With the conclusion of the ASEAN Summit 2018 held in Singapore, we researched to understand more of the various listed companies around the region through exchange-traded funds (ETFs) that are listed on the Singapore bourse. The two key ETFs available on our local market are the OneStoxxASEAN US$ (CFN), and the CIMBASEAN40 S$ (QS0). These two ETFs provide investors with broad exposure to regional ASEAN equities.
Why ASEAN Stocks
According to a 14 September 2018 report by McKinsey Global Institute (MGI), of the 71 major emerging economies around the globe, 18 showed records of stronger and more consistent growth. Eight ASEAN countries were singled out amongst these 18 “outperformers”.
The report noted that ASEAN member countries including Cambodia, Laos, Myanmar, and Vietnam have collectively achieved five percent growth over twenty years. However, Philippines “did not clear either threshold, but its recent rapid growth could lift it to the ranks of outperformers in the future”.
In another report published on 17 October 2018 by FocusEconomics, it noted that ASEAN expanded a healthy 5 percent in 3Q18 driven by strong domestic demand. Despite being a touch lower than the 5.2 percent growth recorded in 2Q18, FocusEconomics expects growth to be robust across ASEAN with private consumption continuing to be supported by wage gains and strong labour markets. It also expects global demand for the region’s exports to remain vigorous, despite a moderation in the pace of growth.
Taking a peek at both ASEAN-focused ETFs
Investors may want to note the managers for OneStoxx ASEAN Select Dividend ETF deploy a smart-beta strategy, meaning that it combines both benefits of passive investment and the advantages of active investing strategies. The goal of smart-beta is to obtain alpha, lower risk or increase diversification at a cost lower than traditional active management and marginally higher than the straight index investing.
Top Holdings For The CIMB FTSE ASEAN 40 100 ETF
Top Holdings For The OneStoxx Asean Select Dividend ETF
As one might note, there is a diversity of listed companies available in both ETFs. It also offers investors with broad exposures to companies which one might not necessarily have selected easily through individual stock picking. Moreover, one might also face with different sets of transaction costs if the counters were bought separately in different regional exchanges. If one would have chosen to invest in the ETFs that are listed on the local bourse, one needs to pay only a single set of transaction costs associated with the trade.
Fund performance for the CIMB FTSE 40 Singapore ETF
Although the performance table shows last year’s track record and might not reflect the entire 2018 market volatilities, we think that if investors would to view from a long-term perspective, considering the growing middle-class populations in most of the ASEAN economies, the potential short-term negative performance should not deter one from considering the ETF as a long-term regional equity play.
Fund performance for the OneStoxx ASEAN Select Dividend ETF
Based on the information obtained from the Stoxx website, we noted that on a one-year performance, the ETF is down by 9.5 percent, and on a year-to-date (YTD) basis, the fund is down by 10.7 percent. The figures are as of 14 November 2018.
Although the one-year and YTD return performances are in negative territories, however, when viewed on a one-year to five-year annualised return percentages, they range from 3.9 percent (one-year) to 15.4 percent (three-year). The ETF volatility, as measured by the Sharpe ratio) is also relatively low at 0.4 to 1.1. The Sharpe ratio measures fund return per one standard deviation.
We think that investors need to consider their risk appetites, and it should be balanced by their time horizons as they go about evaluating the costs and benefits for the inclusion of both ETFs in their portfolios. This goes for any types of investments. They also need to take into account foreign exchange risks, though the CIMB ASEAN 40 ETF has a Singapore Dollar share class, while the Stoxx Asean Select Dividend 30 ETF offers only a US dollar share class.
Another point to consider is whether investors are comfortable with the types of listed holdings that both ETFs hold. Though some of the counters might be household names for many local investors, there might be some unfamiliarity on other counters which are listed in the regional indices. This is where due diligence comes in, and investors should also make some efforts to analyse the holdings that are listed in the region.