Amelia Tan Hing Yee Fiona Foo Yeh Ching Samantha Poh Minhui Christopher Lo Kin Kit Aaron

Tay Wei Long FNCE102 G2 Team 6

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Introduction
SGX

AMEX/
NYSE

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Introduction
SGX STI ETF IS MSCI India 100US$ Lyxor Cmdty 10US$ GLD 10US$ AMEX/ NYSE MSCI Singapore Powershares India Greenhaven Commodities Index SPDR Gold Shares

DBXT S&P Short 10 US$

Short S&P 500 ProShares

Introduction

Ease of trading

Cost of trading

Other factors

Advice

US compared to Singapore
Higher Trading Volume Greater Liquidity Longer Market Hours

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Volume & Liquidity

Volumes traded on the US are generally much greater

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Volume & Liquidity

Misconception that ETFs listed in SG are highly illiquid due to low trading volumes Low trading volumes Detrimental to bid/ask spread

ETFs on AMEX can be bought or sold in odd lots

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Market Hours
SGX
9am 5pm

AMEX/ NYSE
Enter orders pre-market and afterhours Up to 24 hours

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Bid/Ask Spread
US listed ETFs have a better Bid/Ask Spread
AMEX/ NYSE 1 2 3 4 5 MSCI Singapore Powershares India Greenhaven Commodities Index SPDR Gold Shares Short S&P 500 ProShares US$0.01 US$0.01 US$0.06 US$0.01 US$0.01 Typical Spread $0.01 $0.07 $0.01 $0.22 $0.16 SGX STI ETF IS MSCI India 100US$ Lyxor Cmdty 10US$ GLD 10US$ DBXT S&P Short 10 US$

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Trading Commissions & Fees

Local broker POEMS Overseas broker E*Trade

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Trading Commissions & Fees

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Trading Commissions & Fees

Cost of buying ETFs on a monthly basis POEMS E*trade - US SGX Commission $18.32 $25.00 Clearing fees $1.00 Access fees $0.19 SEC fees GST $1.83 Custodian fees Monthly cost $18.32 $28.02 Total cost for 1 year $219.79 $336.25

POEMS US $28.20 $0.03 $1.98 $2.14 $32.35 $388.18

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Trading Commissions & Fees

Cost of buying ETFs in one Lump Sum E*trade - US Commission $18.32 Clearing fees Access fees SEC fees GST Custodian fees Total cost for 1 year $18.32 POEMS SGX $84.00 $12.00 $2.25 $6.88 $105.13 POEMS US $169.20 $0.54 $11.88 $25.68 $207.30

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Total Expense Ratio

Similar expense ratios Expense ratio is only marginally higher in the US than in Singapore

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Taxes
US Dividends are taxed at 30% Foreigners investing in the US will not be taxed on capital gains Singapore Dividends derived in Singapore are taxable

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

The ETF Mutation
Investing in non-index assets Single and Multiple Counterparties Securities Lending Additional Interbank Interest Rates Return, e.g. LIBOR

Representative Sampling Cash - Based

Direct Replication using physical investing Investing in stocks that most replicate the index

Swap-based ETF
Performance pegged to derivatives (swap arrangement)

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

1st Gen Cash-Based ETF
Investor ETF Sponsor Full Replication of Index Basket

Small % of Fund invested in Non-Index Assets

Securities Lending: Counter Party Risks

Futures Contracts, Options on Futures Contracts, Local Currency andreduce Generate extra revenue to Forward Currency Exchange Contracts, Money management fees, etc. Market Instruments

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

2nd Gen Cash-Based ETF
Problem of Tracking Error from Portfolio Rebalancing Optimized Sampling Techniques to Indentify Securities that closely match the underlying index

Investor

ETF Sponsor

Representative Sampling Strategy

Small % of Fund invested in Non-Index Assets

Securities Lending: Counter Party Risks

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

3rd Gen Cash-Based ETF
Exchange-Traded Futures, OTC Swap Agreement
Offers Virtually Zero Tracking Error

Investor

ETF Sponsor

Full Replication or Representative Sampling Strategy

Small % of Fund invested in Non-Index Assets

Securities Lending: Counter Party Risks

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

Information Disclosed

SINGAPORE MARKET IShares MSCI India (198)

Cash-based ETF or swap-based ETF? Securities Securities lending programme lending? Investment Futures contracts Do not invest in futures contracts outside of the Options on futures contracts and options but invests in swap disclosed Other types of options and agreements, including credit portfolio holdings swaps defaults Cash and cash equivalents Money market funds

US MARKET US India Powershares Swap-based. Representative Sampling Strategy.

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

Information Disclosed SINGAPORE MARKET STI ETF US MARKET Ishares MSCI SG Index Fund

Cash-based ETF Cash-based. or swap-based Full Replication ETF? Securities No. lending? Investment outside of the disclosed portfolio holdings

Swap-based. Representative Sampling Strategy. Securities lending programme Futures contracts Options on futures contracts. Other types of options and swaps Cash and cash equivalents Money market funds

ONLY 5 Cash-Based ETFs listed on SGX: ABF SG Bond ETF, CIMBFTASEAN40 100 US$, DaiwaFT ShariaJ 100 US$, DBS STI ETF 100 and the STI ETF are the only 5 ETFs listed on SGX that are cash-based

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Transparency & Exposure to 3rd Party Risks

Information Disclosed

SINGAPORE MARKET IShares MSCI India (198)

US MARKET Ishares MSCI SG Index Fund

Cash-based ETF or swap-based ETF? Securities lending? Investment outside of the disclosed portfolio holdings

Swap-based. Representative Sampling Strategy. Securities lending programme Futures contracts Options on futures contracts Other types of options and swaps Cash and cash equivalents Money market funds

The type of market does not determine the level of third-party risks an average investor will be unknowingly exposed to.

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Currency Risk
Most ETFs are denominated in USD

DBS STI

STI ETF

S$ABF SG
BOND

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Availability of Options
Options traded on the US market ETFs as their underlying Amplify his returns using cheap options Warrants

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Shorting
SGX Disallows naked shorting Insufficient inventory available Higher interest rates AMEX/ NYSE Naked shorting can easily be done Larger inventory of shares Lower interest rates

Introduction

Ease of trading

Cost of trading

Other factors

Advice

Advice
Telegraphic transfer costs

High Custodian Fees for local ETFs

Lack of volume in local market Huge variety of ETFs in the US market

We recommend US ETFs.