Lion-OCBC Securities Singapore Low Carbon ETF: More than what its name says

Singapore has brought forward its carbon emissions reduction timeline in this year’s budget speech, aiming to attain net-zero emissions by 2050 rather than the second half of the century. Carbon taxes, which were originally set at S$5 per tonne in 2019 will be gradually increased to S$50 to S$80 per tonne by 2030. This goal is substantially higher than the S$10 and S$15 per tonne targets outlined in the 2018 budget, raising the question of whether we should position our portfolio to benefit from the long-term goal of net-zero carbon emissions.

Today, I’ll show you a simple way to partake in Singapore’s decarbonisation journey: the Lion-OCBC Securities Singapore Low Carbon ETF. Before you decide on anything, let me explain what this ETF is all about and how it may provide a unique proposition for us investors (not only because of its low carbon metric but due to its unique portfolio holdings).

What is Lion-OCBC Securities Singapore Low Carbon ETF?

The Lion-OCBC Securities Singapore Low Carbon ETF will be tracking the iEdge-OCBC Singapore Low Carbon Index Select 50 Capped Index. You may have heard of this index, which OCBC and SGX just launched to capitalise on the global sustainability trend.

This index will track the top 50 Singapore companies, with an emphasis on carbon emissions reduction. The top 50 companies are selected by market capitalisation hence this ETF is reflective of Singapore’s real and financial economy. By removing companies with heavy involvement in fossil fuels, this ETF would provide an excellent opportunity for investors to reduce the carbon footprint of their investment portfolios.

The infographic above provides a good overview if you’re curious about how the index selects its constituents. In a nutshell, any company based or established in Singapore is eligible to be in the index. Yes, this includes companies like Flex Ltd (NASDAQ: FLEX) and Sea Ltd (NYSE: SE). Aside from that, these companies must have their carbon intensity statistics published on Sustainalytics or they will not be considered. All in all, the top 50 companies would be chosen to be part of the index, based on Free Float Market Capitalisation.

As at 31 March 2022, the portfolio consists of a mixture of Singapore and overseas listed stocks. There are 43 Singapore-listed companies among the 50 stocks, 4 US-listed companies, and 3 Hong Kong-listed companies. When compared to the other two broad-based indexes, the Straits Times Index and the MSCI Singapore Free Gross Return Index, the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index offers more diversification not only geographically, but also in terms of number of holdings, with over 50 constituents compared to the STI Index’s 30 and the MSCI Singapore Free Gross Return Index’s 20.

For its portfolio constituents, the index’s top 10 holdings as at 31 March 2022 are as shown below

Constituent name	Weightage
United Overseas Bank Limited (Singapore)	7.2%
Oversea Chinese Banking Corporation Limited	7.1%
DBS Group Holdings Limited	7.1%
Singapore Telecommunications Limited	7.1%
Sea Limited	5.5%
Flex Limited	4.7%
CapitaLand Integrated Commercial Trust	4.7%
Singapore Exchange Limited	4.4%
Keppel Corporation Limited	3.8%
Wilmar International Limited	3.6%
Total weightage	55.1%

Source: SGX Index Edge as of 31 March 2022

Table will be revised when the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index is rebalanced.

As you can see, there are several interesting names that aren’t generally seen in the broad-based STI ETF. Being an ETF that focuses on low carbon emissions and one that allows the entry of Singapore domiciled companies listed overseas, we see more technology companies like Flex Ltd, an electronics manufacturing company (NASDAQ: FLEX) and locally listed NetLink (SGX: CJLU) in the ETF. Aside from that, retail favourites like Sheng Siong Group (SGX: OV8) are also included in this ETF.

Who is this ETF for?

One of the goals for investors of this ETF is to reduce the carbon footprint of their investment portfolios. However, this is not a means to an end, as most investors may also want to capture the performance of Singapore’s growth potential in their portfolio.

Given the unique position of the Lion-OCBC Securities Singapore Low Carbon ETF, the index it tracks has outperformed the other two broad-based indexes over a 3-year, 5-year and 10-year time horizon from March 2011 to March 2022.

The key difference between Lion-OCBC Securities Singapore Low Carbon ETF and broad-based ETFs

By now, you’ve probably noticed that I’ve been comparing this ETF to our local broad-based ETFs, which I believe are good contenders. Let’s look at why this ETF could be one of the choices among the broad-based Singapore ETFs: SDPR STI ETF and Nikko AM Singapore STI ETF.

First and foremost, the Lion-OCBC Securities Singapore Low Carbon ETF tracks the top 50 companies (including REITs and Business Trusts) based on carbon intensity, followed by Free-Float Market Capitalisation. Hence, you would notice that its holdings resemble that of the broad-based ETFs currently in the market. Our three local banks, DBS, UOB, and OCBC, as well as different Singapore REIT holdings, are familiar appearances.

Apart from that, the Lion-OCBC Securities Singapore Low Carbon ETF differs from its peers in that the constituents are capped. Mega cap stocks (those with a market capitalisation of USD 200 billion or more) will be capped at 10%, while the rest of the constituents will be capped at 7%. As a result, the Lion-OCBC Securities Singapore Low Carbon ETF has a substantially lower exposure to the finance sector. Instead, more emphasis is placed on the technology sector, which is understandable considering that this is the sector that is at the forefront of cutting carbon emissions. Aside from that, real estate is one of the other sectors with a higher weightage.

