Wednesday, August 27, 2008

Rise of ETFs in Singapore

I've been seeing more and more mass media articles educating consumers about the merits of passive investing using index ETFs with low expense ratio and the futility of choosing mutual funds that can outperform the indexes.

This is good as consumers would have better alternatives to most mutual funds that underperformed the market with outrageous expense ratio. When it comes to investing, the lower your expenses, the better your return in the long run.

However, ETF selection is critical as ETFs that lack liquidity will affect your bid/ask spread (for short-term trading). With the lack of liquidity, the ETF provider might shut down that particular ETF and return your money based on the last NAV for the cut-off date.

Interestingly, Providend was in the news today for creating 3 portfolios comprising of index ETFs which lowers the expense ratio to around 0.5% per annum. Providend will then charge clients 1% of AUM (Asset Under Management). So, the clients expense ratio is around 1.5% per annum. This is equivalent to a mutual fund annual expense, just that Providend have assumed the role of the fund manager. This should be as low an expense as you can get for ETF investing unless you are doing it yourself thru' your own trading platform. If you are a DIY person and you know your investments, you can buy ETFs thru Philips and save on the annual expenses.

Providend is a company I admired for their story of bringing value to their customers. I subscribed to their belief of lowering expenses for their customers and not take anything more than what you are supposed to recieve as fair compensation.

A few years back, when I was selecting institutions to hold my investments, I had actually tried to arrange for a discussion with Providend. However, I was put off by the condescending tone of the "gatekeeper" and the way she tried to screen prospect on the phone. So, I did not arrange for a discussion. When I told my sister about my experience, my sister also commented that she and her husband was not too pleased with their experience with Providend as well. Maybe this is something that Providend should improve on.

UBS, Credit Suisse, DBS, Citi, Standard Chartered, UOB were all more welcoming. They do not screen their prospects on the phone. They welcome you for a discussion and from there, try to understand your financial situation and how they can help you. I guess what the gatekeeper must understsand is this... If someone dares to call your company for service, you can expect that they will probably be able to afford your service.

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