Withholding Taxes on US bonds held by Singapore Residents

There are no withholding taxes (WHT) on interest payments / bond coupons for bonds held by Singapore residents. This has been discussed extensively in the forums but there are still people who don't believe. Recently someone revealed that the source of this (mis)information is an anonymous blogger.

Reading his blog entry, it appears that he is not vested in any US bonds but is just blogging about it. I would rather hear from someone who actually invested in US Bonds whether or not he was charges WHT. User homer123 in HWZ is a long-time bond investor and has confirmed numerous times there is no WHT tax applicable.

Of course to be fair to that blogger, he has probably misunderstood the difference between US-listed bond ETF (which declares dividends) and US bonds, which pay interest.  Dividends are subject to withholding tax unless the ETF issuer goes through the hassle of reporting the income as exempt income, which they don't do. At least those that have been vested in Vanguard and iShares US-listed bond ETFs have reported this. This has also been my experience with the US-listed Vanguard short dated bond ETF VCSH which is why I shifted to LQDE. (VCSH is still a good place to park very short term US$ given the very low transaction costs)

The same applies to Irish domiciled bond ETFs like LQDE. They do not pay any withholding tax and this is clear from their financial statements.

The table below also states the position clearly:

https://www.belegger.nl/Forum/Upload/2014/7530608.pdf


The thread on WHT discussion in HWZ is here: https://forums.hardwarezone.com.sg/money-mind-210/how-buy-bonds-singapore-5278285-8.html


Read financial blogs for fun, but do not rely on them for important things like tax information. As shown in the table above, accurate information from reputable sources is available on the internet. There is no need to get the info from an anonymous blogger!

Initiate Position: WQDV

Decided to initiate a position in iShares MSCI World Quality Dividend ETF using SCB Online trading:

• Tracks the MSCI World High Dividend Index
• TER 0.38%
• AUM quite small, $22m, launched in 2017
• Distribution yield 3%+
• Top sector holdings: (1) Healthcare (2) Consumer Staples (3) Finance. 
• Good bid-offer spread of $0.01

I am totally underweight US so any increase in US exposure would go slightly to redress this imbalance. 

A look back at Unit Trusts

There was some discussion in the forum about whether there was any investment that could give a steady 6%. This prompted me to look at the latest performance of my unit trust holdings. My unit trust holdings are in FSM CPF-OA as there is no platform fee for CPF holdings. I would like to highlight the two biggest unit trusts that I hold. Both are from First State Bridge. It is no coincidence that the Fund House is the same as both are managed by my favourite fund manager Martin Lau. 













First State Regional China is one of my largest holdings and part of my strategy to overweight China as I believed in the China growth story. It has given me a decent annualised 12.55% p.a. over a 10 year period. Looking at that return, I guess it is not surprising that it turned into one of my biggest holdings. 

However, there is some volatility as the 6mth and 1 yr performance are negative. Nevertheless, I will continue to hold the fund in CPF-OA. When it comes to cash investments, I have highlighted elsewhere that FSMOne is a good platform for HKSE shares so one is no longer restricted to unit trusts for China exposure.

First State Bridge is a balanced fund that seeks to hold equities and bonds in a 50:50 ratio. It is one of my favourite funds because of its defensive qualities and ability to rebalance. Despite holding 50% bonds it has been able to deliver a very respectable an annualised 9.45%  p.a. for the last 10 years. On a risk adjusted basis, this performance might well be far more impressive that the performance of the China fund.

So it does very well in a downturn but in a charging bull market may not be able to compete with high beta products. I'm vested as part of a diversification strategy and its not my habit to go 'all in' on one single unit trust (i.e. China).  FSMOne allows free switching so I can easily vary the ratio of First State Bridge and First State China that I hold.

Concluding Thoughts

It is very easy to say unit trusts are bad. But my view is that sometimes you spend money to make money. The alternative would be for my CPF-OA to be entirely used for STI ETF which was not good from the perspective of diversification. 

I certainly feel that some unit trusts are worthy of criticism, but the keyboard warriors don't seem to want to take the time and effort to study the unit trusts and separate the good from the bad - everything is just bad to them. While the debate rages on in the internet, I just keep on holding, and check on my capital gains every year! Not as satisfying as counting dividends, but it will have to do...

Dividends: January 2019

Quiet start to Singapore dividends. January is the quarterly payment for Vanguard UK and Vanguard HK dividends.

Edit: late payments for LQDE/SDIG/SLXX/WBK added