You’ve become tired of the poor returns that you’ve received from the Straits Times Index (STI). Most of your friends have been telling you to invest in the S&P 500 which provides much better returns!
However, how do you go about buying the S&P 500 in Singapore? Here’s a guide to get you started.
Table of Contents
How to invest in the S&P 500 in Singapore
Here’s a step-by-step guide to start investing in the S&P 500 in Singapore:
- Choose between ETFs or Mutual Funds
- Choose an ETF to invest in (if you decide to invest in an ETF)
- Choose a brokerage or robo-advisor that allows you to invest in the S&P 500
#1 Choose between ETFs or Mutual Funds
When you want to buy into the S&P 500, you are unable to buy the index itself!
Instead, you will need to buy into a fund that tracks the S&P 500 index. These funds will buy into the stocks that make up the index.
Here are the top 10 holdings in the S&P 500 (on 8 Nov 2020).
This means that the fund that you invest in will buy all of these stocks according to their weightage.
Here are the 2 kinds of funds that you can invest in the S&P 500:
Exchange traded funds (ETFs) are the more popular option to invest in the S&P 500 in Singapore. This is because they are seen to be lower cost options compared to mutual funds.
Moreover, they are available on stock exchanges. This makes it more accessible for you as an investor.
2. Mutual funds
Another type of fund that tracks the S&P 500 are mutual funds. These mutual funds were made popular by John Bogle in 1975. He was the pioneer of the S&P 500 Index Fund that allowed retail investors to buy into the S&P 500 Index.
However, it is hard to gain access to a S&P 500 mutual fund in Singapore. Popular funds like FXAIX, SWPPX and VFINX are unavailable to Singaporean investors. The only way to buy them could be via Interactive Brokers’ Mutual Fund Marketplace.
It may be possible to buy these funds via your financial advisor, but it may be pretty hefty.
Infinity U.S. 500 Stock Index Fund (Lion Global)
There are 2 different classes to this mutual fund: SGD and USD. It may be better to invest in the SGD class since it helps to reduce your currency exchange risk.
Mutual funds are usually more costly in Singapore
Moreover, there are many additional costs when you invest in a mutual fund. These include (in Sep 2020):
- Initial charge (up to 2%)
- Expense ratio (0.71%)
It is usually more costly to invest in a mutual fund. In contrast, Vanguard’s S&P 500 ETF only has an expense ratio of 0.03%! As such, it may be more cost effective to invest in an ETF instead.
However, Endowus recently launched their Fund Smart portfolio. This allows you to buy into the Infinity U.S. 500 Stock Index Fund at a lower fee.
#2 Choose an ETF (if you decide to invest in an ETF)
If you’ve decided to invest in an ETF, you now have another headache. There are many different S&P 500 ETFs to choose from!
You can skip this step if you’ve decided to invest in a mutual fund.
Types of ETFs
Here are some of the S&P 500 ETFs that you can purchase in different exchanges:
In the SGX, there is only one S&P 500 ETF being listed. This is the SPDR S&P 500 ETF (S27) that is managed by SPDR.
There used to be a SGX-listed S&P 500 ETF (I17) by iShares as well. However, this fund has already been delisted on the SGX.
2. New York Stock Exchange (NYSE)
There are 3 different S&P 500 ETFs that are listed on the NYSE. These ETFs are managed by different fund managers.
|Ticker||ETF Fund Manager|
Other S&P 500 ETFs that only track part of the S&P 500 Index
There are many different S&P 500 ETFs on the exchange as well! However, these ETFs track a subset of the S&P 500 Index. Here are some examples:
- S&P 500 Growth Index
- S&P 500 MidCap 400
- S&P 500 SmallCap 600
- S&P 500 Low Volatility High Dividend Index
- S&P 500 Information Technology Index
All of these indexes are only targeting a subset of companies in the S&P 500. This is usually based on certain criteria that is set by that index. As such, you will not be investing in all 500 companies in the S&P 500!
The only 3 ETFs listed on the NYSE that track the entire S&P 500 index are VOO, IVV and SPY.
3. Irish-domiciled S&P500 ETFs listed on the London Stock Exchange (LSE)
The ETFs that I’ve previously mentioned are all domiciled in the US. However, there are other S&P 500 ETFs which are domiciled in Ireland. These are usually referred to as UCITS ETFs which are able to be listed on the European Stock Exchanges.
One huge advantage of UCITS ETFs is that they are able to own funds from US stocks, yet they do not incur the hefty US estate tax.
Here are some examples of the S&P 500 UCITS ETFs listed on the London Stock Exchange (LSE):
|LSE Ticker||Fund Manager||Currency||Type of ETF|
You can read my comparison between accumulating and distributing ETFs to see how they are different.
The 3 main differences among these ETFs include:
- Fund manager
- Type of ETF (Accumulating or Distributing)
Which ETF should I choose?
There are so many different ETFs, so which one should you choose? Here are 3 things you may want to consider:
1. Expense Ratio
The expense ratio is the fee that you will need to pay the fund managers when you invest in the ETFs. Here are the expense ratios of the ETFs that I’ve previously mentioned:
|Ticker||Exchange||Fund Manager||Expense Ratio|
All of the expense ratios are below 0.1%, which is really low! The UCITS ETFs tend to have a higher expense ratio than the NYSE counterparts.
Even though the costs seem really low, the extra fees that you pay for UCITS ETFs may eventually add up!
2. Dividend Withholding Tax
The dividend withholding tax is something that you may want to consider as well. These S&P 500 ETFs will issue a dividend to you. Your dividends will be taxed before they are distributed to you.
