage small investors face in the stock market is transaction costs. Compared to large or institutional investors, transaction costs for retail investors make up a higher percentage to their invested capital. For simplicity, consider just a one-way transaction charge of $10 for initial buy-in:

  1. Ability to Diversify

A key risk-management strategy is to diversify the portfolio across geographies, industries and sectors. However, retail investors may not have enough resources to spread out their portfolio meaningfully, making their portfolio more susceptible to downturns. Due to their small capital base, retail investors also have limited holding power.

  1. Lack of Information

Retail investors are mostly preoccupied with their own jobs or businesses. On the other hand, professional fund managers are backed by their swath of research staff that constantly monitors and analyses up-to-date information. In addition, most fund managers have networks to companies’ senior management, putting them as forefront receivers of information.

Don’t Miss Out On Dividend Return

Notwithstanding the abovementioned problems, the impetus to chase after short-term price gains often causes retail investors to miss out on a significant component of total returns: Dividends.

In 2019 alone, the Straits Times Index (“STI”) posted 9.4% total return, of which 5% was attributed to price return while the remaining 4.4% was attributable to accumulated and reinvested dividends. In retrospect, one will also arrive at the same conclusion that dividend returns have been a major contributor to total returns over the long run in the Singapore market.Source: Phillip Capital Management (S) Ltd

However, in the hunt for dividend income, retail investors also need to beware that not all high yields are good yields. In fact, some of the highest yielding counters in the Singapore market have weakening business fundamentals. In other words, the market is pricing in unsustainable dividends on a forward basis.

Why Phillip SING Income ETF Is “Smarter”

As an exchange-traded fund (“ETF”), retail investors can trade units of Phillip SING Income ETF (“the fund”) just like how they buy and sell individual stocks on the open market (SGX:OVQ). Apart from sharing similar liquidity characteristics, the fund provides a cost-efficient way to gain a direct and diversified exposure to Singapore stocks.

What sets the fund apart from other existing competing funds in the market though is its index methodology.  The Phillip SING Income ETF is achieved through the full replication of Morningstar® Singapore Yield Focus IndexSM. The Index track the performance of stocks listed on the SGX-ST whereby the stocks are assigned proprietary factor scores based on their quality, distance to default, and trailing twelve-months dividend yield.

Apart from dividend yield, the other two underpinning factors measure for the level of economic moat and financial strength. These two-factor consideration goes hand-in-hand when it comes to determining the sustainability of dividend income.

The top 30 constituents are then selected and portfolio tilt applied based on the composite factor scores. However, weightage of individual stocks is capped at 10% to ensure that concentration is not excessive and hence lowers the market risk of the portfolio. In market lingo, this factor-based enhancing methodology is synonymous to Smart” Beta.

A “Smarter” Way to Accumulate SG Stocks

To investors, the Phillip SING Income ETF is a convenient and efficient way to immediately tap into a diversified portfolio of 30 high-quality Singapore companies. Coupled with built-in emphasis on quality, financial strength and dividend yield through its index methodology, portfolio beta is enhanced to achieve better risk-adjusted returns.

From Morningstar’s back-tests over the period June 2005 to February 2020, estimates show that the benchmark index has a standard deviation of 12.0% compared to STI’s 15.7%. This suggests that the index risk has historically been lower than the broader market risk. Correspondingly, it resulted in a higher Sharpe ratio of 0.64 versus the STI’s 0.25.1

Due to the fundamental difference in index methodology2, the Phillip SING Income ETF has indeed outperformed competing funds as well as the STI (competing STI ETFs merely try to fully replicate the performance of the STI): In 2019, the Phillip SING Income ETF posted total returns of 14.43% versus the 9.4% by STI. Against competing STI ETFs3, Phillip SING Income ETF also outperformed on a 1-year basis. As of 31 January 2020, Phillip SING Income ETF posted annualised return of 8.3%, versus Nikko AM STI ETF’s 2.60% and SPDR STI ETF’s 2.76%.

On trailing twelve-month basis, Phillip SING Income ETF delivered a dividend yield of 4.33% as of 25 February 2020. Comparatively, Nikko AM STI ETF posted yield of 3.75% while SPDR STI ETF yielded 3.79%.

Return Metrics

Source: Phillip Capital Management, State Street Global Advisors Singapore, Nikko Asset Management

Accumulate At Bargain

As of 25 February 2020, the STI has dropped about 2.23 % while Phillip SING Income ETF has shed 2.19% owing to weak sentiments arising from the coronavirus outbreak. Nonetheless, the market reaction to the outbreak has been quite muted despite News headlines. This also suggests that strong underlying fundamentals of STI constituents have been supportive of valuations. Smart investors would always take the opportunity to accumulate at discounts!


