Singapore-based British Expat Looking for Advice on New ETF Portfolio

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mefsg
Posts: 4
Joined: Fri May 11, 2018 8:24 am

Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by mefsg » Fri May 11, 2018 7:13 pm

Hi,

I have in the last year moved to Singapore from the UK after finishing university and have started my first job there. Instead of offering a Pension plan, my employer pays me a lump sum to invest for my own retirement every 3 months.

After reading some investment advice (including Global Expatriate’s Guide to Investing) I have decided to build a portfolio using ETFs, and have read a lot of views on this website and forum.

I have set up an account with Interactive Brokers and am ready to pull the trigger, but would like to check first that I am not making any big glaring mistakes in my portfolio choice. Would appreciate any advice on this!

Further background below.

———

Background
- Emergency Funds: Yes, 3-4 months of expenses
- Debt: Student Loan ~£30k, interest rate approx. 1.5% paying this back monthly should be clear in 2 years
- Tax Filing Status: Single
- Tax Rate: 22% (highest rate) in Singapore
- Country of Residence: Singapore
- Age: 30
- Desired Asset Allocation: 80% stocks / 20% bonds or 85% stocks / 15% bonds
- Desired International Allocation: 50% US, 50% International

Current Retirement Assets
- None

Planned Annual Contribution
- $80k

At the moment it is likely that I will stay in Singapore for the long term. If not then I have no idea where I will be based in the future.
Since I am in Singapore, I do not have to pay capital gains tax.
I am aware that I need to ensure any investments are not domiciled in the US to avoid US estate taxes.

———

Proposed portfolio split between equities and bonds as described below. This is where I would really appreciate your advice!

Equities

40% ASX:VEU (AUD) Vanguard All-World EX US Shares Index (ER 0.11%, Aus Domiciled)
And
40% ASX:VTS (AUD) Vanguard U.S. Total Market Shares Index (ER 0.04%, Aus Domiciled)

Or

40% ASX:VEU (AUD) Vanguard All-World EX US Shares Index (ER 0.11%, Aus Domiciled)
And
40% LON:CSPX (GBP) iShares Core S&P 500 UCITS (ER 0.07%, Ireland Domiciled)

Note that both of these Vanguard funds are listed on the Australian exchange where the expense ratios on both are very low.
One concern I have is that I do not know what the withholding tax on dividends will be on the Australian ETFs. I know the Ireland domiciled funds charge 15% withholding tax, but not so sure about the Aus. This site (https://blog.stockspot.com.au/how-are-e ... ign-income) seems to suggest that so long as I filled in the W8BEN (which IBRK got me to do anyway) then this should be reduced to 15% also. Is anyone able to help on this point?

Another problem I have is that I believe that both of the Vanguard funds are distributing rather than accumulating. Does this mean dividends will be paid in USD or AUD? But given this, I have also suggested an S&P 500 tracker on the London Stock Exchange as an alternative (LON:CSPX). The ER is a bit higher and it isn’t a total US Market Shares Index, which I slightly favor. But any thoughts on this?

My understanding also is that I will not be exposed to SGD-AUD exchange risk (if I am interpreting this correctly: https://the-international-investor.com/ ... ency-risk). Is this correct?


Bonds

10% SI:A35 ABF (SGD) Singapore Bond Index Fund (ER 0.20%, Singapore Domiciled)
And
10% LON:VUTY (GBP) USD Treasury Bond UCITS (ER 0.12%, Ireland Domiciled)

Or

10% LON:VUCP (GBP) Vanguard USD Corporate Bond UCITS (ER 0.12%, Ireland Domiciled)
And
10% LON:SGLO (GBP) iShares Global Government Bond UCITS (ER 0.20%, Ireland Domiciled)

Honestly, I am a bit more clueless on bonds. I believe that I am still exposed to currency risk unlike for equities and so I should favor bonds either in my home country of the country I am likely to retire to? Hence the first option, which includes exposure to Singapore Government bonds (since currently this is my most likely home for life).

The second option is more diversified into global corporate and government bonds. I know that corporate bonds and equities are more positively correlated than government bonds and equities, but since I am young I am willing to take more risk anyway.

