UCITS ETFs are not new to Singapore investors. Plenty already buy CSPX or IWDA on the London Stock Exchange, because they pay less tax on US dividends than the US-listed versions.
So when eight UCITS ETFs carrying the Xtrackers name were lined up for SGX this month, my first question was why anyone would bother. The London versions already do the job.
For me, the answer is SRS.
What’s Coming, and When
The ETFs come in two batches of four.
The first four are existing Xtrackers funds from DWS, now also listed on SGX. They start trading on 13 October.
The second four come from iFAST. Each one invests in a matching Xtrackers fund, and iFAST adds its own fees on top. The offer period runs until 14 October at S$1.00 a share, and trading starts on 22 October.
Why SRS Investors Should Care
SRS money can’t buy anything listed in London. SRS accounts can only buy SGX-listed securities and approved products like unit trusts. So the UCITS ETFs that cash investors have used for years were never open to SRS money.
That left SRS investors with thin choices for global shares. Unit trusts filled the gap, but most of them are actively managed and cost a lot more.
Now SRS money can own the developed world for 0.12%, through any broker that takes SRS. That is the biggest draw for me.
Of the four, I’d treat XWR as the default. MSCI World holds large and mid-sized companies across 23 developed markets, so it isn’t a bet on any one country. The S&P 500 and the Nasdaq 100 are bets on America, and the Nasdaq 100 on American tech in particular. The equal-weight fund is a bet that the rest of the S&P 500 catches up with the giants.
If an SRS account is going to hold one fund for decades, I want it to be the most diversified one.
What Do Cash Investors Get?
Cash investors could always buy UCITS ETFs in London, if their broker gives them access. Not every broker does. With these listings, any broker that trades Singapore shares can buy them.
The tax case is the same one that made London UCITS popular. A US-listed ETF loses 30% of its US dividends to withholding tax. These Irish funds pay 15% at the fund level. And because you own an Irish fund rather than US assets, US estate tax doesn’t apply. For US-listed ETFs, that tax can reach 40% on holdings above US$60,000 when the owner dies.
Some will also prefer holding SGD. Just know that trading in SGD is not the same as being hedged to SGD. The funds still own US dollar assets. If the US dollar falls 10% against the Singapore dollar, XUS falls by about that much even if US stocks don’t move.
Small buyers get one more thing. XUS was indicated at about S$20 a share in mid-September, and you can buy a single share. That makes it easy to invest a little every month. But do check the trading costs because minimum fees may still apply and render small investments impractical.
The Second Four Are AI Plays
Only one of iFAST’s four has AI in its name. But look at what the Japan, Korea and Taiwan funds hold, and they lean on the same AI supply chain.
I added up the top holdings in each that sell into AI.
TSMC makes the chips Nvidia designs, and it alone is 29.6% of the Taiwan fund. Hon Hai assembles AI servers, Delta supplies the power systems in data centres, and ASE packages the chips. In Korea, Samsung and SK hynix make the high-bandwidth memory that AI chips need. SK Square is the holding company that owns SK hynix’s shares.
Japan is less obvious. Advantest tests chips and Tokyo Electron makes the machines that produce them. SoftBank is one of OpenAI’s biggest backers.
The AI & Big Data fund is the most spread out. Its top five are the US tech giants, and they add up to only a quarter of the fund.
In Korea and Taiwan, about half of what you buy is AI. Pick more than one of these and you are doubling up.
These cost more than the first four, between 0.43% and 0.77% a year, because there are two layers of fees. Still, SRS investors who wanted AI exposure have been hard up for options. Now there are four.
The Catch for SRS Money
The issuers are only saying they expect these ETFs to be SRS-eligible. That isn’t confirmed yet. Cash investors can buy from the first day of trading, but if you plan to use SRS money, you may have to wait a while.
For cash investors who already use London, little changes. For SRS investors, the menu just got a lot longer.
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