• A recent Morningstar study found expense ratios for fund investors (consisting of management fees and the continuing costs of owning fund units) have halved in two decades from 0.93% of the total amount invested in all funds in 2000, to 0.41% in 2020.

• As many as 12 of Singapore-listed ETFs currently maintain expense ratios below 0.41%, with seven ETFs investing in fixed income markets with an average expense ratio of 0.26%, four ETFs investing in equities, with an average expense ratio of 0.22%, and the SPDR Gold ETF with a 0.40% management fee.

• Of the 12 ETFs, the three that have seen the highest inflows in the 2021 YTD include the ICBC CSOP FTSE Chinese Government Bond ETF, the ABF Singapore Bond Index Fund and the Nikko AM Singapore STI ETF, with combined inflows of S$480 million.  

A recent Morningstar report found that asset-weighted average expense ratios of funds have halved in two decades from 0.93% of the total amount invested in all funds in 2000, to 0.41% in 2020. The report also found that low-cost funds generally have greater odds of surviving and outperforming their more-expensive peers. As noted by Morningstar Director Ben Johnson, while the asset-weighted fund fees declined from 0.44% in 2019 to 0.41% in 2020 might not sound like much, it amounted to $6.2 billion in savings for fund investors. The fee declines have coincided with a proliferation of global ETF & ETP assets, which according to independent research and consultancy firm ETFGI, reached a record US$9.5 trillion at the end of July. Back in 2005, global ETF & ETP Assets totaled less than US$500 million.

As many as 12 of the 30 Singapore-listed ETFs currently maintain expense ratios below 0.41%, with seven ETFs investing in fixed income markets with an average expense ratio of 0.26%, four ETFs investing in equities with an average expense ratio of 0.22%, and the SPDR Gold ETF with a 0.40% management fee. The 12 ETFs, with a combined AUM of S$7.9 billion are tabled below.

 Source: SGX (Data as of 6 September 2021)

Of the 12 ETFs tabled above, the three that have seen the highest inflows in the 2021 year to date, include the ICBC CSOP FTSE Chinese Government Bond ETF, the ABF Singapore Bond Index Fund and the Nikko AM Singapore STI ETF. As noted in the ICBC CSOP FTSE Chinese Government Bond ETF prospectus the management fee of the ETF is currently 0.25% per annum of the NAV, with a set maximum of 0.30% per annum of the NAV. The management fee consists of custodian fees and other fees and charges that include fund administration and valuation fees, audit fees, accounting fees, licensing fees, corporate secretarial fees, printing costs, out-of-pocket expenses and director fees.

The ICBC CSOP FTSE Chinese Government Bond ETF, the ABF Singapore Bond Index Fund and the Nikko AM Singapore STI ETF have averaged 4.5% total returns in the 2021 year to 6 Sep. Calendar year returns for portfolios weighed 50/50 to the ABF Singapore Bond Index Fund and the Nikko AM Singapore STI ETF at the beginning of each of the past five years ranged from -2.5% in 2018 to 12.5% in 2017.

The ICBC CSOP FTSE Chinese Government Bond ETF which was listed for trading in Singapore in Sep 2020, adopts a representative sampling method to replicate as closely as possible, before fees and expenses, the performance of the FTSE Chinese Government Bond Index. This Index measures the performance of fixed-rate government bonds issued in China, which includes fixed rate book entry government bonds issued in China and excludes zero coupon bonds, saving bonds, bonds with maturity greater than 30 years from issuance, and bonds issued prior to 1 Jan 2005.

The average yield to maturity of the ICBC CSOP FTSE Chinese Government Bond ETF Holdings is presenting 2.7%. The Yield to Maturity (YTM) represents the discount rate that equates the present value of a bond’s cash flows with its market price (including accrued interest). The Fund Average YTM is the weighted average of the fund’s individual bond holding based upon NAV, and does not include the fees and expenses. The ICBC CSOP FTSE Chinese Government Bond ETF has made two distributions, since its listing with the annualised trailing distribution yield at 2.8%.

As estimated by a recent BIS Working Paper No 949, the natural real interest rate in China averaged 3-5% between 1995 and 2010, but had subsequently declined to ‘a bit above 2% as of the end of 2019’, mirroring developments in advanced major economies. The FTSE Chinese Government Bond Index and FTSE Singapore Government Bond Index have also maintained a simple 85% correlation in daily moves over the past five years. However, differences in the inertia of expectations, growth and interest rate polices have provided a tradable aspect to the passive fixed income ETFs. Such factors saw the price ratio spread of the FTSE Chinese Government Bond Index to the FTSE Singapore Government Bond Index move from two standard deviations below its 3-year mean in August 2020 to two standard deviations above its 3-year mean in July 2021. This meant that the ICBC CSOP FTSE Chinese Government Bond ETF outpaced the Xtrackers II Singapore Government Bond UCITS ETF by as much as 12.0% from its 21 Sep 2020 debut through to 12 Aug 2021. 

ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets. As with other securities, ETFs maintain market risks with the underlying index tracked by the ETF susceptible to market volatility. Changes of market conditions can affect the price of the underlying, which constitutes the NAV of the ETF, leading to a change in price of the ETF. To find out more about ETFs, click here.