You will compare three ETFs on the same index and choose one with written reasons.
By now Farhan has a page of scribbled notes: a TER here, a tracking difference there, a spread he checked at lunch and another at 9pm, and a tax rate from a prospectus. Each lesson in this module gave him one measure. On their own they point in different directions. Fund A has the lowest TER, Fund B the best tracking among the Irish funds, and Fund C undercuts B on fees. He needs them side by side, with one number at the bottom that tells him what each fund would cost him.
This exercise builds that page. It takes about half an hour for three funds once you know where to look, and the sheet you make is the one you will update at every yearly review in module 8.
Pick three ETFs that track the same index, or very similar indexes, for one line of your index map from lesson 2.4. Give each fund a row and set up these columns:
TER, from the factsheet Average tracking difference, from lesson 3.2's method Domicile, from the prospectus Dividend tax that reaches you, from lesson 3.3 Fund size, from the factsheet Typical spread, from two checks at different times Listing and currency, the exchange and currency line you would trade
Add a column for the date you checked and a final column for the all-in yearly cost.
Use the fund manager's own factsheet, prospectus and annual report, and your broker's fee page. Comparison websites and forum posts are fine for finding candidates, but they are often out of date, and a sheet built on someone else's copy of a number cannot be checked later. Write the date beside every figure. A TER from two years ago is a guess about today.
This is the column that decides. Use your own investment pattern: your expected average balance in the fund over the next year, and the purchases you plan to make. The estimate has five parts. The tracking difference applied to your balance covers the TER and the costs and taxes inside the fund. Any dividend tax taken when the fund pays you, applied to the yield, is the second part. The other three are commission on your planned trades, currency conversion on new money, and half the spread on each purchase.
Here is Farhan's version, with all fund figures made-up. He expects an average balance of S$50,000 and plans twelve purchases of S$1,000. His broker charges a made-up S$5 per trade, and converting to US dollars costs a made-up 0.3%.
Fund A is US-domiciled with a TER of 0.07%, an average tracking difference of minus 0.05 points and a typical spread of 0.02%. Its made-up dividend yield is 2%, and 30% of the dividends it pays him is withheld. Tracking costs S$25, dividend tax S$300, commission S$60, conversion S$36 and spread about S$1.20. Total: about S$422 a year, or 0.84% of his balance.
Fund B is Ireland-domiciled with a TER of 0.20%, an average tracking difference of minus 0.12 points and a typical spread of 0.05%. The fund-level dividend tax is already inside its tracking difference. Tracking costs S$60, commission S$60, conversion S$36 and spread S$3. Total: about S$159, or 0.32%.
Fund C is Ireland-domiciled with a TER of 0.15%, an average tracking difference of minus 0.25 points and a typical spread of 0.30%. It is also a small fund that has not grown in five years. Tracking costs S$125, commission S$60, conversion S$36 and spread S$18. Total: about S$239, or 0.48%.
The fund with the lowest TER comes last, because of the dividend tax. The fund with the highest TER comes first. That is the whole point of the exercise.
These estimates are rough. A dividend yield changes, and tracking difference is an average of the past. They are still good enough to rank funds, which is all you need them for.
Add one line under the table for any US-domiciled fund. US-domiciled funds can be exposed to US estate tax for non-US investors, and the course Investing in US and global markets from Singapore covers how it works and what to check. For this sheet, a note that the exposure exists is enough.
Then write your decision. Farhan's runs to five sentences: "I will use Fund B for the share part of my plan. Its estimated all-in cost is about 0.32% a year on my balance, the lowest of the three. Fund A's low TER is outweighed by the 30% tax on its dividends, and it carries US estate tax exposure. Fund C tracks worse and is small enough that it could close. I will recheck all three at my yearly review."
Notice the reasons. Each one points to a number on the sheet, not to a feeling or a recommendation. Your own decision should read the same way, and if your three funds come out very close, say so and name the factor that broke the tie.
Complete the ETF comparison sheet for three funds and write a five-sentence decision naming the one you would use and the deciding factors.
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