Here is another side-by-side comparison of the key financial ratios.

	iEdge-OCBC Singapore Low Carbon Index Select 50 Capped Index*	MSCI Singapore Free Gross Return Index*	Straits Times Index
Number of Stocks	50	20	30
Dividend Yield	2.87%	2.42%	2.92%
PE Ratio	24.16	20.46	13.92

Source: SGX Index Edge as of 31 March 2022

*MSCI Singapore Free Gross Return Index’s weights are proxied through the holdings of iShares MSCI Singapore ETF. All information for the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index prior to its launch is back tested. Back tested performance of the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index reflects hypothetical historical performance of the Index. Past performance is not necessarily indicative of future performance. The iEdge-OCBC Singapore Low Carbon Select 50 Capped Index was launched on 14 March 2022.

	Lion – OCBC Securities Singapore Low Carbon ETF	SPDR STI ETF	Nikko AM Singapore STI ETF
Total Expense Ratio (%)	0.45%	0.30%	0.30%
Listing Date	28 Apr 2022	17 Apr 2002	24 Feb 2009
Trading Currency	SGD and USD	SGD	SGD

Source: Lion Global Investors as of 31 March 2022 (Lion-OCBC Securities Singapore Low Carbon ETF), State Street Global Advisors and Nikko AM as of 31 Mar 2022 (SPDR STI ETF)

In general, the three indexes provide a comparable dividend yield. Although as observed in the iEdge-OCBC Singapore Low Carbon Index Select 50 Capped Index, its PE ratio, is probably higher due to the increased weightage into technology equities which are typically accorded higher premium due to their growth potential.

In my opinion, the 0.45% total expense ratio seems reasonable too, given the ETF’s inclusion of foreign-listed shares, which are normally more costly.

Finally, for investors that trade in the US market and don’t want to constantly switch back and forth between SGD and USD, Lion – OCBC Securities Singapore Low Carbon ETF provides dual currency support.

How to buy?

If you believe this ETF is for you, how can you go about buying it? At the moment, there are two ways you can go about doing it.

During Initial Offer Period (IOP):

Between 11 April 2022 to 22 April 2022, investors interested in this ETF can subscribe to the ETF via OCBC ATM or Internet Banking, just like how you would do when you are subscribing to an IPO.

Alternatively, you can place your order through one of the participating dealers, such as OCBC Securities, Tiger Brokers, Futu Singapore, UOB Kay Hian, CGS-CIMB Securities, Phillip Securities, or iFAST Financial. (this list is not exhaustive)

After Listing:

From 28 April 2022 onwards, you’ll be able to purchase this ETF on the secondary market through any broker that serves the Singapore market. Aside from that, you may look into OCBC’s Blue Chip Investment Plan, or for those who invest with SRS, this could be another option for your consideration when they are available at a later time.

With OCBC Securities Share Financing, get up to 200% of your original IOP subscription with your Lion-OCBC Securities Singapore Low Carbon ETF shares pledged as collateral. That means for every S$100 worth of subscription to the ETF during the IOP, you will now only need S$50 cash up front. Interest rate for financing this ETF is as low as 2.8% for a minimum of 14 days or until the shares are credited to your Share Financing account, whichever is longer.

Terms & conditions apply.

For more information, call your Trading Representative from OCBC Securities or visit OCBC’s website

Concluding thoughts

The Lion-OCBC Securities Singapore Low Carbon ETF is a lot more than its name implies. Apart from allowing investors to position their portfolios to take advantage of future trends, this ETF, with its unique selling feature, is a strong competitor against the Singapore broad-based indices. Apart from that, this ETF could provide diversification for investors by shifting away from the typical financial sector, which dominates our broad-based ETFs, something which is worth considering moving forward.

For more information on Lion-OCBC Securities Singapore Low Carbon ETF, visit www.iocbc.com/sglowcarbon.

This article is sponsored by OCBC but the views belong to the author. It should not be taken as investment advice.

Disclaimers

Trading in capital market products, and borrowing to finance the trading transactions (including but not limited to leveraged trading or gearing) can be very risky, and you may lose all or more than the amount invested or deposited. Where necessary, please seek advice from an independent financial adviser regarding the suitability of any trade or investment product taking into account your investment objectives, financial situation or particular needs before making a commitment to trade or purchase the investment product. You should consider carefully and exercise caution in making any trading decision whether or not you have received advice from any financial adviser. If you choose not to seek independent financial advice, please consider whether the trade or product in question is suitable for you. You should also read the relevant prospectus and/or profile statement (a copy of which may be obtained from the relevant fund manager or any of its approved distributors), prior to any trading or investment decision. In relation to collective investment schemes, the value of the units and the income accruing therefrom, if any, may rise or fall. For funds that are listed on an approved exchange, investors are not allowed to redeem their units in those funds with the manager, save except under certain specified conditions. The listing of the units of those funds on any approved exchange does not guarantee a liquid market for the units.

This ETF is subjected to the following principal risks including but not limited to market and credit risk, foreign exchange risk, liquidity risks and product specific risks relating to the ETF. Some or all of the risks may adversely affect the Fund’s Net Asset Value, yield, total return and/or its ability to achieve its investment objective. You should note the risk factors associated with investing in the ETF. The statements in the prospectus are intended to be summaries of some of these risks. They are by no means exhaustive and they do not offer advice on the suitability of investing in the ETF. You should read the prospectus and carefully consider the risk factors described together with all of the other information included in the prospectus before deciding whether to invest in the ETF.

All views expressed here belong to and are independent opinions of Dr Wealth and are for information purposes only. They do not take into account the specific objectives, financial situation or particular needs of any particular person. You should not make any decisions without independently verifying or assessing the contents. OCBC Securities Private Limited (“OCBC Securities”) does not endorse and makes no representation or warranty whatsoever in respect of any view expressed here and shall not be responsible for any loss or damage whatsoever arising, directly or indirectly, howsoever as a result of any person acting on any view expressed here.

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