A few bond-related questions:
  • What currency risks am I exposing myself to in each scenario should I remain in Singapore?
  • Are these sensible options, which do you favor, do you have any alternative suggestions?
  • Do I even need bonds? I have heard they are useful for rebalancing purposes during stock-market downturns, but since my time horizon is 30+ years I am not sure I need them (or if I do that I need to hold as much as 20%).
  • I am applying for Singaporean PR. For those of you who know about this, I will start having to pay into CPF (mandatory savings). You can think of this as a cash account with a high interest rate (3-5%) but that can’t be accessed until I retire. In this case, should I also hold bonds?


Really appreciate any thoughts on all of this. Thank you!!

AlohaJoe
Posts: 3205
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by AlohaJoe » Fri May 11, 2018 8:26 pm

mefsg wrote:
Fri May 11, 2018 7:13 pm
40% ASX:VEU (AUD) Vanguard All-World EX US Shares Index (ER 0.11%, Aus Domiciled)
And
40% ASX:VTS (AUD) Vanguard U.S. Total Market Shares Index (ER 0.04%, Aus Domiciled)
Why are you buying Australian-listed things? You'll have to file an Australian tax return every year, AFAIK.

"If you're a foreign resident for tax purposes you must declare on your tax return any income earned in Australia, including:

employment income
rental income
Australian pensions and annuities
capital gains on Australian assets."

https://www.ato.gov.au/Business/Interna ... residents/

In general you shouldn't buy assets in a foreign country unless and until you've read and understood how that country's tax laws work.
This site (https://blog.stockspot.com.au/how-are-e ... ign-income) seems to suggest that so long as I filled in the W8BEN (which IBRK got me to do anyway) then this should be reduced to 15% also. Is anyone able to help on this point?
W8BEN is a US form. Since you're not American and you haven't listed any US assets in your plan, it isn't relevant. The link you provide is for people who have Australian tax residency -- notice how it says "Australian investors who buy ETFs" -- so it doesn't apply to you.
Another problem I have is that I believe that both of the Vanguard funds are distributing rather than accumulating. Does this mean dividends will be paid in USD or AUD?
The funds you listed pay Australian Dollars.
My understanding also is that I will not be exposed to SGD-AUD exchange risk (if I am interpreting this correctly: https://the-international-investor.com/ ... ency-risk). Is this correct?
Since you'll be paid dividends in AUD, you will be exposed to SGD-AUD exchange risk. Though if you immediately convert to SGD when you receive the dividends it will be minimal.
Honestly, I am a bit more clueless on bonds.
Honestly, I would just ignore bonds for now. You're, what?, 22 or something close to that? It wouldn't kill you if you hold off on buying bonds for two or three years. After two or three years you (might) have a clearer idea whether you're actually going to stay in Singapore long term. I've moved to a new country several times and known many others who have done the same. The first year is often a honeymoon period. Years 2 & 3 is when people get disillusioned (or miss family or whatever) and think about moving.

I wouldn't bother buying Singapore government bonds. "Buy bonds in your home country currency" is something that works better for Americans than any other nationality. You already have all of your human capital tied up in Singapore. I don't think it is all clear that overweighting Singapore in your portfolio further makes tons of sense.

If I bought bonds in your situation, I'd lean towards global bonds. Realistically, the chances you still being in Singapore in 40 years are low.
I am applying for Singaporean PR. For those of you who know about this, I will start having to pay into CPF (mandatory savings). You can think of this as a cash account with a high interest rate (3-5%) but that can’t be accessed until I retire. In this case, should I also hold bonds?
This is the same question Americans on this board face when deciding what to do with Social Security. Some people ignore it. Some treat it as a bond. There's no universal answer. If it were me, I'd treat it as a bond in my overall portfolio.

mefsg
Posts: 4
Joined: Fri May 11, 2018 8:24 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by mefsg » Sat May 12, 2018 12:53 am

Thanks AlohaJoe for the very helpful response. Some follow up below
Why are you buying Australian-listed things? You'll have to file an Australian tax return every year, AFAIK.
This a very helpful point that I need to look into. I chose these because I wanted to get worldwide exposure and this gives me US, Developed and Developing countries. Plus these two funds seemed a very efficient (low TER) way of achieving this. An alternative would be to pay a higher TER and buy in the UK. Any recommended options on this?
Honestly, I would just ignore bonds for now. You're, what?, 22 or something close to that?
Unfortunately spent forever in university and now 30 :( so maybe a 10% allocation into global bonds makes sense?

