What to Know about Singapore Exchange’s Latest ETF: Lion-OCBC Securities APAC Financials Dividend Plus ETF

The Smart Investor06-01

[ Share Facebook Twitter LinkedIn Email WhatsApp On May 13th, Singapore Exchange (SGX: S68) introduced the listing of Lion-OCBC Securities APAC Financials Dividend Plus ETF (SGX: YLD). ...

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This is relatively higher compared with some of the most popular ETFs listed in SGX, with TERs ranging from 0.09% to 0.40%. \nHowever, the ETF promises a quarterly distribution for the first 2 years of at least 5% per annum of the issue price (S$1.00) with the first distribution expected in September this year. \nSubsequently, from the third year onwards, quarterly distributions of approximately 5% per annum of the net asset value minus expenses will be dished out. \nGrowth prospects\nThe ETF aims to mirror the performance of iEdge APAC Financials Dividend Plus Index,  focusing on investment opportunities in emerging markets across the APAC region. \nIt includes emerging economies like Indonesia and Thailand which are expected to contribute to the region’s financial growth and offer potential upside to investors.\nMacroeconomic indicators also point to a more robust performance expected for the APAC region.Anticipated rate cuts in the US could boost investment activity in APAC, leading to increased capital flowing into wealth management and insurance businesses. \nLikewise, the Bank of Japan is gradually eyeing interest rate hikes, which will help to boost earnings in Japan’s banking sector. \nSingapore’s banking outlook remains stable, although net interest margins may dip slightly in line with interest rate cut expectations. \nAPAC financial institutions are currently trading at attractive valuations.\nThey are trading at a Price to Earnings (P/E) ratio of just 10.3x, whereas companies in the Straits Times Index (SGX: ^STI) are trading at an average P/E ratio of 16.5x.\nThe current net dividend yield for APAC financial institutions is 5.91%, which is higher than the 5.13% yield for companies listed on the STI.\nRisk analysis\nInvestors may also want to consider several risks specific to this ETF.\nAs mentioned earlier, a higher than average expense ratio can diminish returns.\nLooking at the historical performance of the iEdge APAC Financials Dividend Plus Index, returns have been somewhat lacklustre. \n\nSource: SGX Indices\nWhile its one-year performance has been strong, the total annualised return over the last decade came in at 6.42%.\nMany indices have outperformed this ETF. \nFor example, the S&P 500 INDEX (^SPX) has achieved a 12.4% ten-year annualised net total return. \nLikewise, the iEdge Southeast Asia+ TECH Index (SGX: SQU) has delivered a 9.23% ten-year annualised net total return. \nInvesting heavily in one specific industry also introduces concentration risk. \nWhile the financial industry in APAC remains stable, there are still headwinds. \nCurrent stresses in the Chinese banking sector due to the property crisis have led to an increase in bad loans.\nFor example, Industrial & Commercial Bank of China (SEHK: 1398), one of the constituents of the ETF, reported a 2.8% year on year decline in net profit for the first quarter report of fiscal year 2024 (FY2024). \nNon-performing loans also went up 4.9% year over year to RMB 370.9 billion.\nAdditionally, recent cuts to China’s five-year loan prime rate in February will likely compress net interest margins further for Chinese banks.\nThese are some important risk factors that could undermine the potential returns of this ETF. \nThis could be the fastest way to jump from a “newbie” investor to a seasoned pro. Our beginner’s guide shows everything you need to know to buy your first stock and beyond. Click here to download it for free today.\nFollow us on Facebook and Telegram for the latest investing news and analyses!\nDisclosure: Aw Kai Rui does not own any of the stocks and ETFs mentioned in this article.\n\n\n\nYahoo\n]","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.1","shortVersion":"4.28.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2440118489"}