Part 1 : Unit Trusts and Exchange Traded Funds

[starlight1968sg]

wilfred,
(i) Guess we must look at the prospectus for this info? This info does not seem easily available; eg from fsm; can't find this info for Aberdeen funds.
Thanks.

[maomao]

i) Guess we must look at the prospectus for this info? This info does not seem easily available; eg from fsm; can't find this info for Aberdeen funds.

yeah, is there any way we can find this requirement on the conversion rule on the currency. Also, for nearer countries like MY, do u think it is wiser to open a bank acc in msia and use this to trade? this way you can minimise losses on currency exchange...

[starlight1968sg]

My initial thought is :buy or pay in SGD, get converted to USD to buy the various equities/bonds of other countries.

[wilfredling]

starlight,

The currency denomination of any fund is the currency of its publish bid price or NAV.

[starlight1968sg]

Then, most of the funds (whether local or for other countries) are denominated in SGD?

[choozm]

wilfred,

This is a summary of Currency Risk and Forex Cost, based on my understanding after reading your article. Please correct if there is any mistake. Thanks.

I'll use Fidelity Korea Fund and MSCI Korea ETF listed in US exchange as examples.

For both:
- Home based currency = SGD
- Demoninated currency = USD
- Underlying stock currency = WON


Fidelity Korea Fund
- Currency Risk = SGD/WON rate
- Forex Cost (1) = SGD > USD, incurred by investor to buy this unit trust fund
- Forex Cost (2) = USD > WON, incurred by fund manager to buy Korean stocks

MSCI Korea ETF
- Currency Risk = SGD/WON rate
- Forex Cost (1) = SGD > USD, incurred by investor to buy this ETF
- Forex Cost (2) = No or little USD > WON cost incurred by ETF


So the cost saving in term of foreign currency in ETF comes from Forex Cost (2).

[wilfredling]

choozm,

Looks correct. The forex cost (2) for an active managed fund is made worst when a fund turnover is high. Anyway all these assume there is no currency hedging involved. If there is, then the forex cost is not strange forward already.

[wilfredling]

starlight,

Majority of the unit trusts here are denominated in SGD. Some offhsore ones are in USD. And many feeder funds are in SGD (but mother fund is not).

[starlight1968sg]

Wilfred,
If the mother fund is not denominated in SGD, then the forex cost would be a hidden bomb for us, as I am sure the fund managers or fund houses would incoporated it into the fund prices.
So now, we not only have to look at the currency of the fund, and its mother-fund too!

[wilfredling]

starlight,

Yes you are right.

[Rinpoche]

Good work, Wilfred.

[vernonlky]

Do any of the funds hedge against forex risk?

[Rinpoche]

wilfred, good article.

FSM may need a new research manager (hint! hint!)

Thank you. But I don't have a CFA, CPA or CFP and didn't even have any certificates from any of the modules from 1 to 8. Cannot lah, no paper no value.

But I got CPF, can or not ? ::wink:

So...what "paper" do you have?
Only CPF?

Thanks.

[wilfredling]

Rinpoche,

I got the useless paper call B.Eng hons.

[makoshark]

Rinpoche,

I got the useless paper call B.Eng hons.

Wah we have a Beng with honours!

[wilfredling]

oh ya hor... i am a honourable beng! cool...

[starlight1968sg]

Is your honours Up or "Down"?

[Rinpoche]

Rinpoche,

I got the useless paper call B.Eng hons.

So you are self-taught like ghchua.

Good work.

[wilfredling]

Is your honours Up or "Down"?

Huh? you are really funny. Second Up.

[Rinpoche]

Rinpoche,

I got the useless paper call B.Eng hons.

At least you have hons.

My friend slogged for 4 years and only got a B.Eng (Merit).

It's ok, you can go for courses and upgrade yourself.

[wilfredling]

Oh dear poor thing. To go through hell for 4 years and kanna that merit is not worth it.

[moof]

Wilfred, thanks for the article.

Will look forward to your future articles in your weekly column.

[starlight1968sg]

Honours class has second upper or second lower (="down").
It made a difference when applying for jobs in the civil service.

[wilfredling]

starlight,

I tot your "down" means 3rd class hons.

[maomao]

Rinpoche,

I got the useless paper call B.Eng hons.

wo wo wo... dont underestimate the power of BENG...