Singapore investors now have more ways to access global equities, Asian technology companies and artificial intelligence through the Singapore Exchange. But easier access does not automatically translate into better investment returns. The real question is whether these ETFs offer a cost-effective way to diversify portfolios—or encourage investors to take concentrated bets disguised as convenient, diversified investments.
The expansion of exchange-traded funds (ETFs) on the Singapore Exchange (SGX) reflects a broader change in how Singapore investors approach wealth creation.
Instead of selecting individual shares, investors can buy a single fund to gain exposure to hundreds of companies. Instead of opening an overseas brokerage account, they can access certain international markets through locally listed products. And for eligible investors, some ETFs can be purchased using funds in a Supplementary Retirement Scheme (SRS) account.
These developments make investing more accessible.
Yet there is a potential trap: the easier it becomes to buy an investment, the easier it is to overlook what that investment actually owns, what it costs and how much risk it introduces to a portfolio.
The latest SGX ETF listings illustrate this tension. The new offerings include funds tracking Taiwan, South Korea and Japan, alongside artificial intelligence and big data strategies. Other recently listed products provide access to US equities, developed markets and Chinese yuan-denominated bonds.
The market is expanding, but investors still need to distinguish between three very different objectives:
- Building a diversified portfolio for long-term wealth accumulation.
- Adding exposure to a particular country or industry believed to have strong growth prospects.
- Speculating on a market theme that may already be reflected in share prices.
These objectives require different investment approaches.
An ETF can be an excellent instrument for the first, a useful supplement for the second and a risky vehicle for the third.
For Singapore investors, the key is to understand which role each fund should play before investing.
1. The biggest ETF mistake: confusing diversification with owning more stocks
An ETF’s appeal is straightforward. One transaction can provide exposure to many underlying securities, reducing the risk associated with investing in a single company.
However, owning more stocks does not necessarily mean having a well-diversified portfolio.
The underlying holdings matter more than the number of securities in the fund.
Consider an ETF tracking an artificial intelligence and big data index. It may hold numerous companies across semiconductors, cloud computing, software and related technologies.
That sounds diversified.
But if most of its performance depends on the same broad investment theme—continued spending on AI infrastructure and expectations of rapid AI adoption—the fund may remain highly sensitive to a common set of risks.
If investors suddenly question the returns on AI capital expenditure, several holdings could fall together.
The ETF would spread company-specific risk but might not adequately reduce the portfolio’s exposure to the broader AI investment cycle.
The same problem applies to country-specific ETFs.
A Taiwan-focused fund may hold many companies, but its returns could be heavily influenced by semiconductor demand, technology-sector valuations and geopolitical developments affecting the island.
A South Korea-focused fund may provide exposure to leading industrial and technology businesses, but investors still face risks related to sector concentration, corporate earnings cycles and market sentiment.
A broad index can therefore contain a narrow economic bet.
Why this matters for Singapore investors
Many local investors already have concentrated exposure to a few economic drivers.
Someone who owns US technology stocks, a global equity ETF and a separate AI ETF may believe they hold three different investments.
Yet their portfolios could overlap substantially in the companies and business themes driving returns.
Similarly, an investor holding a Singapore bank portfolio, a regional dividend fund and a country-specific Asian financial ETF may have more exposure to interest-rate and credit cycles than the number of funds suggests.
The solution is to examine the portfolio as a whole.
Investors should ask:
- What are the largest underlying holdings?
- Which sectors account for the greatest proportion of the fund?
- How much overlap exists with ETFs already owned?
- Which economic conditions would cause several holdings to fall simultaneously?
- Does the fund introduce a genuinely different source of return?
The objective is not to own the largest number of ETFs. It is to own a combination of investments whose risks and return drivers are sufficiently diversified.
2. Asia’s technology opportunity is real—but so is the risk of paying too much for it
The new ETFs tracking Taiwan, South Korea and Japan offer Singapore investors more convenient access to major Asian equity markets.
There are credible reasons to consider these markets.
Taiwan occupies an important position in the semiconductor supply chain. South Korea has globally competitive semiconductor, electronics and industrial businesses. Japan offers exposure to a broad corporate sector that includes manufacturers, financial institutions, consumer businesses and technology companies.
