Last Updated on 8, February 2017
Vanguard is the world’s most famous index fund provider.
Vanguard came to our office a few years ago but nothing happened after that. My problem with them is that their funds required a whopping minimum of USD 100,000 or EUR 100,000. It is impossible to construct a diversified portfolio with such a large entry level. Moreover, their funds were not on any of the platform. So, it was impossible for me or any financial advisers to do any rebalancing and switching. So I did not consider their products for a long time.
Recently I discovered that Vanguard funds entry level has dropped to USD 20,000! It seems this was so for a year already. I really wonder why there was no advertisement nor announcement to financial advisers about this. Vanguard is well known for its low-cost index funds. Perhaps due to their low cost, they could not afford to advertise.
So why are Vanguard funds so well known? There are two main reasons.
The first reason is because they are simple funds. No shorting, putting and futures. These funds are invested into a large basket of stocks weighted at the same percentage as the index it is trying to follow. Similarly, for bond funds.
The second reason is because it outperforms majority of the active managed fund. This has to do with its indexing strategy. Vanguard funds are passive funds. They just follow the index. Empirical evidence has shown that majority of active managed funds underperform the index on the long-run. Hence, if you can ‘invest’ in the index, you do better than majority. Of course, it is not possible to invest in the index. But you can invest in a fund that tries to mimic the index. Due to the Vanguard’s super low cost structure, their performances are extremely close with the indices.
I just randomly picked three Vanguard funds to demonstrate how low cost these funds are:
| Name | Expense Ratio | Typical Expense ratio of others |
|---|---|---|
| Vanguard Global Bond Index Fund | 0.15% | 0.6% - 2% |
| Vanguard US 500 Stock Index | 0.10% | 1% - 2% |
| Vanguard Global Stock Index Fund | 0.25% | 1% - 2.5% |
You may have fainted for a while after seeing how low cost these funds are. I am glad you are continuing reading after you fainted!
Performance of Vanguard funds against its peers
I decided to generate a table of performance to measure Vanguard funds against its peers. These funds are all available in Singapore. I will be using just 3 Vanguard funds for this illustration.
The first fund I want to use is the Vanguard Global Stock Index Fund. I generated a performance table which can be view HERE. This table requires some explanation. The table contain a list of similar funds. Their returns for 1 month, 3 months, 6 months, 1 year, 3 years, 5 years and 10 years are shown. Normally we only focus on the mid-term performance namely 3 to 5 years return because short-term returns tend to be ‘noisy’. Long-term performance may not be meaningful as the historical returns reflect skills of fund managers who may have already resigned.
For each historical period, there are two sub-columns labelled as “%” and “Qtl” representing accumulative returns and quartile ranking. The accumulative return is in Singapore dollar with dividends reinvested net of taxes.
When a fund is ranked 1, it means the fund is within the top 25% of all the funds being compared. A ranking of 4 means the fund is at the bottom 25%. To make the reading more presentable, blue highlight means rank 1 and pink color means rank 4.
The table is also sorted by the 3 years return.
It can be seen that the Vanguard Global Stock Index is on the 1st quartile for 3 and 5 years period. Considering there is no superstar fund manager managing the fund, this kind of performance is just amazing.
Let’s look at Vanguard Global Bond Index Fund. The entire performance table can be view HERE. This fund is the 1st quartile for 3 and 5 years return. Not only that, it is the 2nd highest performing fund compared to its peers!
Let’s look at Vanguard US 500 Stock Index. The entire performance table can be view HERE. Once again, it can be see that the fund is ranked 1st quartile for 3 and 5 years periods. Interesting, almost all the 1st quartile funds are index funds. For those who are sharp eye will notice that many of these index funds did better than the index itself – which is mathematically an impossibility. So how could this happen if it is mathematically not possible to have any alpha in a passive fund? This probably require another blog for another day.
By the way, my investment clients can view a daily update on the funds ranking similar to what was shown above but across more regions and asset classes at this link: HERE.
Before anyone jump into the pool to purchase the Vanguard funds, I am required to produce the following disclaimer for the purpose of compliance since I am a financial adviser and that specific products were mentioned.