[1] Table 2: Back-test estimates
[2] Table 1: Comparison of key characteristics
[3] Table 3: Comparison of fund performance


Table 1: Comparison of key characteristics

Table 2: Back-test estimates

Table 3 : Comparison of fund performance
Source: Fundsupermart; as of 24 February 2020

Click Here For Fund Factsheet

Important Information

This publication and the information herein is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in the exchange-traded fund (“ETF”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for important information of the ETF and obtain advice from a financial adviser (“FA”) before making a commitment to invest in the ETF. A copy of the Prospectus and PHS for the ETF are available from PCM or any of its Participating Dealers (“PDs”).

Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the ETF. The regular dividend distributions, either out of income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the ETF. Upon launch of the ETF, please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.

An ETF is not like a typical unit trust as the units of the ETF (the “Units”) will be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.

The information herein is not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the ETF or related thereto.

Morningstar® Singapore Yield Focus IndexSM is a service mark of Morningstar Research Pte Ltd and its affiliated companies (collectively, “Morningstar”) and have been licensed for use for certain purposes by PCM. Phillip SING Income ETF is not sponsored, endorsed, sold or promoted by Morningstar, and Morningstar makes no representation regarding the advisability of investing in Phillip SING Income ETF.

This publication has not been reviewed by the Monetary Authority of Singapore.

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With effect from 1st July 2014, this FATCA Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”) and should be read in conjunction with those Terms and Conditions, including those under our Personal Data Protection Notice.The existing terms and conditions of any contractual agreement entered into between PCM a nd you (the “Existing Terms and Conditions”) remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments,industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at https://www.phillipfunds.com/ .

On March 18, 2010, the United States of America’s (“U.S.”) Hiring Incentives to Restore Employment Act of 2010 (Pub.L.111-147H.R.2847)) (the “Act”) was enacted into law. Section 501(a) of the Act added a new chapter 4 (sections 1471-1474) to Subtitle A of the U.S.’s Internal Revenue Code (Code).Chapter 4 expands the information reporting requirements imposed on foreign financial institutions (as defined in section 1471(d)(4)) (FFIs) with respect to certain U.S. accounts (as defined in section 1471(d)(1)) of specified U.S. person, and imposes withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.

PCM will be obliged to comply with the provisions of FATCA under the terms of the inter-governmental agreement (“IGA”) Model I between the U.S. and Singapore and under the terms of Singapore’s subsidiary legislation which will be issued pursuant to Singapore's Income Tax Act (Cap. 134) to implement the IGA. “FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S. Internal Revenue Code.

“FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S.Internal Revenue Code.

“U.S. person” means a U.S. citizen or resident individual, a partnership or corporation organised in the U.S. or under the laws of the U.S. or any state of the U.S. thereof, a trust if: (i) a court within the U.S.would have authority under the applicable law to render orders or judgments concerning substantially all issues regarding the administration of the trust; and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the U.S..This definition shall be interpreted in accordance with the provisions of the U.S. Internal Revenue Code.

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PERSONAL DATA PROTECTION NOTICE

With effect from 1st July 2014, this Personal Data Protection Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”). Without prejudice to the existing terms and conditions of any contractual agreement entered into between PCM and you (the “Existing Terms and Conditions”), which remain in full force and effect, this Notice shall be read in conjunction with the Existing Terms and Conditions. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We are required under the Personal Data Protection Act (“PDPA”) to put in place the necessary arrangements to protect personal data and comply with the PDPA. Personal data includes any data and information, whether true or not, about an individual (a natural person) who can be identified from that data or information, such as your name, NRIC, passport or other identification number, telephone numbers, address, email address and any other information relating to individuals which you or your authorized representative have provided to us or we are likely to have access to (“Personal Data”).

This Notice outlines the purposes for the collection, use and/or disclosure of your Personal Data by PCM, how we protect your Personal Data and your rights with respect to the collection, use and/or disclosure of your Personal Data. This Notice supplements but does not supersede nor replace any other consents which you may have previously provided to us in respect of your Personal Data, and your consents herein are additional to any rights which we may have at law to collect, use and/or disclose your Personal Data. We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments, industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at https://www.phillipfunds.com/.

