Compare four index choices by what they hold and how concentrated each one is.
You can own three or four index funds and still have most of your money in one place, because two funds with different labels can hold many of the same companies. Most investors in Singapore meet four index types: world, US, emerging market and the Straits Times Index. Knowing what each one holds tells you what it adds to a portfolio, and when it adds very little.
Grace, Farhan's colleague, holds three funds. She bought a world equity ETF because a finance video recommended one, a US index ETF because American tech companies had done well, and an STI ETF because her father always said to buy what you know. She believed she was spread across the world. When she lined up the three factsheets, she found she was mostly in the US, with a large slice of Singapore banks on the side.
Lesson 2.1, "What an index is and how it decides weights", showed that the word "world" means different things depending on the index. A developed world index covers large and mid-sized companies in developed markets. MSCI World is an example. An all-world index covers the same ground and adds emerging markets. MSCI ACWI and FTSE All-World are examples.
Both kinds are weighted by market value, which means bigger markets and bigger companies get bigger weights, so both lean towards the biggest markets. The US is by far the largest single country in either kind, at well over half of the index. Japan, the UK and a handful of European markets come next, at much smaller weights. Singapore is included at well under 1%. Check the exact country weights on the index provider's factsheet.
For most investors, an all-world index is the closest thing to holding the whole share market in one fund. A developed world index plus a separate emerging market fund reaches a similar result using two funds.
A US index holds large US companies only. The S&P 500 is an example. US indexes are popular, and US shares have had strong returns over long periods. A world index already holds those same US companies at a large weight, so adding a US fund on top of a world fund raises your US weight further and adds little that is new.
To work out your combined US weight, multiply the share of your money in the world fund by the world fund's US weight, then add the full share of your money in the US fund. In a made-up example, your world fund has 60% in the US. You put 80% of your share money into the world fund and 20% into a US fund. That gives 80% times 60% = 48%, plus the full 20%, for a total US weight of 68%.
Grace raised her US weight in exactly this way without meaning to. Overweighting the US can be a deliberate choice, and if it is, write down your reason. Recent returns are not a sound reason to add a US fund; lesson 2.3 explains why.
Emerging market indexes cover countries such as China, India, Taiwan, Brazil and South Africa. Their economies and companies can grow quickly, and their share markets have had long periods of strong returns as well as long periods of weak ones. They also carry extra risks:
Currencies can swing sharply against the Singapore dollar. Governments can change the rules quickly, sometimes including the rules on who may own which companies. Because the index is weighted by market value, a few countries make up most of it, so emerging markets are less spread out than the name suggests.
Check the country breakdown on the factsheet before deciding how much to hold. An all-world index already includes emerging markets at their market weight. You only need a separate emerging market fund if you hold a developed-only world fund, or if you want a different emerging market weight from the market's and have written down a reason.
The Straits Times Index tracks 30 of the largest companies listed on SGX. FTSE Russell calculates it, and it is the index behind the STI ETFs that many Singaporeans start with. Thirty companies is a narrow base. The STI leans heavily towards banks and property, including REITs, and the local banks alone make up a large share. Current sector weights are on the FTSE Russell or SGX factsheet.
Holding a lot of the STI means betting heavily on a few sectors in one small economy. People like it for the familiar names, the dividends, and the absence of currency swings for an SGD investor. Against that, your job, your CPF and your home are probably already tied to Singapore, and Module 5 weighs this up. For now, treat the STI as one small regional slice with a strong sector tilt.
When you compare indexes, leave last year's returns out and look at what each one holds and how concentrated it is. For each index, record how many companies it holds, which countries carry most of the weight, which sectors dominate, and what share of the index the top ten holdings make up, taking every figure from the provider's factsheet. Then check whether your holdings overlap, and whether what you hold matches what you meant to hold. Grace's table showed her that her three funds overlapped far more than she expected. Comparing on these facts means you choose from facts rather than fund names.
Now build your table. Make one row each for a world index, a US index, an emerging market index and the STI, and fill in the number of companies, the countries with most of the weight, the dominant sectors and the top ten share from each provider's factsheet. Leave out last year's returns. When it is done, mark any index whose holdings overlap with a fund you already own, and note whether your mix matches what you meant to hold.
Using the official factsheets, put the country and sector weights of a world, a US, an emerging market and a Singapore index side by side in one table.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).