Disclaimer: Past performance of the Funds and any past performance, prediction, projection or forecast on the economy or markets are not necessarily indicative of the future or likely performance of the Funds.
Update 8 Feb 2017: The minimum investment amount has been lowered to US$1000!! The minimum amount for Regular Saving Plan is also lowered to US$100!! Faint!!
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Vanguard S’pore still only dealing with AIs and institutional investors only, no retail investors.
For small time individuals, your best bet is still Vanguard ETFs on London Stock Exchange. I personally prefer the Vanguard ETFs on NYSE, both for the indices as well as much lower expense ratios. But you’ll be whacked with 30% withholding tax for dividends plus the whopping foreigner estate tax if you die before you or your family can repatriate the funds back to S’pore.
For the LSE ETFs, the expense ratio for the S&P500 one is 0.07% and the All-World one is 0.25% (much more expensive than the ETF on NYSE!!!)
Not much selection for Vanguard bond ETFs on LSE. They got a USD Corporate Bond ETF which is based on Barclays Global Aggregate Corporate bond index. This one expense ratio is 0.12%. Also much higher than Vanguard bond ETFs on NYSE. But at least no 30% withholding tax, haha.
Note that the Vanguard ETFs listed on LSE are domiciled in Ireland, so their dividends from US holdings are still taxed at 15% (at the fund level) – still better than buying the NYSE ETF where the individual gets hit with 30% WHT on the gross dividend from the ETF (even if the ETF owns all its holdings outside the US). Another issue with the Vanguard ETFs listed on LSE is their poor liquidity. However, its getting better and I also expect that fees will come down as their size grows.
a more detailed presentation of the issues can be found here:
https://www.bogleheads.org/wiki/Nonresident_alien_with_no_US_tax_treaty_%26_Irish_ETFs
BTW beware of ETNs and synthetic ETFs. They all rely on derivatives & hence counterparty risk. In worse case scenario your investment in them can be wiped out or take a big haircut.
With Deutsche Bank facing credit crunch and market confidence issues, investors in X-trackers should take note. Article below contains link to Excel file listing X-trackers which are synthetic.
http://thecrux.com/warning-these-ticking-time-bombs-may-be-in-your-portfolio-right-now/
As a retail investor, is there any way we can buy into the Vanguard SG products and ETFs?
You can buy ETF on the stock exchange.
Not the STI ETF though, but S&P 500, ASX etc?
ETFs can be purchase through a stock brokerage house as these are listed securities.
Samuel, you need to ask precise & concise questions:
1. Can I buy Vanguard index funds marketed by Vanguard Singapore office?
– Yes if you are accredited investor or institutional investor. Give the S’pore office a call to clarify.
2. Can I buy Vanguard ETFs?
– Yes but only on foreign stock exchanges as SGX doesn’t carry any Vanguard ETFs for retail trading. You need to know the laws & regulations of the foreign jurisdictions (mainly taxes).
FAs aren’t going to earn anything advising or talking to you about Vanguard, unless you’re an AI or represent an institution. Hence they aren’t enticed to talk so much if at all.
Vanguard SG does not sell directly to individuals. I made inquiries and got a black and white reply from them on this. Hope xyz can produce some proof if he still maintains that Vanguard SG sells to individuals – let me know who in Vanguard SG I can call to open an individual account?
I confirm individuals residing in Singapore can buy Vanguard funds. You have to open an account with a financial adviser. Note that you have to be an Accredited Investor.
S’pore mkt too small for Vanguard to justify licensing, compliance & mkting costs to sell to individuals. Their approach in S’pore is similar to DFA funds (whose performance are even better than Vanguard’s) that is, go thru an FA. And for FAs to make it worth their time, it has to be for substantial amount to invest/manage.
Is there any FA in Singapore who is accredited by DFA to sell their funds here? I’ve been asking around to no avail.
