Industry Updates

Singapore's ETF market grows, with addition of fixed income

Felix Xu

a group of people walking around a large display case

After stalled beginnings, Singapore's ETF market is set to grow with help from the central bank.

Nikko Asset Management, one of Japan's largest fund managers, is listing the first Singapore-dollar denominated corporate bond ETF in Singapore.

The product is expected to improve investors' diversification by providing them a low-cost access to the debts of local large caps.

Nikko AM Asia has started the fundraising process for the ETF with a full listing on the Singapore Stock Exchange scheduled for late-August.

The ETF will track the iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index, which is made of statutory board and investment grade bonds. These include the debts of the Housing Development Board, Temasek Financial, Land Transport Authority, Development Bank of Singapore, and United Overseas Bank.

While Singapore has been dubbed the major financial hub alongside Hong Kong in the Asian region, its ETF business growth still lags behind its regional rival with only 58 ETFs listed in total—against the 134 ETFs in Hong Kong.

Noticeably, the Singapore market only has four ETFs that focus on domestic assets. Two of which are managed by Nikko AM Asia - the ABF Singapore Bond Index Fund and the Nikko AM Singapore STI ETF.

The launch of the new ETF marks the company's strategic plan to further expand its ETF offerings in the city and to provide investors with the opportunity to diversify their portfolios.

Indeed, the new product will be a complement to its ABF Index Fund, which is aimed at tracking local government bonds.

Over the past five years to June 2018, the iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index returned approximately 3.75% per annum, versus the annual return of 1.95% delivered by the iBoxx ABF Singapore Government Total Return Index - the underlying benchmark of the APF Index Fund.

"Building on the ABF Singapore Bond Index Fund launched in 2005, this ETF creates greater and ease of access to SGD-denominated bonds and encourages participation in the Singapore bond market," says Eleanor Seet, president of Nikko AM Asia.

Xtrackers II Singapore Government Bond UCITS ETF 1C is another local ETF tracking Singapore government bond. The fund is managed by Deutsche Asset Management with a management fee of 0.2% per annum, compared to 0.15% for the Nikko AM Asia's ETFs.

According to Jacqueline Loh, deputy managing director of Singapore's central bank, the Monetary Authority of Singapore, the SGD corporate bond market has seen steady growth over the years, but it has been challenging for retail investors to gain exposure to a diversified portfolio of SGD corporate bonds.

She hails that the new corporate bond ETF is "a step toward filling the gap", adding that the ETF complements MAS' effort to improve retail access to simple, and low-cost investment products such as the Singapore Savings Bonds.

The Singaporean government has recently launched initiatives in order to propel domestic ETF market. For example, a tax concession was extended from REITs to REIT-tracking ETFs on 1 July.

Also, the MAS has been pursuing preparatory tasks for the introduction of leveraged and inverse ETF. SGX Director and Head of Products Luuk Strijers previously comments that leveraged and inverse ETFs have gained popularity in various markets including Asia because of the amplifying or inverse setup of these products.

Singapore's ETF market currently has about US$3.27 billion in total AUM.

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