What is an ETF?

“In the ETF world, you can be in any sector at any point. You can now invest more like institutions. Prior to this big explosion, retail investors couldn’t invest that way.” – Nadav Baum

We have been talking about ETFs and index funds for a while and some of my readers are still pretty confused about what an ETF is.

When I talk about ETFs, I am referring to index funds as well but there are some differences between these two investment vehicles. If you are interested to read about this, FIRE ( Financial Independence, Retire Early) godfather JL Collins has a nice post about this HERE!

For Malaysians, Singaporeans, and Asian readers, we could not buy the mutual/index funds mentioned in JL Collins blog, therefore we can only have the option of buying ETFs.

What is an ETF?

According to investopedia, an exchange-traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies.

A few well known ETFs that track S&P 500 include VOO by Vanguard, SPY by SPDR.

ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual/index funds that only trade once a day after the market closes.

Some speculators trade ETFs like normal stocks which I strongly discourage. In reality, you should be holding your ETFs forever!

Types of ETF

There are various types of ETFs and they can be classified according to,

• What assets class they invest in? Such as equities ( stocks), bonds, REITs, currency, commodity such as gold, etc
• What markets/indices they try to mirror? Such as ETFs mirroring Singapore STI, Bursa Malaysia, S&P500 in the States, the performance of emerging or developed markets, etc
• Inverse ETFs are constructed by using various derivatives for the purpose of profiting from a decline in the value of the underlying benchmark such as VILX, SPXU

Examples of ETFs in Malaysia and Singapore

A few examples of ETFs available in Malaysia and Singapore are as below,

Malaysian ETFs

1. ABF Malaysian Bond Index (Code:0800EA) – A bond ETF which mirrors Markit iBoxx ® ABF Malaysia Bond Index.
2. FTSE Bursa Malaysia KLCI ETF ( Code: 0820EA)- A stock/equity ETF tracking FTSE Bursa Malaysia KLCI Index
3. TradePlus Shariah Gold Tracker ( Code:0828EA)- A commodity ETF tracking LBMA Gold Price AM

Singapore ETFs

1. SPDR S&P 500 ETF ( Code: SGX:ES3)- A equity ETF ( in USD) that tracks S&P500 in the States. ( YES!! you can buy S&P500 ETF in Singapore!)
2. ABF Singapore Bond Index Fund ( Code: SGX: A35) – A Singapore government and quasi-government AAA bond ETF
3. Nikko AM STI ETF ( Code: SGX: G3B)- A equity ETF tracking top 30 companies listed in SGX ( mainly banks, developers and REITs stocks)
4. Lion Phillip S-REIT ETF (Code:SGX: CLR)- A REIT ETF that tracks high dividend REITs listed in SGX.

Picking your ETFs

For Americans, you should be choosing mutual/index funds that are recommended by JL Collins, if you prefer the excitement of seeing your ETFs prices move every single second, these are a good combination to consider.

1. Vanguard Total Bond ETF ( BND) – Expense ratio 0.06%
2. Vanguard Total Stock ETF (VTI)- Expense ratio 0.05%
3. Vanguard FTSE All-World ex-US ETF ( VEU)- Expense ratio 0.13%

For Canadians, these are the ETFs ( listed in Toronto Stock Exchange) you might want to consider,

1. Vanguard Canadian Aggregate Bond Index (VAB)
2. Vanguard FTSE Canada All Cap Index ( VCN)
3. Vanguard US Total Market Index (VUN)

For Europeans, depending on your nationality and possible tax implication, you can choose the currency you want to invest- Euro, USD, GBP, or even Swiss Franc. You also need to consider your preference of either accumulating ( dividend will be reinvested) or distributing ( dividend will be distributed) type of ETFs. These are a few ETFs you may consider,

1. Vanguard S&P500 UCITS ETF– VUSD ( in USD) or VUSA ( in GBP)- it is a distributing ETF
2. Vanguard FTSE All-World Distributing ETF– VWRD ( in USD), VWRL (in GBP)
3. Vanguard USD Treasury Bond UCITS ETF Distributing- VDTY ( in USD)
4. Vanguard Euro STOXX 50 UCITS ETF Distributing- VX5E ( in EURO)
5. Vanguard USD Corporate Bond UCITS ETF Distributing -VDCP

For Asians like Malaysians and Singaporeans, options can be pretty tough, you can combine local ETFs with US/Euro ETFs to get international exposure or you can create two different portfolios- one in local currency and another portfolio in foreign currency ( USD, GBP or Euro).

For Malaysians or Singaporeans, you can combine the following ETFs

1. FTSE Bursa Malaysia KLCI ETF or Nikko AM STI ETF
2. ABF Malaysian Bond Index ETF or ABF Singapore Bond Index Fund
3. Vanguard FTSE All-World Distributing ETF ( VWRD)

Conclusion

No matter what you are trying to do, you need to have a mixture of bonds and equities ( stocks) ETFs to minimize your risk.

Malaysians are at a disadvantage due to weak currency, diversifying our investments into another currency is of paramount importance.

Getting multiple incomes in different currencies ( from dividends, side hustling,etc) is no more a luxury but a must if you want to achieve financial independence.