These markets can provide exposure to economic drivers that differ from those dominating some US equity indices.
For investors concerned about excessive dependence on American technology stocks, Asian ETFs may offer a way to broaden their opportunity set.
But diversification by geography is not necessarily diversification by investment theme.
Taiwan and South Korea, in particular, can have significant exposure to technology and semiconductor cycles. Investors who buy both markets may therefore be increasing their exposure to similar economic forces rather than spreading their risk as widely as they expect.
Japan’s market composition is different, but its index can still be influenced by large exporters, currency movements and global industrial demand.
The appropriate question is not whether Asian markets are attractive in isolation.
It is whether their expected returns justify the additional risks relative to the investments an investor already owns.
Strong industries do not guarantee strong stock returns
This distinction is especially important for semiconductor-related investments.
A company can operate in an attractive industry, increase its revenue and remain strategically important while its shares underperform.
Why?
Because stock prices reflect expectations about the future, not just the current quality of a business.
If investors already expect extraordinary earnings growth, even strong results may disappoint when they fall short of those expectations.
The opposite can also occur. A company operating in a cyclical industry may deliver attractive share-price returns if its earnings prospects improve from a pessimistic starting point.
This is why investors should resist the temptation to buy an ETF simply because the underlying region is central to the AI boom.
Before investing, they should examine valuation, earnings expectations, sector concentration and the economic cycle.
A useful distinction: structural growth versus cyclical enthusiasm
The semiconductor industry benefits from long-term demand drivers, including AI computing, cloud infrastructure and increasingly sophisticated electronics.
However, semiconductor businesses remain exposed to capital expenditure cycles, inventory adjustments, competitive pressures and changes in customer demand.
A long-term growth story can coexist with a sharp cyclical downturn.
For investors, that means an Asian technology ETF may be appropriate as a targeted allocation, but it should not automatically become the foundation of a retirement portfolio.
3. AI ETFs could deliver growth—but may also amplify an investor’s existing technology exposure
Artificial intelligence has become one of the most prominent investment themes globally.
An AI-focused ETF offers a convenient way to invest in businesses associated with the development and adoption of AI technologies.
But the label itself deserves scrutiny.
Different AI ETFs may define the opportunity differently. Some focus on semiconductor manufacturers and computing infrastructure. Others include software companies, data providers, automation businesses or firms that use AI in their operations.
These strategies can have materially different risk profiles.
An investor who wants exposure to companies supplying the infrastructure needed to train and operate AI systems may end up with a portfolio that behaves differently from one focused on software and AI applications.
The index methodology, underlying holdings and weighting rules therefore matter.
The second-order risk: AI investment may grow faster than AI profits
A major investment question is whether the financial returns from AI will eventually justify the enormous capital and resources devoted to developing the technology.
Even if AI adoption expands rapidly, shareholders do not necessarily benefit equally.
Hardware suppliers may enjoy strong demand during one stage of the investment cycle. Cloud providers may benefit from usage growth but also face heavy capital expenditure. Software businesses may achieve productivity improvements but encounter pricing pressure as competitors introduce similar capabilities.
The distribution of profits across the AI value chain remains an important uncertainty.
An ETF that owns companies across several AI-related industries can spread exposure among different business models, but it cannot eliminate the possibility that investors collectively overestimate the financial rewards of AI.
What investors should check before buying an AI ETF
Look beyond the fund’s name and examine:
- The proportion invested in semiconductor and hardware companies.
- Exposure to a small number of large holdings.
- The weighting of profitable businesses versus companies whose valuations depend heavily on future growth.
- The fund’s expense ratio.
- How much AI exposure already exists in the rest of the portfolio.
- The extent to which the ETF’s performance depends on a small number of market leaders.
For most long-term investors, an AI ETF is easier to justify as a supplementary investment than as a complete equity strategy.
That approach allows investors to participate in a potentially important structural trend without making their overall financial future dependent on one investment theme.
