ETF Singapore Market

CSOP iEdge Southeast Asia+ TECH Index ETF (SGX:SQQ/SQU) Review

Calvin Lo

CSOP iEdge Southeast Asia+ TECH Index ETF (SGX:SQQ/SQU) is a brand new ETF that will be listed on SGX on 20 June 2023. If you’re looking to invest in Southeast Asia’s & India’s most technologically advanced and innovative companies, this ETF might be a good option for you to consider.

Overview

CSOP iEdge Southeast Asia+ TECH Index ETF trades on SGX under 2 tickers (different currencies) – SGD counter stock code: SQQ, and USD counter stock code: SQU. For ease of reference, I’ll refer to this ETF as SQQ henceforth.

CSOP asset management is actually founded in Hong Kong, and is the first offshore entity set up by a regulated Chinese asset manager. SQQ tracks the iEdge Southeast Asia+ TECH Index, created and maintained by SGX.

Index

The iEdge Southeast Asia+ TECH Index is made up of the 30 largest technology companies domiciled in Southeast Asia and Emerging Asia markets (namely India, Singapore, Indonesia, Thailand, Vietnam, Malaysia).

These companies might be listed on foreign exchanges. The index is free float market capitalisation weighted with a 10% stock cap on each individual index constituent. India-domiciled companies are also limited to a maximum weight of 50%.

As at 28 April 2023, the index has a market capitalisation of $127B and its latest 12M dividend yield is 1.86%. For context, Nasdaq 100 has total market cap of $16.9T and just Alibaba alone has a market cap of $216B. So in comparison, these 30 index constituents are still very small.

You can find more info on the index and the factsheet here.

One thing to note is that SQQ ETF uses a Representative Sampling Strategy and not a Direct Physical Replication. That means that the ETF will hold a representative sample of a portfolio of securities selected by the ETF manager using quantitative analytical models. So, there might be slightly higher risk of tracking error vs the underlying index. This might be done to reduce costs since

Holdings

The largest holdings are Sea Ltd, Astra International Tbk PT, Wipro Ltd, Grab Holdings Ltd, and Infosys Ltd. Here’s a brief description of these top 5 companies:

  • Sea Ltd (NYSE:SE): Tech conglomerate HQ in Singapore with businesses in e-commerce (Shopee), gaming (Garena), and fintech (SeaMoney).
  • Astra International Tbk PT (IDX:ASII): Indonesian conglomerate controlled by Jardine Matheson with core business in automotive and other business interests in financial services, heavy equipment and mining, agribusiness, infrastructure and logistics, and IT.
  • Wipro Ltd (NSE:WIPRO): Indian MNC providing IT, consulting and outsourcing services.
  • Grab Holdings Ltd (Nasdaq:GRAB): Tech company HQ in Singapore and Indonesia with main business of super app which provides transportation, food delivery, and digital payment services.
  • Infosys Ltd (NSE:INFY): Indian MNC providing business consulting, IT and outsourcing services.

The largest exposure by geographic revenue is Indonesia, followed (surprisingly) by the USA, then Malaysia and Singapore. Most companies are actually listed in the USA, despite being domiciled in SEA + India. The largest sector exposure is to the Electronic Components and Manufacturing sector, followed by Software and Consulting sector.

As of 28 April 2023
As of 28 April 2023
As of 28 April 2023

Performance

According to the latest performance data from CSOP as of 31 March 2023, SQQ is down -7.09% over the past 1Y, but shows promising performance over 3Y, 5Y, and 10Y annualised return. Annualized returns of 10% over the past 10Y is not too shabby, but I would hope for higher in view of the economic tailwinds of the SEA & India region. Past performance is not a guarantee of future returns, but if indeed SEA & India growth picks up in coming years, there’s potential for greater returns.

Fees

CSOP currently charges an estimated total expense ratio (TER) of 1.41%, including 0.99% of NAV in management fee (max 1.5% of NAV).

How to Buy

You can subscribe for the IPO for SQQ/SQU on the moomoo app under Accounts -> IPO -> SG.

If you don’t have an account yet, you can sign up with my Referral link.

Moomoo is also zero subscription fees and offering up to $200 cashback rewards (T&Cs apply). See offer details below:

You can also apply via Tiger Trade app under Portfolio > IPO > SG > Subscribe

Tiger Trade app

Similarly, Tiger brokers is also offering rewards of up to S$5k worth of bonus units to be won (T&Cs apply). See offer details below:

My Thoughts

SQQ might be a great way for investors to gain diversified exposure to the tech sector in Southeast Asia & India in one holding. Do note though that these companies are still very small in comparison to tech companies in the USA and China/HK, so size your positions accordingly.

The tech sector in SEA + India are still pretty much in nascent stage. Even the Indian Tech Giants (including Wipro and Infosys) are largely focused narrowly on IT consulting and outsourcing. Singapore-based investors might be familiar with Sea Ltd and Grab Holdings, which are both platform companies that connect buyers and sellers of goods and services.

Besides software and consulting, the index is also heavily skewed towards electronics components and manufacturing. If SEA + India continue to attract companies to move some of their manufacturing bases over, this might continue to grow well. Most notably, Apple has moved some of its manufacturing to India, diversifying away from China. So, other tech companies might follow suit.

I think this ETF offers a unique proposition which is currently missing in the market, that is diversified exposure to tech companies in SEA + India region. At the moment, the Nasdaq 100 index covers US tech, Europe has the STOXX Europe 600 Tech index, and China/HK has the Hang Seng TECH index.

Personally, I think that Europe and China will be facing many headwinds in coming years, mainly from aging population. SEA & India has the advantage of growing population and middle class, which would encourage consumption. However, SEA is made up of many separate countries and are still pretty much fragmented unlike the EU. India has political and corruption problems it has to work through.

That said, SEA & India do offer huge potential for growth, and where else best to tap on that growth through the tech sector. However, investors need to be very careful since the risks are still high and may want to consider mitigating that risk through other means like position sizing, in addition to the diversification offered by SQQ.

At the moment, I’m not planning to subscribe to this ETF, since I have a pretty substantial exposure to Sea Ltd (SE) which is the largest index constituent. However, this might be an interesting way for me to diversify my risk from SE, and allow me to gain broader exposure to SEA + India tech.

Disclosure: I’m long Sea Ltd (SE)

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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