As a particular hedge fund gets stuck in the nitty gritty of liaising with the institutional trustee of a particular REIT listed on the Singapore Exchange (SGX), investors, including one-time REIT investors, are moving to other money-making parts of the market.
Much has been written about fund management fees — albeit property funds — in the past two months. Yet, mutual funds account for some 20% of the US market and ETFs a further 12% to 13%, according to various data sources.
The outperformer over time is not some internalised REIT that does not have to pay management fees, but the S&P 500 ETF (see Man vs Machine on p16) where its investors pay fees, albeit very low fees.
The S&P 500 ETF listed on the SGX is the SPDR ETF which replicates the movement of the S&P 500 Index. This ETF contains the same stocks as the index and mirrors its long-term performance. This index has high standards so the companies in the S&P 500 are some of the largest and strongest corporates in the U.S.
According to The Motley Fool, Warren Buffett believes strongly in the S&P 500 ETF. In 2008, he invested US$1 million in the Vanguard 500 Index Fund Admiral Shares.
According to the Motley Fool, an S&P 500 fund managed to outperform actively managed hedge funds. In the 10 years from 2008–2018, according to the Motley Fool report, the Vanguard 500 Index Fund returned 126% compared to an average of 36% by the hedge funds.
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Investing in an S&P 500 Index Fund or ETF makes sense because investors don’t really need to monitor their investment on a daily basis. It is almost impossible to track individual stocks.
The S&P 500 Index’s breadth incorporates growth and value stocks, and covers some 80% of the US equity market and 50% of global equities. There are sub-indices which focus on sectors and are not as broad-based as the S&P 500. Moreover, in an index with such a wide coverage, risk is to an extent mitigated.
Despite this, some large caps have sufficient muscle to influence the direction of the index, usually positively. For the most part of the 21st century, these are cash-rich forward-looking tech titans with sufficient intangible and tangible assets to ride out economic winters. ETFs have lower expense ratios than mutual and hedge funds. Hence the S&P 500 index funds allow the average investor to invest in the market without paying high fees to fund managers.
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According to RBC, ETF data show a surge into Indian equity ETFs in July, with most of the buying from foreign investors. US-listed Indian equity ETFs accounted for 80% of the inflows.
UOB Economics and Markets Research points out that China’s property market stress, poor consumer sentiment and severe floods are keeping economic risks to the downside as market participants continue to watch for stronger policy response with the annual Beidaihe retreat of senior Chinese government officials reported to be in session.
China’s exports in July tumbled by 14.5% y-o-y and imports fell by 12.6% y-o-y. Both exports and imports fell more than the June levels of –12.6% y-o-y for exports and –6.8% y-o-y for imports. This was the third consecutive month of contraction for exports, and fifth consecutive month of decline for imports, UOB indicates.
Perhaps Buffett has a point after all — by promoting strength in diversification and consistently cautioning investors not to bet against America.