Dimensional has local incorporated office in Singapore. You can google for contact. It has same level of MAS license as Vanguard here i.e. it can only market & sell its products to institutions & accredited investors. DFA is famous for not dealing directly with individuals, only institutions. Unless you have a few hundred millions of USD to invest then you can setup a family office & talk to DFA as an institution.
There are a few FAs in S’pore that have partnered with Dimensional SG to sell their funds to accredited investors. Best to contact Dimensional office to get the latest list of FAs.
The only way for retail investors to invest in DFA funds is indirectly thru a UOB unit trust that is exclusively marketed by a particular FA. Not attractive to me though.
The problem with all these funds having to be sold via FAs is the additional costs involved. No matter how good the funds are — if the FA fees are expensive, then the total expenses will hurt whatever good performance there is.
You may also consider buying Vanguard ETFs listed in Hong Kong Stock Exchange if you have access.
Vanguard offers 5 ETFs covering AP ex Japan, Japan, Europe and US. Given the broad regional diversification, these few ETFs are good enough for building a core equity portfolio.
The total expense ratio ranges from 0.18% to 0.35%. That’s slightly higher than its equivalent ETFs listed in US (but the trend is declining TER; Vanguard cut it once last year). The advantage of buying through HK is that, unlike US, HK doesn’t impose withholding tax on dividend. There is no foreigner estate tax too.
Below is the link to Vanguard Hong Kong official site:
https://www.vanguard.com.hk/portal/mvc/investments/all-products
There was an earlier comment about poor liquidity for Vanguard ETFs listed in LSE. Although the turnover in HK is also relatively low, it has never been an issue for me. HK Stock Exchange imposes market making obligation on all ETFs. The technical details can be found below:
https://www.hkex.com.hk/eng/prod/secprod/etf/SMM_Information.htm
Cost consideration besides brokerage fee, stamp duty etc:
1) the spread between the bid and ask price: my experience is typically around 0.6%
2) premium or discount over the ETF net asset value: usually it fluctuates around +/- 1% depending on market condition. The historical premium/ discount information can be found in Vanguard website
3) exchange rate loss – a one time loss when converting SGD to HKD, and another loss when converting back to SGD when you liquidate your investment many years later (since I assume it’s for long-term investment)
Forgot to mention that Vanguard ETFs in Hong Kong could be bought in multiple of 100 units. Based on market current price that is about HKD2,000 (~ SGD400) for minimum purchase amount, which is quite affordable for most retail investors who wants to apply a dollar cost average strategy.
However do watch out that since many brokerage firms impose minimum charge, individual retail investors need to work out the right balance between minimizing brokerage fee and being able to cost average over more transactions.
Next best bet for Vanguard ETFs if you don’t want to actively buy on HKSE or LSE is through robo-advisories that are opening for business in SG. Good for people starting out as most don’t have minimum investment amount criteria and don’t charge trading commissions for buy/sell/re-balancing. They do charge ongoing fees though, around 0.5% to 0.8% per annum depending on total investment size.
The only thing is that selection of specific ETFs are done by them in terms of low expense ratios, liquidity, tax efficiency, tracking errors, bid-ask spread etc. Some will be Vanguard ETFs; others may be from SPDR, iShares, etc.
All the robo-advisories most probably using similar algorithm: principles developed by Markowitz, Fama, French, modern portfolio theory, efficient frontier for portfolio construction, etc. And if using US-based ETFs, to also implement tax-loss harvesting during re-balancing, minimization of trading costs during re-balancing by new money dynamic allocations whenever possible, etc.
Could you advise how I can purchase Vanguard ETFs from Singapore please? You mentioned in your post that the minimum sum has reduced to US1000 and RSP to US100. How & where to buy as individual please?
I’m referring to the mutual fund, not ETF. The Vanguard funds are only available for Accredited Investors.
Hi,
So Vanguard mutual funds are now available at a minimum sum of $1000? Can one buy vanguard mutual fund as an individual investor in Singapore?
Yes its US$1000 for individuals who are accredited investors.
Hi, then how does the AI reach out to Vanguard? they don’t leave any email address or contact no on their site. Does it mean that no non-AI can invest in any of their solutions? Thank you.
Has to go through a financial adviser.