In today’s fast-paced world, where time is precious, finding the right investment strategy may feel like searching for a needle in a haystack. We’re all looking for something that’s simple, cost-effective, and capable of delivering long-term returns without requiring constant attention and micromanagement. Well, what if I tell you that there’s an investment option in Singapore that checks all the boxes?
Consider a passive ETF that tracks a globally diversified index, offering long-term returns at a low cost. In this article, we will look at the VWRA ETF, its advantages, and how investors in Singapore can benefit from it. This investment opportunity encapsulates the essence of a smart and straightforward approach to wealth building.
- Global and Sector Diversification: The VWRA ETF provides investors with exposure to equities from all corners of the world, including developed and emerging markets. This global diversification allows you to spread your risk over a diverse set of companies and countries.
- Low Expense Ratio: Cost plays a crucial role in investment decisions, and the VWRA ETF boasts an attractive expense ratio of only 0.22% per annum, making it an economical choice for passive investors.
- Irish-Domiciled for Tax Efficiency: Singaporean investors can take advantage of the VWRA ETF’s Irish domicile, which results in a lower withholding tax on dividends compared to some US-domiciled ETFs. This enhances the tax efficiency of your investment.
- Accumulating Fund: The ETF operates as an accumulating fund, automatically reinvesting dividends into the ETF. This not only reduces transaction costs but also lowers dividend tax liabilities.
However, it’s essential to be aware of potential limitations:
Disadvantages of the VWRA ETF:
- Lack of Customization: The VWRA ETF follows a passive strategy, aiming to replicate the market’s performance rather than outperform it. While this approach keeps costs low, it limits the ability to customize holdings and potentially achieve higher returns through active management.
- Potential Volatility of Equities: Like all equity investments, the VWRA ETF may experience volatility, particularly during economic uncertainties or market downturns. Investors should adopt a long-term mindset and be prepared for short-term fluctuations.
If you’re looking for an investment that aligns with these principles and offers an opportunity for long-term prosperity, the VWRA ETF might be your ideal choice. In this article, we’ll delve into the details of this ETF, its advantages, how to invest in it from Singapore, and why it could be the key to maximizing your wealth-building journey.
Table of Contents
Understanding the FTSE All-World Index
Before we get into the VWRA ETF, it’s important to understand the underlying index that it tracks: the FTSE All-World Index. This market-cap weighted index measures the performance of over 3,500 large and mid-sized company stocks from 47 countries, covering both developed and emerging markets.
With a global portfolio of equities from various sectors, including tech giants like Apple and Microsoft, the index offers exposure to a diversified list of companies worldwide. Stocks with larger market cap have a greater share in the index, which is rebalanced every quarter.
Exploring the VWRA ETF
The VWRA ETF, managed by Vanguard, is an ideal approach to implement the investment strategy mentioned above. This ETF, domiciled in Ireland, seeks to replicate the performance of the FTSE All-World Index.
With a small annual fee of just 0.22%, the VWRA ETF offers a cost-effective approach for investors who aim to match the market rather than outperform it. The annual fee is way lower than other ETFs in the market such as Nikko AM Singapore STI ETF with an expense ratio of 0.3%.
The fund employs a physical replication method, directly owning the underlying securities in the index.
Key Characteristics of the VWRA ETF
The table below presents key ratios and characteristics of the VWRA ETF, providing valuable insights into its composition and structure.
As of July 2023, the VWRA ETF holds approximately US$18 billion worth of assets covering approximately 3,800 holdings. By making simply just a single purchase of this ETF, you are immediately exposed to a diversified large basket of global equities.
If you are still not convinced by now, continue to read on more to understand the true benefits of investing in this powerful ETF.
Advantages of Investing in the VWRA ETF
I am a long-term investor in VWRA ETF and personally, I think that this is a great ETF for long-term investors due to its various benefits.
1. Global and Sector Diversification
Investing in the VWRA ETF gives you exposure to equities from all around the world, including developed and emerging markets. This global diversification allows you to spread your risk over a diverse set of companies and countries.
The ETF invests in a variety of sectors and industries, providing a diverse portfolio that includes consumer staples, technology, and more. Let’s take a closer look at the VWRA ETF’s regional and industry exposure.
Many investors may be tempted to invest in popular ETFs like SPY, which tracks the S&P 500 index. However, it’s important to note that SPY only provides exposure to 500 companies within the United States. This limited exposure can lead to higher volatility and may not capture the opportunities presented by other markets around the world. (Note that Japan’s 1980s bubble was arguably the biggest ever. The stock market grew larger than that of the US.)
