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Before I started investing, anything vaguely related to finances felt like a daunting, uphill task. I had so many questions, and as many concerns.
Firstly, there are the assessments — also known as the Customer Account Review (CAR) and Customer Knowledge Assessment (CKA) — as required by the Monetary Authority of Singapore for retail investors before trading in Specified Investment Products (SIPs). But these are there for good reason: By ensuring that customers possess the relevant knowledge or experience needed before they buy more complex investment products, they help to safeguard investors’ interest.
However, this could end up being a barrier for new yet savvy investors who want to start trading widely-used investment products, such as ETFs (Exchange-Traded Funds).
Another issue is capital. What is just chump change to seasoned investors might seem like a huge sum to newbies. Also, the typical minimum investment on the Singapore Exchange (SGX) is 1 lot, or 100 shares. If 1 share is $1, that’s not too bad… but many of the popular counters go into 10s or 100s of dollars per share — that’s over $1,000 or $10,000 per lot.
If I only want to dip my toes in the water and get a taste of what investing feels like, do I really want to put in so much money on my first try and keep worrying about the what-ifs? Besides, those who just entered the workforce, they might not have so much to invest yet (due to student loans, etc). I’d prefer to put in just a bit and watch it grow before investing in larger amounts when I feel more confident.
Hence, I’m quite excited about the launch of the Lion-OCBC Securities Hang Seng TECH ETF (Listing on SGX: 10 Dec 2020) as it’s more affordable and accessible for beginner investors AND the minimum trading lot size is only 10 units — that’s less than S$20, assuming NAV of the ETF is S$1.50 per unit.
It’s also the first ETF jointly established by Lion Global and OCBC Securities so it’s definitely something new you should look out for.
A short primer on ETFs
Similar to buying stocks to own a wee bit of the company, you can buy ETFs to own a tiny portion of the total fund. Both ETFs and stocks are listed and traded on a stock exchange, and in the case of the Lion-OCBC Securities Hang Seng TECH ETF, it is conveniently listed on the Singapore Exchange (SGX) even though it comprises stocks from the Hong Kong Stock Exchange (HKEX).
Unlike stocks which are just single companies, ETFs track and replicate the performance of a specific index, a set of bonds, a commodity, or a basket of assets. In this case, the Lion-OCBC Securities Hang Seng TECH ETF is tracking and replicating the performance of the Hang Seng TECH Index — the 30 largest technology companies listed in Hong Kong, including big and familiar names such as Alibaba, Tencent, Meituan, Xiaomi and JD.com.
Being invested in a portfolio of the 30 largest technology companies listed on HKEX via the ETF, as opposed to a single listed company if you buy just a stock, also helps with risk management. For example, if a few companies in the ETF are not doing so well, but other companies in the ETF are doing good, the total average of the ETF is unlikely to have drastic changes overnight. On the flipside, seasoned investors don’t like the fact that they can’t maximise their capital gains if 1 company does extremely well but the others are just performing averagely.
Why the Lion-OCBC Securities Hang Seng TECH ETF is more accessible for beginners
Unlike typical ETFs, the Lion-OCBC Securities Hang Seng TECH ETF has benefits that make it more accessible for newbie investors to trade.
1. Small lot size
As mentioned above, 1 lot of the Lion-OCBC Securities Hang Seng TECH ETF is just 10 units. Typical stocks on the SGX require you to buy 100 units to make up 1 lot. The current price of the Lion-OCBC Securities Hang Seng TECH ETF during this Initial Offering Period (IOP) is approximately S$1.37 (as of 23 Nov 2020), hence 1 lot of 10 units equals just S$13.70 — the price of a grain bowl in Raffles Place, perhaps?
2. Classification as Excluded Investment Product
I’m trying not to get too technical here, but ETFs are typically classified as Specified Investment Products (SIPs), which means that only traders with additional certification can trade. For Excluded Investment Products (EIPs), you don’t need to be pre-qualified to trade them (i.e. you don’t need to take and pass the Customer Account Review aka CAR).
If you want to start building your experience in investing or diversifying your portfolio when you’re relatively new, the Lion-OCBC Securities Hang Seng TECH ETF, which is classified as an EIP, is something beginners can consider.
3. Minimum investment amount is small
As mentioned earlier, 1 lot of Lion-OCBC Securities Hang Seng TECH ETF costs less than S$20 at NAV of S$1.50 per unit.
What if I choose to DIY and buy 1 lot each of the individual tech stocks via the Hong Kong Stock Exchange?
