If you only want to trade SGX listed counters, then D07 (SPDR DJIA) and S27 (SPDR S&P 500) is your only option. However, after monitoring for a period of time, I notice their volume is very low, therefore it is difficult to buy and sell.
Nowadays, all brokerage allow you to access other markets after you fill up some declaration form.
You can consider SPY in the US market, or the Irish domiciled equivalents available through LSE. The latter had less withholding fees for dividend payouts as compared to the former.
After reading from various source, what I understand is that the Ireland domiciled ETFs closely replicate the similar composition of the US ETF, so in that sense it's the same thing but with:
- lower transaction volume (bid ask spreads)
- slightly higher expense ratios
- But your withholding tax on your dividends are at 15% instead of the normal 30% tax if you were to directly buy a US domiciled ETF.
Which ETF to buy?
You should get the VUSD (Vanguard S&P 500 UCITS ETF) or CSPX (iShares Core S&P 500 UCITS ETF) on the London Stock Exchange (LSE) instead. They reduce the US withholding tax from 30% to 15%.
Most if not all of the ETFs that I know are domiciled either in Ireland or Luxembourg due to good tax treaty. I think accumulating ETF is an EU thing. But Ireland domiciled is better usually because they have more tax treaty with other countries. So if you buy an Ireland domiciled ETF that focus stocks around the world, it would be better.
I've heard Ireland-domiciled
means dividends get taxed 15% instead of US-listed get taxed 30%. However,
(1) Ireland-domiciled are London-listed
(all your CSPX, VUSD, VUSA), i.e. UK charges stamp duty 0.5% during purchase,
is it? (2) If buy accumulative (non-dividend-paying), e.g.. CSPX, then
the dividend withholding tax is anyway irrelevant?
(3) Are the London-listed ones
exposed to other currency risks, e.g.. denominated in GBP or Euro (not
USD)?
1. There is no stamp duty for ETF
in UK.
2. Accumulative ETF will still
be affected by dividend withholding tax as they still receive the dividends
but reinvested into the ETF but the ETF manager will handle that.
3. All foreign currency investments
are exposed to currency risks, you can't avoid them.
What's an accumulating ETF and distributing ETF? Accumulating ETF doesn't distribute dividends?
Accumulating ETFs do not give out dividends instead they reinvest the dividends that it receive from all the companies into the ETF which will increase the ETF price.
Distributing ETF are just normal ETF that gives out dividends from time to time.
Both accumulating and distributing
will still be subjected to dividend tax. Some people prefer accumulating
so they don't have to care about the dividends or reinvest the dividends
themselves. Some people like cashflow or see money coming in every now
and then, so they go for distribution. It is personal preference
on which ETF you want to invest in.
Why is the prices between VUSD & CSPX so great?
That is the prices that the ETF company sets based on their NAV and other than cheaper ETFs you can buy more, there shouldn't be any important difference. The performance and cost are the more important factors.
ETF price is corresponding to the ETF Net Asset Value
(NAV) which is ETF Assets minus ETF Liabilities and then divided by number
of share in circulation's. So when accumulating funds receive their dividends
from various shares, manager will put the dividends into the ETF Assets
which will increase the ETF NAV which will increase the ETF price since
they are corresponding. And because ETF Assets also usually includes the
index/stock, so when the index/stock prices goes up, the ETF Assets goes
up which once again increase ETF NAV and ETF price.
So the ETF's price keeps increasing, then its "premium" over the index's value will become wider & wider over the years? i.e. It doesn't track the index anymore?
It still tracks. The value of the ETF is the same as the
index. The only difference is the price, since its asset increases as the
index increase, and the price decrease as the index decrease.
I can have index at 1000 points and ETF at $100.
If index increase by 2%, the ETF will mirror and increase
at 2% (not exactly but follows closely). That's all.
If we add dividends into the ETF, let's say a dividend
payout 6% per year. So index is 1000 + 20 = 1020, ETF increase by 6% +
2%, and becomes valued at $108. But this $108 = 100% price movement of
index.
So if index drops 2%, the ETF at $108 will drop ($108
- $108(*2%). So its ETF price is now $105.84
Read also;
My Dividend Investing Strategy
Straits Times Index Stock Price History
STI ETF - Exchange Trade Funds
How Can I Start Trading Stocks In S'pore