Ngooi Notes: Ultimate Stock ETF List for SG Investors

1) List of ETFs for SG Investors

We’ve picked what we deem to be the foremost suitable ETFs for SG investors, taking under consideration withholding considerations also as other aspects. We even have two lists – one for ETFs which give exposure to a specific region/country, and another for ETFs which give exposure to a specific sector.

2) Dividend Withholding Taxes for SG Investors

When holding foreign stocks/ETFs, withholding taxes on the stock dividends often applies. We breakdown the withholding considerations for SG investors when it involves investing in ETFs, for multiple countries. Here are the conclusions:

For exposure to US stocks, pick an Ireland-domiciled ETF

For exposure to Chinese stocks, pick a Hong Kong/Ireland-domiciled ETF. don't pick a US-domiciled ETF for Chinese stocks.

For exposure to Other Country stocks, check our summary table within the full article to settle on between a Local/Ireland-domiciled ETF. don't pick a US-domiciled ETF.

A US-domiciled ETF should be appropriate in certain circumstances

3) Other Aspects to think about When Choosing an ETF

Explicit ETF costs: Total expense ratio

Implicit ETF costs: Trading Liquidity, Bid-Ask Spreads, Counterparty risks

Potential Estate Duties: The US imposes up to a 40% estate duty for *non-US residents* (including Singaporeans), for holdings of US-domiciled Stocks/ETF in more than US$60k.

1A) Selected ETFs for Regional Exposure

In our view, there's a robust case to explore the broader ETF universe, especially if you desire diversified exposure to a selected region and/or sector.

The shortlisted ETFs below are categorized by the geographical stock exposure they provide, which is stated on the leftmost column of the below table. we've sourced for ETFs that are denominated within the local currency of the stocks they invest in, also as a USD-denominated alternative where possible.

Further details on each of those ETFs like total expense ratios, average trading liquidity, bid-ask spreads, and ETF replication method could also be found in APPENDIX 1.

Source: TheInvestQuest

1B) Selected ETFs for Sector Exposure

The ETFs below are categorized primarily by sector exposure and specific region if applicable, which is indicated on the leftmost column of the table.

Further details on each of those ETFs like total expense ratios, average trading liquidity, bid-ask spreads, and ETF replication method could also be found in APPENDIX 1.

Source: TheInvestQuest

2A) Withholding Taxes for SG Investors

When holding foreign stocks/ETFs, withholding taxes on the stock dividends often applies. they're a big consideration for SG investors. Just to be clear, this withholding applies to the dividends received and does *not* apply to the entire value of the ETF you’re buying.

When one buys stocks directly, there's one layer of withholding taxes

From Stock to SG Investor

When one buys ETFs, there are two potential layers of withholding taxes

From Stock to ETF

From ETF to SG Investor

For the nonce, we'll just run through quick samples of how withholding taxes would apply, for an SG investor looking to shop for US stocks and China stocks.

Let’s compare ways of getting US stock exposure:

Buying US stocks directly e.g. Apple or Microsoft

Buying US stocks via a US-domiciled ETF e.g. SPY US or VOO US

Buying US stocks via an Ireland-domiciled ETF e.g. CSPX LN

For rock bottom withholding taxes, SG investors should choose Option 3 – Buy US stocks via an Ireland-domiciled ETF. therein case, only 15% of dividends are lost, vs. 30% dividends lost for the opposite two options.

Source: TheInvestQuest

Let’s compare ways of getting Chinese stock exposure:

Buying Chinese stocks directly e.g. Ping An Insurance

Buying Chinese stocks via a US-domiciled ETF e.g. MCHI US

Buying Chinese stocks via an Ireland-domiciled ETF e.g. CNYA LN

Buying Chinese stocks via a Hong Kong ETF e.g. 2801 HK

Among the four scenarios, we concluded that from a withholding perspective, SG investors would be most disadvantaged in Option 2 (buying China Stocks via a US-domiciled ETF).

Source: TheInvestQuest

2B) Withholding Taxes – Main Takeaways

To minimize dividend withholding taxes for long-term foreign stock exposure:

For exposure to US stocks, pick an Ireland-domiciled ETF.

For exposure to Chinese stocks, pick a Hong Kong/Ireland-domiciled ETF. don't pick a US-domiciled ETF.

For exposure to Other Country stocks, check our summary table during this article to settle on between a Local/Ireland-domiciled ETF. don't pick a US-domiciled ETF.

A US-domiciled ETF should be appropriate in certain circumstances:

When the dividend yield for the world is low

For example, the SPDR S&P Biotech ETF (XBI US) features a dividend yield of 0.02% as most biotech stocks don't pay dividends. As a result, the performance drag from dividend withholding taxes is negligible.