When we examine the weighted exposure of the VWRA ETF, we find that it provides a well-balanced distribution across different sectors. As of the latest data, the fund has a weightage of approximately 25% in the technology sector, 14% in consumer discretionary, 14% in financials, 13% in industrials, and 12% in healthcare. This diverse sector allocation reduces the risk of overexposure to any single industry and provides the opportunity to participate in the growth of different sectors that drive global economic progress.
In contrast, the VWRA ETF offers a truly global portfolio. This broad diversification across regions and sectors helps to reduce overall risk and capture the potential growth of companies worldwide.
2. Low Expense Ratio
Costs play a crucial role in investment decisions, particularly for passive investors. The VWRA ETF boasts an attractive expense ratio of only 0.22% per annum. When compared to actively managed funds, which typically have higher expense ratios ranging from 0.50% to 1.50% or even more, the VWRA ETF’s 0.22% expense ratio stands out as remarkably cost-effective.
With an investment portfolio of $100,000, investing into an actively managed fund of 1.5% could cost you $1500. Whereas for VWRA, it will only cost you $220. With lower fees, you retain a more significant portion of your investment returns, enabling your gains to compound over time. Learn more about the benefits of compounding interest in my comprehensive guide.
3. Irish-Domiciled for Tax Efficiency
As a Singaporean investor, you can take advantage of the VWRA ETF’s Irish domicile. Ireland has an favourable tax treaty with Singapore, which results in a 15% withholding tax on dividends. This is significantly less than the 30% withholding tax levied on comparable US-domiciled global ETFs such as the Vanguard Total World Stock ETF (VT). A lower tax burden improves your investment’s overall tax efficiency.
However, do take note that VWRA does not offer a high dividend yield. Most investors like this ETF due to the various points mentioned above and also its capital appreciation. If you’re looking for dividends, it may be better to invest in REITs instead.
4. Accumulating Fund
The VWRA ETF operates as an accumulating fund, meaning any dividends paid by companies in the index are automatically reinvested in the ETF rather than distributed to investors.
This reinvestment has two advantages: it reduces transaction costs, allowing more funds to be reinvested, and it lowers dividend tax liabilities for investors subject to dividend taxes. If you want the dividends paid out, you may try the distributing version VWRL, instead.
Disadvantages of the VWRA ETF
The VWRA ETF is certainly exciting for long-term investors such as myself. However, it may not be suitable for all investors due to these following factors:
1. Lack of Customization: Embracing Simplicity
The VWRA ETF is passively managed, aiming to replicate the performance of the global equities market. While this approach ensures cost-effectiveness, it limits the ability to customise the holdings and potentially outperform the market. Investors must understand that their returns will align with market performance rather than exceed it.
Contrast this with actively managed funds or self-directed stock portfolios, where investors have the freedom to make individual investment decisions based on their strategies or preferences. However, it’s important to note that active management comes with its own set of challenges, including higher costs and the potential for underperformance. In fact
2. Potential Volatility of Equities: Long-term mindset
Investing in equities inherently carries volatility, and the VWRA ETF is no exception. For instance, during periods of economic uncertainty or market downturns, equity prices may experience significant drawdowns. It’s not uncommon to witness temporary declines of 20% or more in the stock market. As a result, investors with a risk-averse mindset or those seeking quick returns may find the potential volatility of equities unsettling.
However, it’s important to remember that the VWRA ETF is designed for long-term investors who can weather short-term market fluctuations. Historical data has shown that despite short-term volatility, global equities have historically delivered strong returns over the long run.
By staying invested and maintaining a disciplined approach, investors can benefit from the growth potential of the global equity market.
How to Buy the VWRA ETF as an Investor in Singapore
If you are interested in investing in the VWRA ETF from Singapore, you can utilise a brokerage that offers trading on the London Stock Exchange, such as Interactive Brokers, Moomoo and Webull. Buying from the London Stock Exchange is relatively expensive due to its high commission fees. I would advise to utilise a broker that offers comparatively lower commission fees on the LSE.
Accessing the London Stock Exchange allows you to conveniently purchase the VWRA ETF and take advantage of its global diversification and low-cost benefits.
Why Choose the VWRA ETF
In my journey as an investor, I have discovered the perfect match for my investment philosophy: the VWRA ETF. It encompasses everything I value – global diversification, cost efficiency, and long-term growth potential.