1. PCM may collect, use and/or disclose your personal data for any of the following purposes listed below (collectively “Permitted Purposes”):-

i) carrying out activities, duties and obligations in connection with our products and services which you have applied for, including evaluating your eligibility and credit profile, verifying the identity or authority of your representatives, administration of your account and/or managing our overall relationship with you (including but not limited to the outsourcing of any of our functions to service providers or vendors, due diligence checks, accounting and portfolio valuation, billing and collections, business continuity and print management);

(ii) developing new services and/or products;

(iii) providing you with marketing, advertising and promotional information, materials and/or documents related to financial products and/or services that we may be selling, marketing, offering or promoting, whether such financial products or services exist now or are created in the future;

(iv) marketing and promotional events, including but not limited to images, photographs or videos of you during the events;

(v) meeting or complying with PCM’s internal policies and procedures and any applicable rules, law, regulations, codes of practice or guidelines, orders or requests issued by any court, legal or regulatory bodies (both national and international) (including but not limited to disclosures to regulatory authorities or financial industry self-regulatory bodies; conducting audit checks (internal/external), surveillance and investigation; handling of customer feedback or complaint; dispute resolutions; recording of telephone conversations and/or electronic communications with you; conducting checks or investigations for prevention and/or detection of financial crimes such as money-laundering, financing of terrorism, fraud and/or bribery etc.);

(vi) legal purposes, including but not limited to obtaining legal advice and enforcing or defending our legal and/or contractual rights against you;

(vii) risk management, statistical and trend analysis;

(viii) processing and/or storing data and/or information related to your relationship with PCM.

2. PCM, in order to facilitate the discharge of its duties and obligations to you, may be required to disclose your Personal Data for the Permitted Purposes and/or for processing of the Permitted Purposes on a need-to-know basis, to any of the following entities and the directors, officers, staff, employees and agents of any such entities, whether located within or outside Singapore (“Relevant Persons”):-

(i) any associate or related company of PCM and the directors, officers, staff, employees and agents of any such person;

(ii) any actual or proposed assignee or transferee of any of PCM’s rights and obligations or any actual or proposed delegate of any of PCM’s functions and duties under its contractual relationship with you;

(iii) any relevant governmental, supervisory or regulatory authority or court of law, including the Monetary Authority of Singapore, to which PCM is or may be subject;

(ix) any person in order to give effect to any instruction from you or any person acting or purporting to be acting on behalf of you;

(x) any person as PCM may consider necessary in order to comply with any order, directive or policy of any court or governmental or regulatory authority in any jurisdiction;

(xi) any person when required to do so in accordance with the laws of any applicable jurisdiction or rules of any professional self-regulatory bodies or securities exchanges;

(xii) any agent, contractor or third party service provider who provides their services in connection with the operation of PCM’s fund management business, including but not limited to the custodians, trustees, fund administrators, registrars, banks, legal firms, accounting and auditing firms, printing firms, IT service providers, credit reference agencies, credit bureaus, data screening entities for the purpose of due diligence checks and the prevention and detection of financial crimes.

3. PCM’s related companies and third party service providers shall be bound by the same provisions as set out in this Notice and we will require them to ensure that your Personal Data are kept confidential and secure.

4. You represent and warrant that your Personal Data provided to us is accurate and complete for us to make a decision that affects you or to disclose your Personal Data to the above-mentioned Relevant Persons on a need-to-know basis. Where applicable, when you provided Personal Data relating to another individual (e.g. your dependent, spouse, children and/or parents) to us, you represent and warrant that such Personal Data is accurate and complete and the consent of that individual has been obtained for the collection, use and disclosure of his/her Personal Data in accordance with the provisions listed in this Notice.

5. We will retain your Personal Data to the extent that one or more of the Purposes for which your Personal Data was collected, used and/or disclosed is/are still valid and for legal, regulatory reporting or regulatory investigations purposes for which retention may be necessary.

6. PCM may terminate any contractual relationship which you may have with us, if any information provided to us is insufficient, misleading or erroneous or if any information that is required to be disclosed to any regulatory authority for compliance with any law or regulation is not provided by you.

7. You may request access to or make corrections to your Personal Data records. Depending on the information requested PCM may charge a small fee when you request access to your Personal Data. Upon your request and subject to the provisions under the PDPA, PCM will respond accordingly within reasonably possible time. Please submit your request to our Data Protection Officer via pcm@phillip.com.sg.

8. You may withdraw your consent to any use or disclosure of your Personal Data for any or all of the Purposes as set out in this Notice by giving written notice to us. If you withdraw your consent(s), depending on the nature of your request, we may not be in a position to continue to provide our products or services to you or administer any contractual relationship in place. Such withdrawal may be considered a termination by you of any agreement you may have with us. Where there is any breach of your contractual obligations or undertakings, PCM’s legal rights and remedies are expressly reserved in such event.