Other US-domiciled ETFs in our shortlist that have a coffee dividend yield is the tech sector ETFs like Invesco China Technology ETF (CQQQ US) and ROBO Global Robotics and Automation Index ETF (ROBO US).

Where your holding period is brief 

Dividends are withheld on US-domiciled ETFs only distributions are made. If you purchase and sell a US-domiciled ETF before the dividend ex-date, you'll not be subject to any dividend withholding taxes.

Do note that the dividend for US-domiciled ETFs is paid out quarterly, with the exception of the Invesco China Technology ETF (CQQQ US) and ROBO Global Robotics and Automation Index ETF (ROBO US), which have an annual dividend payout frequency.

When the opposite costs of owning the Ireland-domiciled ETF are much higher (e.g. higher total expense ratio, lower liquidity, higher bid-ask spread, higher counterparty risk)

Some Ireland-domiciled ETFs have a way higher total expense ratio or wider bid-ask spreads compared to its US-domiciled ETF peer. Generally, this might occur if the US-domiciled ETF has attracted a way larger AUM, leading to much higher trading liquidity and better ability to stay overall operating costs low.

3) Other Aspects to think about When Choosing an ETF

In arising with our ETF shortlist in section 1, beyond watching withholding considerations, we also checked out other important factors to narrow down the foremost cost-efficient ETFs for SG investors. they're as follows.

Explicit ETF costs: Total expense ratio. Read APPENDIX 1 for more details.

Implicit ETF costs: Trading Liquidity, Bid-Ask Spreads, Counterparty risks. Read APPENDIX 1 for more details.

Potential Estate Duties: The US imposes up to a 40% estate duty for *non-US residents* (including Singaporeans), for holdings of US-domiciled Stocks/ETF in more than US$60k. Read APPENDIX 2 for more details.

APPENDIX 1: More details on Selected ETFs

In some cases, it had been not possible/easy to seek out an ETF that was good altogether cost-related aspects. We highlighted those less-than-optimal traits in red, within the below tables. These traits included:

The market cap of but USD 500 million.

The total expense ratio of quite 0.5%

The daily average trading volume below USD 1 million

Bid/ask spread of quite 0.3%

In our shortlist, all the chosen ETFs are physically backed by shares. this is often preferred to synthetic ETFs, which add a further element of counterpart risk.

Selected ETFs for Regional Exposure

Selected ETFs for Sector Exposure

APPENDIX 2: Estate Duties

Estate Duty (or Estate Tax) may be a just one occasion tax that's imposed on the estate of a deceased. For more info, read this text.

Singapore has no Estate Duties. Singapore has abolished Estate Duties since 15 February 2008. This is perhaps a crucial factor why celebrities like Jackie Chan, Jet Li, and Gong Li have permanent residence here.

However, being a Singapore tax resident doesn’t mean that you simply are totally beyond Estate Duties.

Individuals who own foreign assets should be subject to the Estate Duties of foreign countries once they expire . the foremost common example would be Singapore tax residents holding US stocks and property at the time of passing. An estate duty of up to 40% will apply to such assets (a more comprehensive list could also be found within the table below) that are in more than a US$60k tax exemption.

There is little guidance on how US nonresident aliens (which include Singapore-based investors) estate duties are computed. By my understanding, there are technically 12 US inheritance tax brackets, with tax rates starting from 18% to 40% (image below). However, accounting for the US$60k tax exemption for nonresidents, the particular US estate duty is going to be at tiered rates between 26% to 40% counting on your estate size. as an example, an $80k taxable estate would subject the deceased to $5.2k of estate duty [($80k-$60k) * 26%].

Using an extreme example, if I owned US$10 million of Apple stock in my personal name and passed on, I might be susceptible to pay almost US$4 million in estate duties to the US tax authorities!

Again, this is often what we’ve triangulated on the difficulty. It’s best to see with a tax consultant.

Tax law is complex and continually evolving. Singapore resident investors who are keen to take a position in US stocks may potentially avoid estate duties by buying Ireland-domiciled US stock ETFs instead, which don't impose estate duties on Singapore investors.

Separately, it'd be worthwhile discussing with a wealth advisor on an appropriate structure to optimize tax efficiency, particularly if you're a high net worth individual. this might involve fixing a private investment trust (PIC) or a Trust structure to carry specific assets. As a PIC and Trust don't technically “die”, they'll be effective tools for streamlining estate duties in some cases.

Looking forward to more discussions with everyone!

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