Ms Jenny Chiam, Head of Securities, SGX

Ms Lynn Gaspar, Head of Retail Investors, SGX

Ladies and Gentlemen

Introduction

1   A very good morning to all of you, and welcome to today’s SGX ETF symposium.

2   It has been a bumpy ride for the stock market the past few months. The volatility may have been unnerving but I am encouraged to see all of you here this morning. Hopefully you are here because you still believe in investing, and its benefits.

3   Market turmoil aside, saving and investing for the long term remains one of the best strategies to grow our retirement nest eggs. It is vital to start early. If you start saving and investing say, $2,000 a year from the age of 35, with a 3% return you will have $98,000 at the age of 65. But if you start 10 years earlier at 25, you would have gotten $155,000 or over 50% more.

4   Retirement planning is not a complicated process. It entails saving consistently and investing regularly in a diversified basket of assets. It does not matter if you start small, because the power of compounding will work in your favour over many years.

5   You should also diversify and have a balanced portfolio so that you can ride out short term market volatility, such as what we saw recently.

ETFs as a possible asset class for investments

6   One asset class that you can consider adding to your investment portfolio is exchange traded funds, or ETFs. ETFs, as the name suggests, are investment funds that are traded on the stock exchange which you can buy through a broker.

7   Since its inception more than 20 years ago, the ETF industry worldwide has ballooned. Across the world, almost US$3 trillion of assets is parked in ETFs, about the size of the UK economy. In Singapore, we have 87 ETFs worth a combined US$2.9 billion. Why have ETFs become popular? One reason is that they allow both institutional and retail investors to have diversified exposure to a portfolio of securities efficiently. You can invest in a market or a basket of assets just by investing in one product. Because ETFs are listed, prices are transparent.

8   Another advantage is their lower fees. The expense ratio of ETFs can be less than 0.5% a year, compared with about 1% to 2% a year for many unit trusts. Given that these expenses are charged to the ETF or unit trust, they directly impact your returns as a retail investor.

Risks of ETFs

9   I have spoken about the benefits of ETFs. Now, I will highlight the risks involved with ETFs, as with all investments. For example, ETFs are susceptible to fluctuations in their market value as well as currency risks when they are not dominated in Singapore dollars.

10   More importantly, investors should understand that not all ETFs are created equal. For example, the risks associated with a cash-based ETF are very different from a synthetically-replicated ETF. Cash ETFs invest directly into the assets that make up the index while synthetic ETFs use derivative products to produce the returns.

11   For synthetic ETFs, there will be swap arrangements with a financial institution to achieve index replication. This means that synthetic ETFs involve counterparty risks. A default by the swap counterparty will negatively impact the ETF even though the actual index the ETF is tracking is unaffected.

12   Given the differing risk profiles of ETFs, investors should first understand the product or seek financial advice before investing.

13   In 2012, MAS launched the Excluded Investment Product (EIP) and Specified Investment Product (SIP) scheme to protect the interests of retail investors. EIPs are simple and commonly understood products like shares and REITs, and can be sold without restrictions. On the other hand, SIPS are more complex – they may be derivatives, or products which feature derivatives such as synthetic ETFs. There are enhanced safeguards for retail investors trading SIPs, including an assessment of their investment knowledge or experience. This is so that investors who put their money into more complex investment products understand what they are buying and the associated risks well.

Reclassification of SIPs

14   But we also understand the need to balance investor protection with accessibility to a broader range of products such as ETFs, to help Singaporeans reach their financial goals.

15   Previously, all investment funds which used derivatives were considered SIPs. MAS has taken on board industry feedback that funds which make limited use of derivatives are relatively less complex and should be made more accessible to retail investors. These are funds which invest only in simple products such as shares or gold, but may use derivatives for efficient portfolio management including the hedging of risks. Fund managers will now be able to reclassify such investment funds as EIPs.

16   Retail investors can then buy these investment funds more easily as they will no longer need to be assessed on their investment knowledge or experience. Since the rule change, 19 ETFs have been reclassified as EIPs. ETFs that are classified as EIPs now account for over 80% of the assets under management of all SGX-listed ETFs. We hope that this will provide retail investors with more investment choices.

Facilitating retail access to other low-cost products

17   Besides ETFs, we have also taken steps to increase access to other investment products, such as the Singapore Savings Bonds. Launched in September this year, Singapore Savings Bonds offer individual investors a safe, long-term and flexible product to meet their savings and investment needs. Singapore Savings Bonds will be issued every month for at least the next five years.

18   MAS has also observed growing retail interest in fixed income products such as corporate bonds. Currently, only a small proportion of corporate bond issuances is available to retail investors. One reason for this is the higher costs associated with an offer to retail investors given the stricter regulatory requirements, such as the need for a prospectus.

19   In view of this, we are finalising the bond seasoning and exempt bond issuer frameworks. They will allow eligible corporate issuers to issue bonds to retail investors at lower cost and in minimum denominations of $1,000, while ensuring sufficient safeguards for investors. Both initiatives have been put out for public consultation and the response has been positive. We hope that this will spur more high quality companies and institutions to issue bonds in Singapore.

Improvement to product disclosure using Product Highlight Sheets

20   We are also enhancing product disclosures to help investors make sound financial decisions. Many investors are aware that a prospectus is an important source of information to help us understand how investment products work. But we often do not take the time to read the prospectus. In view of this, we have introduced the product highlights sheet (or PHS).

21   The PHS is a document which highlights the key features and risks of an investment product in a clear and concise manner. The PHS must be given to investors together with the prospectus.

22   Previously, only ETFs and collective investment schemes were required to have a PHS. In July this year, we extended the PHS requirement to a wider range of products, such as bonds, preference shares, perpetual securities, convertible bonds, ordinary shares, REITs and business trusts. Basically, most of the common investment products in Singapore will now have a PHS when they are first offered to the public.

Consumer Education

23   We are aware that it is not just about giving people access to products, and ensuring that issuers make proper disclosures. Financial education is important too; to help people understand the disclosures and, more broadly, to teach them how to plan for the future and choose the most suitable products for themselves.

24   A lot of this work is done through MoneySENSE, the national financial education programme that is led by MAS in partnership with many other Government agencies.

25   We also work with SGX, the Securities Investors Association (Singapore) (SIAS), the Association of Banks in Singapore (ABS), the Life Insurance Association of Singapore (LIA) and other partners to deliver financial education programmes to Singaporeans from all walks of life. Both the public and private sectors have a role to play, and we are thankful for their support.

26   Currently, there is an ongoing MoneySENSE campaign to encourage Singaporeans to save early and invest regularly, and to educate them on lower-cost options like Singapore Savings Bonds, ETFs and corporate bonds. You might have seen some of the publicity material on the Internet, in newspapers, on the radio, and on buses. A TV commercial will hit the screens soon as well, so do keep a lookout for it.

27   While regulations and financial education are important, the best protection is still a discerning and vigilant consumer who does his homework. Before making a purchase, find out how the investment will generate the promised returns and be wary when an investment sounds too good to be true. It is also important to consider the risks involved and what the recourse options are, if the entity fails or does not deliver on its promises.

Conclusion

28   It is heartening that so many of you are keen to learn more about investments. Taking responsibility to enhance your financial knowledge and being proactive about planning will lead to a better financial future for you and your family. 

29   I would like to encourage you to follow MoneySENSE on Facebook and visit the MoneySENSE website for useful resources on a wide range of financial topics to help you in your financial journey.

30   Thank you for attending today’s event and I hope you learn something useful from the symposium.