A watershed year for ETF markets

THE year 2021 was a watershed year for Singapore Exchange (SGX)-listed exchange-traded funds (ETFs).

For the first 11 months of 2021, ETFs and exchange-traded products (ETPs) listed globally saw a record US$1.1 trillion in net inflow.

Global assets under management (AUMs) in these products increased from US$8 trillion at the end of 2020 to US$9.9 trillion at the end of November 2021, according to research and consultancy firm ETFGI.

This year also marks 20 years since ETFs were first listed on SGX.

The combined AUMs of SGX-listed ETFs has risen 41 per cent in the year to Nov 30, to S$1.2 billion, and the total number of ETFs has expanded 17 per cent from 30 ETFs and/or ETPs to 35.

The 5 newly listed ETFs and ETPs are:

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1. CSOP iEdge S-Reit Leaders Index ETF SRT
2. Lion-OCBC China Leaders ETF YYY
3. UOB Apac Green Reit ETF GRN
4. Phillip MSCI Singapore Daily (2x) Leveraged Product LSS
5. Phillip MSCI Singapore Daily (-1x) Inverse Product SSS

Note that unlike conventional ETFs, leveraged and inverse products aim to track a multiple or opposite of the daily return of its underlying index.

Among the best performers over the 11-month period were the Xtrackers FTSE Vietnam Swap Ucits ETF HD9 and the SPDR S&P500 ETF S27 , averaging a 33 per cent total return.

At the bottom of the table were the Xtrackers MSCI China Ucits ETF TID and the Lion-OCBC Securities Hang Seng Tech ETF HST - averaging a 23 per cent decline in total return.

Market enhancements

On Jan 17, 2 significant changes will take effect in the Singapore ETF market.

First, the board lot size of all SGX-listed ETFs will be reduced to 1 unit.

This move is supported in part by the significant growth in dollar cost averaging.

The trade size flexibility that is an essential aspect of dollar cost averaging has also been enabled by tighter bid/offer quotes provided by market makers and investors in 2021.

The 10 most actively traded ETFs in the first 11 months of 2021 saw an average year-on-year reduction of 33 per cent in bid-ask spreads for the top of the order book, and 28 per cent average reduction in bid-ask spreads for market depth of S$50,000.

The second ehancement for SGX-listed ETFs will see greater price flexibility in the placing of limit buy and sell orders.

The standard +/- 30 tick range above/below the last reference price for sell/buy limit orders will be revised to +/- 10 per cent above/below the last reference price.

Board lot sizes

Currently, Singapore-listed ETFs maintain different board lot sizes ranging from 5 units to 100 units.

From Jan 17, the board lot size of all ETFs listed on SGX will be reduced to 1 unit.

This should provide added flexibility for portfolio management.

For instance, based on a unit price of US$459.07 on Dec 3, the SPDR S&P 500 US$ ETF is traded in multiples of US$4,590.70 based on a board lot size of 10 units.

From Jan 17, the minimum trade size for SPDR S&P 500 US$ ETF will be traded in multiples of US$459.07 - based on the new board lot size of 1 unit and assuming the Dec 3 unit price of US$459.07.

This reduces the minimum trade size per board lot by as much as 90 per cent. It also means that an investor who wishes to allocate US$12,000 into the ETF can purchase 26 units with a total value of US$11,935.82, instead of a less flexible purchase of 20 units at US$9,181.40 or 30 units at US$13,772.10.

Forced order range

The "forced order" key provides an alert when the price of an order is beyond the forced order range.

It is a pre-execution mechanism and does not block orders.

Market participants can still force an order through at a price which lies outside the forced order range through their respective brokers.

This aspect of the order process is managed between the broker and investor.

With this enhancement, however, investors can place limit orders within +/- 10 per cent of the last reference price without triggering the forced order key, as opposed to the current bounds of +/- 30 ticks from the last reference price.

Market participants will therefore see greater price flexibility in the placing of limit buy and sell orders.

For instance, assuming a price of S$3.00, the force order range for the STI ETF is 30 ticks which equates to +/- 1 per cent from its last reference price.

But effective Jan 17, the force order range for the STI ETF will be +/- 10 per cent from its last reference price. This will provide for flexibility in the placement of limit buy and sell orders to both investors and day traders. SGX MYGATEWAY