So go 90% in something like VWRL (FTSE All-World UCITS ETF which has a TER of 0.25%) and 10% in SGLO (iShares Global Government Bond UCITS), both Ireland Domiciled?

Many thanks again!

Cintrapark
Posts: 53
Joined: Tue Sep 15, 2015 1:58 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by Cintrapark » Sat May 12, 2018 4:04 am

I don't remember these portfolios from Andrew Hallam's book. I went for an extremely simple 2 fund portfolio. VWRD & IAAA.

Peter G
Posts: 46
Joined: Sat Apr 30, 2016 8:14 pm

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by Peter G » Sat May 12, 2018 5:30 am

40% ASX:VEU (AUD) Vanguard All-World EX US Shares Index (ER 0.11%, Aus Domiciled)
And
40% ASX:VTS (AUD) Vanguard U.S. Total Market Shares Index (ER 0.04%, Aus Domiciled)
The Vanguard website says they are both USA domiciled. That's a horse of a different color (or colour).

AlohaJoe
Posts: 3205
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by AlohaJoe » Sat May 12, 2018 6:17 am

Peter G wrote:
Sat May 12, 2018 5:30 am
40% ASX:VEU (AUD) Vanguard All-World EX US Shares Index (ER 0.11%, Aus Domiciled)
And
40% ASX:VTS (AUD) Vanguard U.S. Total Market Shares Index (ER 0.04%, Aus Domiciled)
The Vanguard website says they are both USA domiciled. That's a horse of a different color (or colour).
Good catch. These are US-domiciled, which isn't really an issue for (most) actual Australian residents (unlike the OP) due to the US/Australia estate tax treaty.

mefsg
Posts: 4
Joined: Fri May 11, 2018 8:24 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by mefsg » Sat May 12, 2018 6:44 am

Thanks for spotting this! I don’t know how I missed it, though I had researched to death!

Forget the Australian funds then, will probably invest on the London exchange. Since I am British this seems to make the most sense for me, as there aren’t great ETF options in Singapore.

I will come back with an alternative suggestion when I’ve looked into this.

Thanks again!

InnocentAbroad
Posts: 14
Joined: Sun Jun 18, 2017 1:50 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by InnocentAbroad » Sat May 12, 2018 9:51 am

My situation is not too dissimilar to yours (UK expat); in case it helps I'll share my portfolio. I am a rookie investor, starting around a year ago, so treat my thoughts as such. The funds I chose to were:

Equity
Vanguard FTSE All-World UCITS ETF (VWRL) [0.25% ER]

Bonds
iShares US Aggregate Bond UCITS ETF (SUAG) [0.25% ER]
Vanguard U.K. Gilt UCITS ETF (VGOV) [0.12% ER]

All the funds are Ireland domiciled, for the reasons explained in the wiki:
https://www.bogleheads.org/wiki/Nonresi ... sion_table
https://www.bogleheads.org/wiki/Nonresi ... Irish_ETFs

I wanted to keep things simple as possible so use VWRL to get broad exposure to global equity market with a single fund. There are two versions of this fund listed on the London Stock Exchange (LSE): VWRL, in GBP, and VWRD, in USD. They are both equivalent, but the former was preferable because the broker I am using, Interactive Brokers (IB), has a much lower commission for GBP-denominated LSE trades. A downside of this arrangement is that, even though VWRL is listed in GBP, it pays dividends in USD. Fortunately, currency exchange on IB is very cheap indeed.

A popular alternative is a combination of iShares Core MSCI World UCITS ETF (SWDA/IWDA) [0.2%] and iShares Core MSCI Emerging Markets (EMIM/EIMI) [0.25%]. These are still Ireland domiciled, but are "accumulating", so keep dividends internally rather than paying out, and have a slightly lower ER.