4. The hidden cost of a locally listed ETF: convenience is not the same as cheapness
One of the strongest selling points of the new SGX-listed ETFs is accessibility.
Investors can trade locally and, for the relevant products, transact in Singapore dollars. Eligible funds can also be purchased through SRS accounts.
These features can simplify the investment process.
However, investors should distinguish between the currency used to trade a fund and the currencies of the assets it owns.
An ETF traded in Singapore dollars does not automatically eliminate foreign-exchange risk.
If the underlying assets are denominated in US dollars, Japanese yen, Korean won or other currencies, movements in those currencies can affect the fund’s value when measured in Singapore dollars.
Currency-hedged and unhedged share classes may behave differently, so investors should verify the specific product structure rather than infer it from the trading currency.
An example of currency risk
Suppose a Singapore investor buys an unhedged ETF that owns US shares.
If the underlying shares rise 10% in US-dollar terms, but the US dollar weakens significantly against the Singapore dollar, the investor’s return in Singapore dollars could be substantially lower than 10%.
If the US dollar strengthens, currency translation could instead increase the Singapore-dollar return.
The same principle applies to ETFs investing in Japanese, Taiwanese or South Korean equities.
Currency movements are not necessarily harmful, but they introduce another source of volatility that investors need to understand.
For long-term portfolios, the appropriate treatment of currency risk depends on the investor’s liabilities, time horizon, existing holdings and risk tolerance.
The real cost is the total cost of ownership
The annual expense ratio is only one component of an ETF’s cost.
Investors should consider:
| Cost component | What it means |
|---|---|
| Fund expense ratio | The recurring annual cost of operating the fund |
| Brokerage commission | The fee charged when buying or selling units |
| Bid-ask spread | The difference between the prices at which investors can buy and sell |
| Foreign-exchange conversion | The cost of converting currency when required |
| Exchange and settlement charges | Applicable trading or transaction-related fees |
| Tracking difference | The difference between the fund’s actual return and that of its benchmark |
Tracking difference is not always an explicit fee. It can reflect the combined effects of expenses, taxes, trading costs, cash holdings and other factors.
Nevertheless, it matters because investors ultimately receive the fund’s actual return, not the benchmark’s theoretical performance.
A fund with a low expense ratio may still be costly to trade if its bid-ask spread is wide. Conversely, a fund with a slightly higher annual fee may offer better overall economics if its trading costs are lower.
The correct comparison is therefore between products that offer substantially similar investment exposure, using their total expected costs rather than a single headline fee.
5. Why a seemingly small fee difference can become a major retirement cost
The difference between two ETFs’ expense ratios may appear insignificant when expressed as a percentage.
Over several decades, however, even small recurring costs can reduce the amount of wealth an investor accumulates.
The supplied report cites an example involving the iFast XBG ETF, which invests in an Irish-domiciled Xtrackers AI and Big Data UCITS ETF.
According to the report, the locally listed ETF has a total expense ratio of 0.63% annually, compared with 0.35% for the underlying ETF.
The difference is 0.28 percentage points a year.
To understand the potential effect, consider a hypothetical investment of S$10,000 held for 30 years, with a 7% annual return before fees and annual fees deducted from the investment’s value.
Using a simplified model:
- At a 0.35% annual fee, the investment grows at approximately 6.65% a year.
- At a 0.63% annual fee, the investment grows at approximately 6.37% a year.
Assuming the stated returns are achieved consistently, with no additional contributions, taxes or transaction costs, the illustrative outcomes are approximately:
| Annual expense ratio | Approximate value after 30 years |
|---|---|
| 0.35% | S$69,000 |
| 0.63% | S$64,000 |
| Difference | S$5,000 |
These are illustrations, not forecasts or verified future returns. Actual results will depend on market performance, fees, trading costs and other factors.
The lesson is not that investors should always choose the ETF with the lowest fee.
A locally listed product may offer convenience, simpler trading arrangements or access through an investment account that matters to the investor.
Rather, investors should understand how much they are paying for those benefits.
A higher fee may be reasonable if the product offers a genuinely useful feature. But if two products deliver substantially similar exposure and one is materially more expensive, the higher-cost option needs a clear justification.
