Amova Singapore STI ETF- SGD (Dist) Class

Exchange Traded Funds or “ETFs” are professionally managed investment funds that typically invests in a diversified basket of stocks or bonds that track the performance of a specific index. For example, the Straits Time Index or “STI”[1].

¹ The STI tracks the performance of the top 30 companies by market capitalization that are listed on the Singapore Exchange

While most ETFs passively track an index, there are some ETFs that are also actively managed.

Just like stocks, you can trade ETFs on a stock exchange at any point during market hours.

In a nutshell, ETFs offer the best of both worlds, where you have the diversification provided by a fund combined with the tradability of a stock, which can be bought and sold whenever the stock market is open.

For the rest of this FAQ section, unless otherwise specified, the term “ETF” will be used in reference only to passively managed ETFs and not actively managed ones.

As ETFs are designed to track a benchmark index and closely replicate the performance of the index, it will hold substantially all its assets in index securities in the same approximate proportion as their weightings within the index. For example, if DBS represents 20% of the STI, an ETF designed to track the STI would aim to hold 20% of the fund’s assets in DBS shares.

The ETF then issues units to investors, who can buy and sell these units on the stock exchange. The price of an ETF share is determined by the net asset value (NAV) of the underlying assets it holds.

ETFs provide diversification. Investing into an ETF helps you diversify instantly compared to simply buying single stocks. Diversification is important for reducing risk.

ETFs are easy to trade, just like a stock. ETFs trade on the exchange thereby giving you flexibility to enter and exit at any time. Which means you can simply buy and sell an ETF via your broker, subject to prevailing trading liquidity and market prices at any time the stock market is open. Typically, ETFs are supported by market makers to facilitate trading liquidity and tighter bid-ask spreads.

ETFs are also transparent. What you see is what you get. Generally, ETFs are transparent, as the underlying investments in the ETF are disclosed and freely available to the public. This may not always be true in a Unit Trust for example, where the portfolio manager can choose not to reveal all the underlying investments in the fund.

ETFs grant easy and convenient access to a wide variety of markets. Investing directly into some markets, usually emerging markets, may not be easily accessible to the general investing public. ETFs however now make it very easy for investors to conveniently access these traditionally difficult to access markets in bite sized chunks.
A very apt example is Nikko AM’s newest NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF launched in early 2022, that grants investors direct and simple access to China A-shares.

Lower cost, vs other instruments like Unit Trusts. Unlike Unit Trusts that may have higher upfront sales fees and higher management fees to compensate for an actively managed portfolio run by a professional fund manager, passive ETFs typically have lower management fees as they passively track an index to just deliver market returns with no expectations of outperformance.

“Self-Healing”. Constituents within an index are determined by a methodology set by the index provider. New securities are added into the index when they become relevant, and securities that no longer fit the criteria are removed. This ‘self-healing’ nature of the index ensures that the constituents you are invested into via the ETF continues to stay relevant through time, and in turn means that you are always automatically invested into the securities that best fit the index’s objective.

No, ETFs can represent various asset classes, not just stocks. Other asset classes include (but are not limited to) bonds, REITs, commodities etc.

As ETF units are traded on stock exchanges, so you can buy or sell them through a brokerage account, just like you would trade individual stocks during trading hours. You place an order with your broker specifying the number of units you want to buy or sell.

ETFs and unit trusts are both investment vehicles, but they differ mainly in 2 ways:

The way they are bought and sold – ETFs can be purchased or sold on a stock exchange the same way that a regular stock can, and its price will fluctuate throughout the day. This is different from unit trusts which only trade once a day after the market closes based on its end-of-day net asset value (NAV) price.

ETFs also tend to have lower expense ratios and offer greater transparency.

Some ETFs pay distributions, especially those that include dividend-paying stocks or income-generating assets like bonds. Distributions are typically made to ETF unit holders on a periodic basis.

Yes, brokers may offer distribution reinvestment plans (DRIPs). With a DRIP, you can automatically reinvest your ETF distributions by purchasing additional units, thereby compounding your investment over time.

Yes, ETFs can be suitable for long-term investing. They can offer broad market exposure, diversification, and the potential for steady growth. However, it's important to choose ETFs that align with your investment goals and risk tolerance.

As with any investment, there are risks associated with ETFs. As an ETF takes on the risks of the assets it invests into, its net asset value fluctuates with the valuation of these underlying assets, and there is always a possibility of loss. However, ETFs are generally considered to be lower risk compared to individual stocks due to their diversified nature. Do note a passively managed ETF cannot respond to market movements like an actively-managed fund. For example, portfolio manager of an actively-managed fund can adopt defensive measures like reducing securities holdings during periods of volatility or in the face of impending bear market, but a passive ETF will continue to track its index in its securities holdings.

Please note that while this information provides a general understanding of ETFs, it's always important to do thorough research, consult with a financial advisor, and read the specific prospectus and documentation of any ETF you consider investing in.