On the bond side, SUAG gives me exposure to the total US bond market, including both treasuries and corporate bonds. The yield of US bonds is better than most other countries and the SGD/USD exchange rate has also been fairly steady over the past five or so years. As the US Dollar is the world reserve currency this was something of a default choice to reduce volatility in the portfolio. There are arguments for and against having only treasuries or mixing in corporate bonds. For treasury only funds you might want to look at Vanguard USD Treasury Bond UCITS ETF (VUDY/VUTY) [0.12%], iShares USD Treasury Bond 7-10yr UCITS ETF (IBTM/IDTM) [0.2%] or iShares USD Treasury Bond 3-7yr UCITS ETF (CU71/CBU7) [0.2%]. I chose SUAG for the increased diversification and higher yield.

Since I am British I chose to have some exposure to my home country bonds with VGOV. Expert forum-member Valuethinker pointed out that the long duration of the gilts in VGOV exposes it to a large risk from rising interest rates. Shorter duration bond funds would offer lower volatility, such as iShares UK Gilts 0-5yr UCITS ETF (IGLS) [0.2%] or SPDR Barclays 1-5 Year Gilt UCITS ETF (GLTS) [0.15%]. After sucking through my teeth I decided that, since I plan on holding this for many years, I would benefit from the higher yield and lower expense of VGOV. Only time will tell whether it was the right choice, but over the past year the (negative) returns of all three have been similar, but VGOV has has swings of around 3% while the short funds have seen drops of only around 1%.

mefsg
Posts: 4
Joined: Fri May 11, 2018 8:24 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by mefsg » Tue May 15, 2018 3:56 am

Thank you for your thoughts on this, InnocentAbroad.

I have gone back and looked at this again, and really like your suggestion. One option is to go exactly as you propose, though I would probably drop the UK bonds:
Equity
Vanguard FTSE All-World UCITS ETF (VWRL) [0.25% ER]

Bonds
iShares US Aggregate Bond UCITS ETF (SUAG) [0.25% ER]
One thing I was trying to achieve with the Australian ETFs was a lower expense ratio, and the ER on VWRL and SUAG is quite high. So I have looked into this a little further.

Although more complicated, an option is to basically reconstruct VWRL using alternative Vanguard ETFs. This seems to be achievable one of two ways (in order to get 90% of my portfolio in equities).

OPTION A
90% Equity
48% FTSE North America UCITS (VNRT) [0.10% ER]
19% FTSE Developed Europe UCITS (VEUR) [0.12% ER]
8% FTSE Japan UCITS (VJPN) [0.19% ER]
5% FTSE Developed Asia Pacific ex Japan UCITS (VAPX) [0.22% ER]
10% FTSE Emerging Markets UCITS (VFEM) [0.25% ER]

or

OPTION B
90% Equity
80% FTSE Developed World UCITS (VEVE) [0.18% ER]
10% FTSE Emerging Markets UCITS (VFEM) [0.25% ER]

Any thoughts on either of these? For the former I know I would have to look out for transaction costs, but since IB is very cheap for UK ETFs this could work well.

On the bond side, iShares have released a new global aggregate bond ETF (AGGG) which has a very low expense ratio of 0.10%.

10% Bonds
10% iShares Global Aggregate Bond UCITS (AGGG) [0.10% ER]

Any comments on this?

If I use a use a combination of Option A and AGGG my overall expense ratio drops to 0.132%, or about half.
If I use a use a combination of Option B and AGGG my overall expense ratio drops to 0.179%.

Thanks again for all of your input, this has ben really helpful.

msk
Posts: 764
Joined: Mon Aug 15, 2016 10:40 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by msk » Tue May 15, 2018 4:29 am

My 2 choices for exposure to the whole world. I own both in order to see how I get treated tax-wise a year from now. In theory they should be identical for all practical purposes. I am not liable to income nor capital gains tax and my tax residence has no tax treaty with the USA:

1. Vanguard, Ireland based, in USD, as simple as it gets except for the nuisance of having to re-invest dividends every quarter (taxed 15% or untaxed at distribution? I'll see next quarter...):
VWRD

2. iShares, Ireland based, in USD, accumulating, presumably no dividend tax at distribution to me, the individual owner since I never see the dividends anyway:
76% IWDA (World Dveloped), 12% WSML (World Small Caps), 12% EIMI (Emerging Markets)

Choice 2. has the disadvantage that if the indices are revised significantly to include China stocks massively to fully reflect that it is the world's second largest economy, then I have to be awake enough to change those percentages to reflect that step change. Normal growth takes care of the percentages internally and automatically. I only have to act if there is a step change.