For retirement investing, the relevant question is not whether a fee looks small today, but whether the convenience it buys is worth paying for over decades.
6. The overlooked trading risk: your ETF may be open when its underlying market is closed
ETF investors often assume that an exchange-listed fund can always be traded at a fair price during market hours.
In reality, the trading conditions of the underlying assets can influence how efficiently an ETF trades.
For example, an ETF providing exposure to US shares may trade on SGX while the US market is closed.
During those hours, market makers and other participants may have less current price information from the underlying market.
They may also face greater uncertainty about where the underlying shares would trade if the US market were open.
One response is to quote a wider bid-ask spread.
That means investors may pay more to buy the ETF and receive less when selling it, even if the annual expense ratio is relatively low.
Why spreads matter
Suppose an ETF has an indicative market value of S$10 per unit.
If the bid price is S$9.95 and the ask price is S$10.05, the spread is S$0.10, or 1% of the indicative value.
An investor buying at the ask and selling immediately at the bid would incur a substantial loss relative to the midpoint, even before brokerage fees.
The example is illustrative and does not describe the actual spread of any specific SGX ETF.
For a long-term investor, the impact of one trade may be less significant than recurring annual fees. But for investors who trade frequently, the spread can materially affect returns.
Practical implications
Investors should consider:
- Checking the bid-ask spread before placing an order.
- Using limit orders where appropriate rather than automatically accepting the available market price.
- Comparing liquidity across exchanges when equivalent products are available.
- Avoiding the assumption that a familiar trading currency guarantees efficient execution.
- Paying attention to the timing of the underlying market’s trading session.
An ETF’s listing venue is part of its cost structure.
The most convenient product is not necessarily the cheapest one to buy and sell.
7. SRS eligibility is useful, but it should not determine the investment strategy
For Singapore investors with Supplementary Retirement Scheme accounts, the availability of eligible ETFs adds flexibility.
The SRS can support long-term investing, and ETFs may provide access to diversified markets through a single investment.
However, tax treatment and account eligibility should be considered separately from the merits of the underlying investment.
A fund does not become suitable for retirement simply because it can be purchased through an SRS account.
The same investment questions still apply:
- Is the portfolio sufficiently diversified?
- Are the underlying assets appropriate for the investor’s time horizon?
- Are the fees competitive?
- Is the investment exposed to excessive country or sector concentration?
- Could a substantial market decline occur when the investor needs the money?
An investor building retirement savings may benefit from a diversified combination of equities and bonds, with the allocation adjusted to reflect their circumstances and risk tolerance.
A single-country ETF or AI-focused ETF may have a role in such a portfolio, but it should not automatically replace a broader core investment.
The planned introduction of low-cost, diversified life-cycle investment products in Singapore in 2028, as referenced in the supplied report, also highlights the importance of matching investments to retirement needs.
Life-cycle approaches generally adjust portfolio risk as investors move closer to a target retirement date.
The underlying principle is straightforward: a portfolio intended to support retirement should be designed around the investor’s long-term financial needs, not simply the availability of a particular investment product.
Investors should verify the applicable SRS rules, product eligibility and tax treatment before making decisions.
8. Global ETFs versus Asian ETFs: which makes more sense for Singapore investors?
There is no single correct answer. The appropriate choice depends on what the investor already owns and what the new investment is intended to achieve.
A broad global equity ETF may serve as a portfolio’s core holding because it spreads exposure across companies, industries and countries.
An Asian ETF can then provide additional exposure to a region that the investor believes has attractive long-term prospects.
An AI ETF may offer a more concentrated way to express a specific investment view.
These roles should not be confused.
| ETF category | Potential portfolio role | Main consideration |
|---|---|---|
| Broad global equity ETF | Core long-term equity exposure | Check geographic, sector and company concentration |
| Asia-Pacific ETF | Regional diversification or targeted growth exposure | Assess overlap with existing holdings and regional economic risks |
| Taiwan or South Korea ETF | Targeted country exposure, including technology-related industries | Country concentration and semiconductor-cycle sensitivity |
| Japan ETF | Exposure to Japanese companies and domestic or global business trends | Valuation, currency and sector composition |
| AI and big data ETF | Satellite allocation to a specific investment theme | High concentration and valuation sensitivity |
| Global or regional bond ETF | Potential income and diversification role | Interest-rate risk, credit quality, duration and currency exposure |
The table is a general framework rather than a recommendation for any particular product.
