By Dawn Zeng

INVESTORS have been piling into exchange traded funds (ETFs) over the past year, with daily trading volumes surging on the back of the market rally.

The Singapore Exchange (SGX) reported that ETF turnover grew by 56 per cent from the year before to $4.6 billion last year.

There were also 20 new ETFs started last year, bringing the total to 49.

ETFs are listed on the SGX and track the performance of an index, or provide access to various asset classes such as commodities or bonds.

They make it easy and cheap to get a slice of entire indices or asset classes.

The DBS STI, launched last year, joins streetTRACKS STI as the only two ETFs that track the Straits Times Index (STI).

Their combined trading volume surged past 100 million units last year, with combined turnover in excess of $230 million.

About 335,000 units of streetTRACKS STI, managed by State Street Global Advisors, are traded each day, although volumes soared to 1.1 million in yesterday's market turmoil.

The DBS STI ETF, a relatively new entrant, has average daily volumes of around 89,000 units. Its price per unit has increased from $1.62 at its inception in February last year to $2.74 yesterday.

Investors are increasingly turning to SGX-listed ETFs and it is not hard to see their appeal given that they boast zero sales charge and low annual fees of about 0.3 per cent.

Unit trusts have sales charges as high as 6 per cent while annual management fees can run to 2 per cent of the value of the fund.

An investor need pay only brokerage and clearing fees when trading an ETF on the SGX - a mere 0.5 per cent of the sales proceeds.

Both the ETFs tracking the STI pay dividends, making them ideal for those wishing to get in on the action of the blue-chip heavy index while getting yields in the form of income.

DBS STI ETF paid a distribution of 3 cents per unit last October. It is due to declare its next dividend next month.

State Street declared a dividend of 3 cents per unit on Jan 18.

ETF distributions are primarily determined based on the dividends received from the underlying shares.

Operating expenses and the price per unit in relation to the index level are also considered in arriving at the final distribution amount.

ETFs are also ideal for asset allocation, and the DBS STI ETF has been integrated into the bank's MyHome Fund for this purpose.

DBS Asset Management director Chan Kum Kong noted that 'investor education is the key to garnering interest' for ETFs, which are still fairly new in Singapore compared with the situation in more developed markets.

Mr Chan hopes that the increased efforts undertaken by ETF issuers, the SGX, stock brokers and independent financial advisers to educate the public will 'accelerate investors' acceptance of the ETF as a simple, back-to-basics and cost-efficient instrument'.

dzeng@sph.com.sg

This article was first published in The Straits Times.