Due to the different tax treaties, you will incur different taxes based on the fund’s domicile. Here are the dividend withholding taxes that you will incur:
|Fund Domicile||Dividend Withholding Tax|
If you invest in an Ireland-domiciled ETF, you will incur a lower dividend withholding tax!
S27 and the NYSE S&P 500 ETFs are domiciled in the USA. As such, you will incur the higher withholding tax (30%). You will not be able to avoid this tax if you invest in the SGX-listed ETF.
It may be more cost efficient to invest in an Ireland-domiciled ETF as you will incur a lower tax.
If you are a frequent trader, an ETF’s liquidity may be something that is important for you. One way that an ETF’s liquidity is measured is by the average trading volume. Here are the average trading volumes for these ETFs (from Yahoo Finance):
|Ticker||Exchange||Fund Manager||Average Trading Volume|
The NYSE listed ETFs have a much higher liquidity compared to the LSE listed ones. And let’s not even talk about S27 which has such a poor liquidity!
With a poorer liquidity, it may be hard for you to buy or sell at your intended price.
NYSE or LSE listed ETF?
Here are the 3 factors side-by-side for these 2 types of ETFs:
|Dividend Withholding Tax||Higher||Lower|
You can invest in a UCITS ETF to reduce the dividend withholding tax you incur. However, the tradeoff you will incur is a lower liquidity and a higher expense ratio.
As such, you really need to consider which ETF you prefer to invest in!
If you’d like to know more about the taxations and returns of these ETFs, you can read this article by the New Academy of Finance.
Comparison between individual ETFs
Still undecided between which ETF you should be choosing? Here are some comparisons between some individual ETFs:
#3 Choose a brokerage or robo-advisor that allows you to invest in the S&P 500
So you’ve decided which ETF or mutual fund you should choose. Now, you’ll need to find a brokerage or robo-advisor that allows you to purchase it.
Brokerages allow you to trade ETFs on the different exchanges. Here is a list of some of the brokerages you can use in Singapore:
Most of the brokerages do allow you to invest in the LSE.
FSMOne offers regular savings plans in the US stock exchanges
FSMOne also allows you to invest in either VOO or IVV via a regular savings plan.
This is something that other regular savings plans like OCBC BCIP, Invest Saver or POEMS Share Builders Plan do not offer. As such, only FSMOne provides you with the option to dollar cost average into the S&P 500.
Some brokerages offer mutual funds
If you do wish to invest in a S&P 500 mutual fund, there are some options you can consider as well:
Interactive Brokers for international mutual funds
Local brokers for Lion Global Infinity 500 Mutual Fund
Some local brokers do offer you access to the Lion Global S&P500 mutual fund too. This includes:
However, there may be a lot of hidden fees when you invest in this S&P 500 mutual fund. You may want to consider other low-cost methods of investing in the S&P 500 instead!
Other factors to consider
There are other factors you may want to consider when selecting which brokerage. This includes:
- Trading commissions
- Exchange rate
- Other miscellaneous fees
- Ease of depositing and withdrawing funds
As such, do try to take the time to see which is the best brokerage for you!
Here are 2 robo-advisors that allow you to invest in the S&P 500:
Kristal.AI is an attractive option you may want to consider. They do not charge you any management fees if your total investment amount is less than $50k! However, Kristal.AI allows you to invest only in the SPY ETF.
Moreover, there are some drawbacks when investing with Kristal AI:
1. You cannot invest in fractional shares
You are unable to invest in fractional shares using Kristal AI. The minimum number of units that you can purchase the SPY is 1.
As such, this is similar to investing via a broker.
2. There is a time lag between initiating and executing the order
When you invest with Kristal.AI, you may experience a time lag. Your order may take up to 24 hours to be processed.
The NAV that you see on the ETF’s page is based on the last market close price. As such, you will need to pay an extra 2% of the NAV as a buffer.
This may be an added cost as you may be buying the ETF at a price higher than you intended to!
Kristal.AI may not be the best way to invest in the S&P 500 ETF
Kristal.AI provides an interesting method to invest into the S&P 500 ETF. You do not incur any transaction fees or management fees if your total invested amount is less than $50k.
However, the time lag and lack of fractional shares may make Kristal AI unattractive.
Kristal AI does keep your assets under your own name in custodian accounts under Saxo Markets and Interactive Brokers. This is a drawback as it prevents you from investing in fractional shares. However, you will be given more control of your assets in the unlikely event that Kristal AI closes down.
#2 Endowus Fund Smart
Endowus has included the Lion Global Infinity US 500 Stock Index Fund as part of their portfolios. Moreover, they recently launched Fund Smart which allows you to build your own portfolio.
This means that you can purely invest into this S&P 500 mutual fund!
Endowus also has lower fees compared to normal brokers. You will incur a total of 1% in fees from both Endowus and the fund manager.
This is because Endowus rebates the trailer fees that they receive from the fund manager to you.
This will further help to reduce your cost of investing!
Endowus has a minimum investment requirement of $10k
To access this low-cost robo-advisor, you required to invest a minimum amount of $10k. This can be really hard for you if you only have a small sum to invest!
As such, investing in Endowus may not be something you can consider, especially if you are just starting out your investment journey.
There are so many ways for you to invest in the S&P 500. It can be really overwhelming at first when you are looking at all the options. However, the raw returns of all of these instruments should be the same!
This is because all of them should have the same allocation since they all track the same index.
As such, the major things you’ll need to consider are:
- The fees you incur
- The taxes you incur
- The liquidity and ease of withdrawal
There are also other things you can invest in, such as the ARKK ETF. You can try to explore the different products out there to decide which is the best for you!