A Singapore investor who already owns a US-heavy global ETF may not need another large allocation to US technology companies.
An investor whose portfolio is concentrated in Singapore equities may benefit more from a genuinely diversified global fund than from an additional concentrated bet on one Asian market.
Someone with a long investment horizon and a strong understanding of technology-sector risks may choose to add a smaller AI allocation.
The key is to assess the marginal contribution of each ETF to the portfolio.
The best ETF is not necessarily the one with the most exciting theme or the strongest recent performance. It is the one that improves the investor’s portfolio after accounting for risk, cost and existing exposure.
9. What investors should check before buying a newly listed SGX ETF
The expansion of Singapore’s ETF market gives investors more choices, but a longer product list can also make comparisons more complicated.
Before investing, consider the following checklist.
1. Understand the index. Find out which securities the ETF tracks and how they are selected and weighted.
2. Examine the underlying holdings. Check the largest positions, sector exposure and concentration risks.
3. Compare equivalent products. Where possible, compare ETFs tracking the same or similar indices rather than comparing unrelated funds solely by expense ratio.
4. Calculate total costs. Include annual fees, brokerage, spreads, foreign-exchange conversion and any other applicable charges.
5. Understand currency exposure. Confirm whether the ETF is currency-hedged or unhedged and identify the currencies driving its returns.
6. Check liquidity. Review trading activity and bid-ask spreads. A local listing does not guarantee deep liquidity.
7. Consider tax treatment. The fund’s domicile and structure may affect withholding taxes and other tax considerations. Confirm the rules applicable to the specific product and investor.
8. Assess portfolio overlap. Determine whether the ETF adds genuine diversification or simply increases exposure to companies already held.
9. Match the fund to the investment horizon. A concentrated thematic ETF may experience substantial drawdowns and may be unsuitable for money needed in the near term.
10. Decide its role before buying. Establish whether the fund is intended to be a core holding, a regional allocation or a smaller thematic position.
This process can help investors avoid buying a product merely because it is newly listed, locally accessible or associated with a popular investment theme.
Investment conclusion: use ETFs to build a portfolio, not collect investment themes
Singapore’s expanding ETF market is a positive development for investors.
The new products offer more convenient access to global equities, Asian markets, AI-related businesses and other investment opportunities. SRS eligibility may also make certain funds useful for long-term retirement investing.
But greater accessibility does not remove the need for investment discipline.
Investors should be especially careful about three issues.
First, diversification must be assessed by underlying exposure, not the number of ETFs owned. A portfolio of several technology-focused funds can remain highly concentrated even if each fund holds many securities.
Second, the total cost of ownership matters more than the trading currency or headline expense ratio alone. Fees, spreads, foreign-exchange conversion and tracking differences can all affect realised returns.
Third, a compelling industry does not automatically make an ETF attractive at its current valuation. AI, semiconductors and Asian technology may offer long-term growth opportunities, but their future returns depend on earnings, prices paid and investor expectations.
For most long-term investors, a diversified global portfolio is a more defensible starting point than a collection of concentrated country and thematic funds. Regional and AI-focused ETFs can then be considered as supplementary allocations, provided the investor understands their risks.
The expansion of SGX’s ETF market is therefore best viewed as an expansion of choice—not proof that every new product deserves a place in a portfolio.
The next step is to compare individual funds on their underlying holdings, costs, liquidity, tax treatment and suitability for the investor’s objectives.
My investment stance: favour diversified core holdings, and use Asia or AI ETFs selectively. Investors should not buy a fund simply because it offers access to a fashionable market or can be traded in Singapore dollars.
Over a multi-decade investment horizon, the difference between a successful ETF strategy and an expensive collection of overlapping bets may come down to a few fundamental decisions: what you own, what you pay and how much risk you take.