With VWRA, I can diversify beyond popular ETFs like SPY, tap into various sectors and markets, and reduce volatility. Its low expense ratio keeps more of my returns, while the accumulating fund structure maximises growth through dividend reinvestment.
While it may not cater to active traders seeking quick returns, it offers an easy and effective way for investors to benefit from market growth. If you share the same investment philosophy as me, this may be an ETF that you want to consider. While exploring the benefits of VWRA, the discussion regarding the nuances between CSPX and VOO provides further insights into the world of ETF investments.
To explore other investment options suitable for beginners in Singapore, check out this helpful resource on the best investment options for beginners in Singapore.
VWRA vs IWDA: A Comparative Analysis
Understanding the Core Differences
While both VWRA (Vanguard FTSE All-World UCITS ETF) and IWDA (iShares Core MSCI World UCITS ETF) are popular exchange-traded funds that capture the essence of global diversification.
Even though both indices are labeled as ‘world’ indices, it would be a misconception to assume that they provide identical exposure.
Both these indices follow a market capitalization weighting system and primarily concentrate on mid to large-cap stocks.
WRA is designed to track the FTSE All-World Index, encompassing both developed and emerging markets. This broader exposure includes companies from a wide range of economies worldwide. The FTSE All-World Index encompasses approximately 90-95% of the world’s investable market capitalization, while the MSCI World Index is confined to 23 developed markets.
On the other hand, IWDA focuses solely on developed markets, offering exposure to large and mid-cap stocks in those economies. The FTSE All-World index tracks roughly 4080 constituents across 49 countries, whereas the MSCI World index consists of only about 1542 constituents spanning 23 countries (excluding China).
This distinction implies that the FTSE All-World index provides exposure to both developed and emerging markets. Historically, emerging markets typically entail higher risks for potentially comparable performance, although they might surpass developed markets in exceptional instances. Their geographical allocation significantly aligns due to their reliance on market cap weighting, as the majority of the largest companies are situated in similar countries. However, the most notable distinction is that VWRA offers exposure to China, whereas IWDA do not.
Sector Allocation Comparison among VWRA, IWDA ETFs:
Apart from the distinctions in their underlying indices’ mechanisms, it’s essential to consider the slight variations in their sector allocations. This refers to the proportional exposure each ETF provides across various industry sectors, which can significantly impact their performance based on market cycles and investor sentiments.
Here’s a breakdown of the sector allocations for VWRA, IWDA ETF:
These percentages represent the exposure of each ETF across various sectors, showcasing the slight differences in their emphasis on different industries. For instance, the Information Technology sector holds a slightly higher percentage in VWRA compared to IWDA.
Such differences in sector allocations can impact the performance of these ETFs in differing market conditions and during shifts in investor sentiment.
One fact of Irish domiciled ETFs lies in their dividend handling, providing the option of accumulating dividends.
In the realm of Irish domiciled ETFs, you’ll frequently encounter two types: accumulating and distributing. The accumulating variant automatically reinvests dividends for fund holders, while the distributing type disburses dividends to the holders.
US domiciled ETFs, by legal mandate, must distribute all dividends, necessitating investors to manually reinvest the dividends they receive.
A notable detail about the VWRA, IWDA ETFs is that they all fall under the category of accumulating ETFs. This means they automatically reinvest dividends, offering potential benefits in long-term wealth accumulation.
Consideration for Singaporean Investors
In the context of investors based in Singapore, both VWRA and IWDA can be accessed through platforms that allow trading on major exchanges like the London Stock Exchange. Singaporean investors can evaluate their investment goals, tax implications, and global exposure preferences to determine which ETF aligns best with their financial strategy.
In my view, when considering between VWRA and IWDA, the decision primarily hinges on an investor’s personal preferences, risk tolerance, and long-term financial goals.
For investors looking to broaden their portfolio across a more extensive global spectrum, VWRA could be the preferable choice due to its inclusion of both established and emerging markets. On the other hand, those particularly interested in concentrating on established economies might find IWDA more aligned with their investment strategy.
It’s important to evaluate these ETFs not just based on their technicalities, but also by aligning them with one’s personal investment objectives and risk appetite. The right choice between VWRA and IWDA would ultimately be the one that best complements an investor’s individual financial strategy and goals.