Let’s say I want to buy Alibaba. When I looked it up, 1 lot is priced at about HKD26,100*, or about S$4,500. For Alibaba, the lot size is 100 shares. Tencent is priced at about HKD56,300* (or about S$9,715) per lot and Xiaomi is HKD5,300* (or about S$914) per lot. The examples here are based on their respective minimum trading lot size on HKEX.
Hence, if you buy 1 lot for each of the 30 tech stocks that the Lion-OCBC Securities Hang Seng TECH ETF tracks, you’ll need a minimum investment of HK$461,000 or about S$80,000*. Just want the top 5 stocks? That’ll require a minimum investment of about HKD115,000 (or about S$20,000)*.
*Source: Yahoo Finance, data extracted 30 Nov 2020
4. A taste of buying an overseas ETF
The Lion-OCBC Securities Hang Seng TECH ETF will give new investors exposure to some of the largest Chinese technology companies, by market capitalisation, and give them a taste of investing into global companies simply on the Singapore Exchange itself. It is available in both SGD and USD so investors can choose what currency they want to trade it in.
5. Regularly reviewed
For new investors who are still getting used to reading stocks, monitoring multiple stocks can be overwhelming (and we know how quickly the technology industry moves/changes). That’s where ETFs can be a lifesaver. Rebalancing will be done by the fund manager, and in the case of the Lion-OCBC Securities Hang Seng TECH ETF, it is reviewed on a quarterly basis (March, June, September and December).
Also viable for savvy investors
Just because the Lion-OCBC Securities Hang Seng TECH ETF is beginner-friendly, doesn’t mean that it’s not also a viable product for savvy investors.
The small lot size can be handy for beginners but investors also have the option to buy as many lots as they want. It’s also a very affordable way to gain exposure to technology companies through these top 30 largest Chinese tech stocks.
Compared to other similar ETFs, the SGX-listed Lion-OCBC Securities Hang Seng TECH ETF has a relatively low management fee/expense ratio.
With the IPO fast entry mechanism, the Lion-OCBC Securities Hang Seng TECH ETF can stay agile as newly-listed Chinese technology stocks can be quickly added in for the ETF to remain updated and relevant. Thus this ETF may capture the interest of investors who wish to diversify their investment into new Chinese tech stocks quickly and at lower costs.
Earlier in May this year, the Hang Seng Index crashed and posted its worst loss since 2015 (5.6% drop) while the volatility index surged 40%. This was partly because of the new national security law for Hong Kong that was passed by China, among other possible reasons.
However, some say that the down market is a good opportunity to buy. Analysts foresee that the tide may turn due to better valuation and the rebalancing of the Hang Seng Index (this includes top technology stocks such as Alibaba and Xiaomi). Some of the stocks which were sold off can also be found in the Hang Seng TECH Index, which is tracked by the new Lion-OCBC Securities Hang Seng TECH ETF.
Time to buy low, sell high when the market recovers, or hold for long-term capital gains?
How to buy into the Lion-OCBC Securities Hang Seng TECH ETF
The ETF will be listed on SGX from 10 Dec 2020 onwards and investors can start trading via their online trading platforms.
OCBC Securities address:
18 Church Street #01-00
OCBC Centre South
Singapore 049479
OCBC Securities contact: 1800 338 8688
Find out more about the Lion-OCBC Securities Hang Seng TECH ETF.
Understanding the risks
The ETF is subjected to the following principal risks including but not limited to market risk, index sector risks, concentration risk, tracking error risk, foreign exchange risk and risk factors relating to the index. Some or all of the risks may adversely affect the Fund’s Net Asset Value, yield, total return and/or its ability to achieve its investment objective. You should note the risk factors associated with investing in the ETF. The statements in the prospectus are intended to be summaries of some of these risks. They are by no means exhaustive and they do not offer advice on the suitability of investing in the ETF. You should read the prospectus and carefully consider the risk factors described together with all of the other information included in the prospectus before deciding whether to invest in the ETF.
Disclaimer:
Trading in securities, futures and/or leveraged foreign exchange and borrowing to finance the trading of securities (leveraging/gearing) can be very risky, and you may lose all or more than the amount invested or deposited. Where necessary, please seek advice from an independent financial adviser regarding the suitability of any trade or investment product taking into account your investment objectives, financial situation or particular needs before making a commitment to trade or purchase the investment product. You should consider carefully and exercise caution in making any trading decision whether or not you have received advice from any financial adviser. If you choose not to seek independent financial advice, please consider whether the trade or product in question is suitable for you.
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