How to Invest in different themes using ETFs

ETFs have taken the limelight in recent years due to its low cost and wide diversification. Cathie Wood also captured everyone’s attention on the opportunity ETFs provide when her flagship Ark Innovation ETF surged around 300% in the year of 2020.

For those unfamiliar about ETFs, here’s a quick background: An ETF stands for an Exchange-Traded Fund which tracks the performance of an underlying index. This means that investors can invest in a basket of stocks in one scoop just by simply purchasing an ETF.

It is traded on an exchange similar to a stock, implying that it can be bought and sold throughout the day. Last but not least, with the boom in the variety of ETFs, investors can invest in various themes they prefer – which will be covered in detail below.

The ETF Universe

Given that the 2 largest investment markets are the Equities and Bonds, its needless to say that the ETFs’ Assets Under Management (AUM) also belong to these 2 markets.

That said, there are still many up-and-coming spaces such as the Thematic, Commodity and Real Estate.

Below, we will showcase 3 ETFs based on different themes:

1. Lion-OCBC Securities Hang Seng Tech ETF

With S$64 million in assets under management at the time of listing on 10 Dec 2020, the fund seeks to replicate the returns of the Hang Seng Tech Index.

The index is designed to represent the 30 largest technology companies listed in Hong Kong which have high business exposure to technology themes.

The ETF’s price has dropped dramatically from a high of S$1.80 in mid February 2021 to a record low of S$1.05 on 27 July 2021 before rebounding in the last week.

This sell-down is attributed to the tech sectors’ clampdown from the Chinese government which started way back from Alibaba Group’s fiasco.

2. Lion-Phillip S-REIT ETF

For investors looking for an easy way to invest in different S-Reits at one go can go for the Lion-Phillip S-REIT ETF.

It is Singapore’s first exchange-traded fund that tracks high-quality S-REITs screened by Morningstar, at a low cost.

After the sharp plunge during March 2020 at the height of the pandemic, the ETF quickly rebounded to recoup more than 60% losses by June 2020 backed by the government’s hefty support grants.

Subsequently, it is trading sideways given the occasional outages of Covid-19 cases. While the REIT sector’s eventual recovery will depend on the pandemic, the ETF continues to pay out dividends amid this tough climate.

Based on the ~4.7 cents dividends given in FY2021 and the unit price of S$1.11, it is offering an indicative yield of 4.2%.

3. SPDR Straits Times Index ETF (SGX: ES3)

Probably the most known ETF in Singapore, SPDR STI ETF is one that replicates Singapore’s local barometer – the Straits Times Index.

The Straits Times Index (STI) is the globally-recognised benchmark index and market barometer for Singapore. With a history dating back to 1966, it tracks the performance of the top 30 eligible companies listed on the Singapore Exchange.

Given the high weightage towards the financial institutions and bigger Reits, the ETF has performed in line with the Singapore’s economy and the policy stance on COVID-19.

Hence, with the investors’ perception that the Covid situation is largely under control, the STI ETF’s price is able to increase steadily throughout the year before reaching a stabilization phase currently.

Conclusion – Investing in different themes

The various benefits of ETFs have led to investors flocking towards this asset class. Now with even more thematic ETFs on the rise (i.e. Ark Innovation ETF), investors are taking advantage of this trend to get into a theme they like i.e. Cloud Computing, Healthtech and more.

That said, investors should also beware of the risks involved because an ETF is ultimately, a basket of securities. If the ‘whole basket’ of tech stocks is affected by a new regulation (i.e. China government exerting control), the ETF may still be punished heavily.

Join us next weekend as we delve into 6 investing themes to look out for in the next decade. Claim an e-goodie bag with 4 Research Reports and more, when you register here: https://rebrand.ly/73f0d2