Maximize Your Wealth with the VWRA ETF
Are you ready to supercharge your wealth-building journey? The VWRA ETF is your ticket to unlocking a world of financial opportunities. Here’s how investing in this powerhouse ETF can benefit you:
- Long-Term Prosperity: By investing in the VWRA ETF, you’re planting the seeds for long-term financial prosperity. Enjoy the potential for significant wealth growth over the years as your investments compound and ride the waves of global economic progress.
- Stress-Free Investing: Say goodbye to the stress of micromanaging your investments. The VWRA ETF’s passive strategy means you can set it and forget it, allowing you to focus on what truly matters in your life.
- Cost-Efficiency: Every dollar counts. With the VWRA ETF’s low expense ratio, you keep more of your hard-earned money. Watch your wealth grow faster as you minimize fees and maximize returns.
- Global Opportunities: Don’t limit your investments to one market or sector. With the VWRA ETF, you gain exposure to a world of opportunities, from tech giants in the United States to emerging markets across the globe. Diversify your portfolio effortlessly.
- Tax Advantage: Benefit from the VWRA ETF’s Irish domicile, which means lower withholding taxes on dividends compared to US-domiciled funds. Keep more of your earnings working for you.
- Automatic Growth: The VWRA ETF’s accumulating fund structure reinvests dividends automatically, compounding your returns and saving you on transaction costs. Watch your wealth grow without lifting a finger.
If you’re ready to take control of your financial future, consider the VWRA ETF. It’s your passport to a brighter, wealthier tomorrow. Start investing today and maximize your wealth-building potential with this exceptional ETF.
For personalised investment advice tailored to your individual circumstances and goals, it is advisable to consult with a financial advisor before making any investment decisions.
FAQs (Frequently Asked Questions)
How does the VWRA ETF compare to actively managed funds in terms of performance
The VWRA ETF aims to replicate the performance of the FTSE All World Index, providing investors with broad exposure to global equity markets. While actively managed funds rely on fund managers’ decisions, the VWRA ETF follows a passive strategy, seeking to match the performance of the underlying index. Over the long term, the VWRA ETF’s performance may closely track the market, often with lower fees compared to actively managed funds.
Can I invest in the VWRA ETF through my brokerage account in Singapore
Yes, the VWRA ETF can be purchased through brokerage accounts that offer trading on the London Stock Exchange, such as Interactive Brokers, Webull and Moomoo. Singapore investors can access international markets and invest in the VWRA ETF, allowing them to benefit from global diversification and long-term growth potential.
What is the minimum investment required for the VWRA ETF?
The minimum investment required for the VWRA ETF may vary depending on the specific brokerage or platform you choose. It is advisable to check with your brokerage or financial institution for their specific requirements. However, in general, the VWRA ETF is known for its accessibility and may have a relatively low minimum investment requirement compared to other investment options.
Does the VWRA ETF pay dividends?
Yes, the VWRA ETF pays dividends. However, it is important to note that the VWRA ETF follows an accumulating fund structure. This means that instead of distributing dividends to investors, the fund automatically reinvests them back into the ETF. By reinvesting dividends, the VWRA ETF aims to enhance long-term growth potential and minimize transactional costs.
Is the VWRA ETF suitable for retirement savings?
The VWRA ETF can be a suitable investment option for retirement savings due to its global diversification, low expense ratio, and long-term growth potential. However, it is crucial to consider individual risk tolerance, investment goals, and consult with a financial advisor to determine if the VWRA ETF aligns with your specific retirement savings strategy.
What is the difference between VWRA and IWDA Singapore?
The main difference between VWRA and IWDA lies in their index composition and geographic coverage. VWRA provides exposure to a broader range of companies and includes emerging markets, making it a more globally diversified option. IWDA, on the other hand, focuses on developed markets and offers a more concentrated exposure to those economies. Your choice between the two will depend on your specific investment goals and preferences for geographic diversification.
What is the difference between VWRD and VWRA?
Both VWRD and VWRA track the same FTSE All-World Index, providing exposure to the global equity market. The key difference lies in how they handle dividends: VWRD pays them out in cash, while VWRA reinvests them. Your choice between the two will depend on your preference for receiving cash dividends or benefiting from dividend reinvestment. Additionally, consider any tax implications based on your country of residence.
Is VWRA a good investment?
VWRA is often compared to actively managed funds and other ETFs. It distinguishes itself with its low expense ratio, global diversification, and tax efficiency. It may be particularly appealing to long-term investors seeking a cost-effective way to invest in global equities.