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1H2020 Review of Phillip SING Income ETF

By August 11, 2020 No Comments

1H2020 Review of Phillip SING Income ETF

The first half of 2020 has been a tough period for Singapore equities. The culprit is none other than the Covid-19 pandemic which has reverberated throughout the world, culminating in an unprecedented global lockdown, disrupting supply chains and international trade.

Singapore’s economy is highly exposed to entrepot activities and relies significantly on international trade. Trade value totalled $1.57 trillion in 2019, more than three times the size of the gross domestic product of $507.6 billion in the same period. Unsurprisingly, this black swan event has decimated global equities and Singapore’s capital market was not spared.[1]

In our 1H2020 Singapore equities review, total return – which assumes dividends and distributions are reinvested – for Straits Times Index (“STI”) was -17.77% since the start of the year to end-June 2020. Meanwhile, traditional capitalization-weighted STI exchange-traded funds (“ETF”), Nikko AM Singapore STI ETF posted a total return of -18.18% and SPDR Straits Times Index ETF posted a performance of -17.88%. On the other hand, our Phillip SING Income ETF’s (“the Fund”) performance was slightly better, posting a total return of -15.93% in the comparable period.

On a 1-year basis, the STI returned –18.60%. In the same period, Phillip SING Income ETF posted a total return of -14.18%, also outperforming that of Nikko AM Singapore STI ETF’s -19.17% and SPDR Straits Times Index ETF’s -18.80%. As of 30 July 2020, the trailing 12-month dividend yield for the Fund is 4.97%, Nikko AM Singapore STI ETF is 4.86% while SPDR Straits Times Index ETF is 4.57%.

Where Phillip SING Income ETF Differs

Although the Fund also gives investors a complete exposure to Singapore equities, Phillip SING Income ETF does not replicate the performance of the STI but instead uses the Morningstar® Singapore Yield Focus IndexSM as a benchmark. This index assigns scores and ranks constituents in the whole universe of Singapore Exchange (not just STI) base on factors of: quality (economic moat), distance-to-default (financial strength) and trailing twelve-month dividend yield.

Unlike traditional capitalized-weighted STI ETFs, the Fund also has a 10%-cap on single stock weightage to avoid concentration. Due to this factor-based methodology, the Fund’s is more overweight on REITs and slightly less on Financials compared to traditional STI ETFs. Owing to that, the Fund had been able to achieve better risk-adjusted returns, evince by its 1H2020 performance despite the risk-off environment.

Changes in Portfolio Allocation

With great uncertainties from the Covid-19 bringing profound changes, we believe that strong fundamentals will be even more critical for companies’ financial performance, their ability to distribute dividends, as well as for supporting valuations. Funds with strategies that take these into considerations will be more resilient. In this 1H2020 review, there are few things that we like to highlight about based on the Fund’s allocation.

Source: Phillip Capital Management (“PCM”); as of end-June 2020.

Following the semi-annual rebalancing in June, the portfolio allocation of the Fund as of end-June 2020 is as follows: Financials (41.22%), REIT (28.78%), Communication services (14.11%), Industrial (7.20%), Consumer (7.57%), Others (2.14%).

Allocation-wise, the Fund has seen a shift towards Financials (+3.28%), REIT (+3.30%), and Communication services (1.74%) sectors compared to the start of 2020. On the other hand, its allocation in Industrial (-6.31%) and Consumer (-1.25%) has been reduced in the same period.

For the Financials sector, the increase in allocation can be attributed to the increase in the weighting of Singapore Exchange, which rose from the top seventh holdings in end-December 2020 to the first in end-June 2020. Due to the rise in market volatility, Singapore Exchange has recorded multi-year high profits as trading volume surges. Comparatively, Singapore Exchange still only accounts for 2.8% in Nikko AM Singapore STI ETF and 2.74% in SPDR Straits Times Index ETF.[2]

For the REIT sector, the recent revisions of the regulatory regime by Monetary Authority of Singapore, e.g. extending timeline for REITs to distribute their taxable income to qualify for tax transparency, raising the aggregate leverage limit from 45% to 50%, and deferring the minimum interest coverage ratio to 2022, serve as strong supports for S-REITs. In this uncertain landscape of rising geopolitical tensions and low-interest rates environment, the Fund’s greater allocation in the sector of 28.78% (vs the STI’s 15.1%[3]) offers greater income stability and yield uptick for income investors.

Meanwhile, for the Communication Services sector, we believe despite the lower business activities, data demand remains highly resilient due to accelerated adoption of mobile technology to collaborate while working offsite. Anecdotally, consumers are also increasingly harnessing mobile technology to complement their consumption routines.

The Industrial sector saw the most reduction in allocation in the Fund due to deteriorating fundamentals. Particularly, capital goods maker and commodities companies, and their capital-intensive businesses, will face significant headwinds and pressure due to the shock in global demand. The Fund’s allocation in the space is trimmed to a leaner 7.20% in end-June 2020. Comparatively, Nikko AM Singapore STI ETF exposure to the Industrial sector was 18.1%, while SPDR Straits Times Index ETF’s exposure to Industrial sector was 12.27% and Oil & Gas sector was 3.42% during the same period.


[1] Department of Statistics Singapore; Economy in 2019

[2] PCM, Nikko Asset Management, State Street Global Advisors Singapore; Factsheets June 2020

[3] Sginvestors.io


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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 http://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.

  • You shall provide all required documentation or information, including but not limited to your date of birth, countries of citizenship, countries of permanent residence, countries of tax residency and associated taxpayer identification numbers, which may be required to enable PCM to ascertain your U.S. tax status and share information and /or documents relating to you and/or your account(s) with domestic and international authorities for the purpose of complying with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations.
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PDPA

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 http://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.