I hold nil bonds.

ying_yang
Posts: 23
Joined: Sun Nov 19, 2017 10:18 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by ying_yang » Tue May 15, 2018 5:37 pm

msk wrote:
Tue May 15, 2018 4:29 am
My 2 choices for exposure to the whole world. I own both in order to see how I get treated tax-wise a year from now. In theory they should be identical for all practical purposes. I am not liable to income nor capital gains tax and my tax residence has no tax treaty with the USA:

1. Vanguard, Ireland based, in USD, as simple as it gets except for the nuisance of having to re-invest dividends every quarter (taxed 15% or untaxed at distribution? I'll see next quarter...):
VWRD

2. iShares, Ireland based, in USD, accumulating, presumably no dividend tax at distribution to me, the individual owner since I never see the dividends anyway:
76% IWDA (World Dveloped), 12% WSML (World Small Caps), 12% EIMI (Emerging Markets)

Choice 2. has the disadvantage that if the indices are revised significantly to include China stocks massively to fully reflect that it is the world's second largest economy, then I have to be awake enough to change those percentages to reflect that step change. Normal growth takes care of the percentages internally and automatically. I only have to act if there is a step change.

I hold nil bonds.
one small difference:

1. Does not contain small cap, tracks FTSE ALL World which is Global Large and Mid cap..

2. Has developed small caps in WSML and emerging small caps in EIMI.

msk
Posts: 764
Joined: Mon Aug 15, 2016 10:40 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by msk » Wed May 16, 2018 2:06 am

Factsheet on VWRD:
"Investment approach
• The Fund seeks to provide long-term growth of capital by
tracking the performance of the index, a market-capitalisation-weighted index of common stocks of
large- and mid-cap companies in developed and emerging
countries. • The Fund employs a passive management or indexing
investment approach through physical acquisition of
securities, designed to track the performance of the index, a free-float-adjusted market-capitalisation-weighted index. • The Fund will invest in a portfolio of equity securities that, so far as possible and practicable, consists of the
component securities of the index.
About the benchmark
• The index measures the market performance of large- and
mid-capitalisation stocks of companies located around the
world. • Includes approximately 2,900 holdings in nearly 47
countries, including both developed and emerging markets. • Covers more than 90% of the global investable market
capitalisation.
"

Noted :beer Just shows how difficult it is to find a fund that covers just about everything :confused

I have been trying to find an ETF that replicates VT but is based in Ireland. Factsheet on VT:

"Investment approach
• Seeks to track the performance of the FTSE Global All Cap Index.
• Passively managed, using index sampling.
• Fund remains fully invested.
• Broad exposure across developed and emerging equity markets around the
world, including the United States.
• Low expenses minimize net tracking error.
About the benchmark
• The FTSE Global All Cap Index measures the market performance of large-,
mid- and small-capitalization stocks of companies located around the world.
• Includes approximately 8,000 holdings in over 47 countries, including both
developed and emerging markets.
• Covers more than 98% of the global investable market capitalization."

It seems that VWRD tracks the " FTSE All-World Index", only 2900 stocks, while VT tracks " FTSE Global All Cap Index ", 8000 stocks.
It'll be interesting to see whether there is any significant difference between my triumvirate approach and my VWRD approach. For myself VT is out of consideration because the USA slaps a 30% withholding tax on the dividends. Yet to see how much withholding tax, if any, I get clobbered with on dividends from VWRD.

msk
Posts: 764
Joined: Mon Aug 15, 2016 10:40 am

Re: Singapore-based British Expat Looking for Advice on New ETF Portfolio

Post by msk » Wed May 16, 2018 9:06 am

Just checked the performance graph of VT against VWRD over the last 5 years. As far as I can see, they overlay right on top of each other. So it looks like VWRD is diversified "enough".

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