2021 has been a bad year for my portfolio because I started betting on China Tech when things were going downhill, without fully comprehending how intense the domestic crackdown would be. Thus, the initial declines, which I thought were bargains, balloon into huge paper losses. Thankfully, I also hedged my bets on the S&P 500, which has not disappointed so far. Bought Vanguard’s VOO in September. The S&P 500 is a stock market index tracking 500 of the biggest companies in the US. For passive ETF investors, buying into funds that track this index is often considered one of the safest bets to grow one’s portfolio. It’s also something billionaire investor Warren Buffett’s had advised, at least this once:
The major ETF players each offer popular S&P 500 products: State Street’s SPY, Vanguard’s VOO, and Blackrock’s IVV. While past performance shouldn’t be an indicator for future performance, these products have delivered consistently over the decades. If you’ve faith that the US will continue to be home to the best companies in the world, then these ETFs are something to consider whenever there’s a market correction.
Ireland domiciled ETF counterparts
I also tabled below the London exchange counterparts of these US S&P 500 ETFs. That’s because non-US investors of these ETFs are subject to a 30% withholding tax for dividends earned. One solution for passive Singapore investors is to buy US ETFs that are Ireland domiciled. These are ETFs products that are registered in Dublin, Ireland and hold onto a basket of US equities. Some of these ETFs are listed on the London Stock Exchange (LSE), an exchange that is accessible for many foreign investors.
The US and Ireland have a tax treaty, where dividends withheld from Irish-domiciled US ETFs are at 15% instead of 30%. Irish-domiciled US ETFs are also insulated from US estate tax. Between Singapore and Ireland, there is a tax treaty that allows investors here keep dividends from US ETFs domiciled in Ireland. For Singapore investors, this means if you bought US ETFs that are Ireland domiciled, you would make 50% savings on withholding tax.
State Street Global Advisor S&P 500 ETF
|Net asset (as of Jan. 3, 2022)||US$374.03B||US$6.5B|
Vanguard S&P 500 ETF
|Net asset (as of Jan. 3, 2022)||$753.41B||US$32.5B|
Blackrock S&P 500 ETF
|Net asset (as of Jan. 3, 2022)||US$305.29B||US$47.45B|
Undervalued China Tech
US stocks had a good run in 2021, but the upcoming Fed tapering could pose challenges to the S&P 500 performance. China Tech, on the other hand, could present good value and potential for gains, after the Chinese government emphasized that economic ‘stability’ is utmost for the new year.
With regards to concerns of delisting of Chinese firms on US stock markets, there is little substance to those fears, as far as I can tell. If delisted, the stocks can be traded on OTC (over-the-counter) market or relisted elsewhere, in Hong Kong, for example. In any case, if that were to happen, it could be 3 to 10 years into the future. So I don’t see the US pressure as an impact for the time being, other than spooking investors.
Standard disclaimer: Please treat my ramblings as financial education and entertainment. It’s not investing recommendations.