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The Phillip SING Income ETF: A New Option for Income-Hungry Singapore Investors

With an aim to address the common-man-investor’s problem of being sucked into dividend traps, Phillip Capital Management is offering a new exchange-traded fund (ETF) to provide income-hungry investors with an ability to invest in a diversified group of quality dividend companies in one fell swoop.

The Phillip SING Income ETF (SGX: OVQ), as it is called, is Phillip Capital’s third ETF in Singapore’s stock market. The new ETF was launched yesterday, and The Motley Fool Singapore was invited to an exclusive media briefing for the launch-event.

The Phillip SING Income ETF aims to fully replicate the Morningstar Singapore Yield Focus Index. The 30-stock index selects Singapore-listed companies based on three main factors: business quality; financial health; and dividend yield. In contrast, the Straits Times Index (SGX: ^STI), the Singapore market’s most widely-followed benchmark, is a plain-vanilla market-capitalisation weighted index.

Due to the Morningstar Singapore Yield Focus Index’s unique quantitative, ruled-based methodology, the Phillip SING Income ETF allows investors to gain exposure to shares with sustainable and growing dividends, while avoiding stocks with high dividend yields that may have poor business fundamentals (these are commonly known as dividend traps). An individual stock’s weight in the Morningstar Singapore Yield Focus Index is capped at 10% to allow for proper diversification.

Since 2005, the index has delivered an annual total return of 9.6%, which can be broken down into capital gains of 5.2% and dividend returns of 4.4%. Notably, the 9.6% total return of Morningstar’s index includes the Global Financial Crisis, which occurred some 10 years ago.

The index contains companies that belong to the supermarket, healthcare, defence, real estate, banking and telecommunications sectors. As of 31 August 2018, the top five stocks in terms of portfolio-weight in the Morningstar Singapore Yield Focus Index were Singapore Telecommunications Limited (SGX: Z74), DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39), United Overseas Bank Ltd (SGX: U11) and Singapore Exchange Limited (SGX: S68).

Other index constituents include retailer Dairy Farm International Holdings Ltd (SGX: D01), office landlord CapitaLand Commercial Trust (SGX: C61U), and healthcare outfit Raffles Medical Group Ltd (SGX: BSL).

The full list of stocks in the index, along with their respective weights, can be seen below:
Source: Phillip SING Income ETF Fund Information

54% of the companies in the index are linked to Singapore’s government. The following chart illustrates the sector-allocation of the index:
Source: Phillip SING Income ETF Fund Information

Financials take up the bulk of the 30-stock index at 31%, followed by real estate investment trusts (REITs) and telcos with weights of 24% and 17% respectively.

The Morningstar Singapore Yield Focus Index will be rebalanced semi-annually in June and December, and Phillip Capital will be declaring semi-annual ETF distributions in those same months.

The ETF will have a management fee of 0.4% per year, with the expense ratio capped at 0.7%.

According to Morningstar’s website, as of 31 August 2018, the Morningstar Singapore Yield Focus Index had a price-to-earnings ratio of 12.16, a price-to-book ratio of 1.36, and a prospective dividend yield of 4.04%.

The ETF is classified as an Excluded Investment Product (EIP), which means that Singapore investors can buy the ETF without any pre-requisites. The initial offer period (IOP) for the ETF opened at 9 am on 1 October 2018 and will close at 11 am on 19 October 2018. The issue price of each unit during the IOP is S$1.00.

During the IOP, investors can apply for the ETF units through the participating dealers – Phillip Securities Pte Ltd, ABN AMRO Clearing Bank N.V., Commerzbank AG and UOB Kay Hian Pte Ltd – at a minimum application size of 50,000 units, or in excess at multiples of 1,000 units.

The participating dealers may set a lower application amount for retail investors. After the IOP, investors may purchase or sell the ETF units through the local stock exchange, just like any other stock, at a minimum trading board lot size of 100 units.

The ETF is expected to start trading on 29 October 2018 (at 9 am).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of DBS Group Holdings Ltd, Oversea-Chinese Banking Corporation Limited, United Overseas Bank Ltd, Singapore Exchange Limited, Dairy Farm International Holdings Ltd, Sheng Siong Group, SATS, CapitaLand Commercial Trust, Hongkong Land, Capitaland Mall Trust, Mapletree Commercial Trust, Parkway Life REIT, Manulife US REIT, First REIT, and Raffles Medical Group Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited, CapitaLand Commercial Trust and Raffles Medical Group Ltd.