The ETF Boom and Unit Trust Response
Exchange-traded funds have become a mainstream alternative to traditional unit trusts in Singapore, but actively managed funds are not disappearing. Data from the Singapore Exchange’s 2026 market updates show that ETF assets under management in Singapore crossed SGD 12 billion in the first quarter of 2026, driven by strong demand for low-cost global and regional index products. The full report is available at https://www.sgx.com/research-education/market-updates. At the same time, net inflows into actively managed unit trusts have stabilized, particularly in categories where local knowledge or risk management can add value. This split reflects a maturing investor base that no longer views active and passive as an either-or decision.
Lower-Cost Index-Tracking Products
The fee gap between ETFs and traditional unit trusts has narrowed but remains significant. Many Singapore-listed ETFs now charge expense ratios below 0.35%, while actively managed unit trusts often exceed 1.2%. This cost difference is a key driver for long-term investors who prioritize compounding. Digital platforms have also made ETF investing more accessible, with fractional shares and zero minimums. As a result, passive index funds now serve as the default core holding for many young Singapore investors. The trend is supported by MAS’s push for fee transparency and the removal of trailer fees on new fund purchases.
Active Funds Fight Back with Alpha in Asian Small Caps
Active managers are increasingly focusing on areas where inefficiencies remain, such as Asian small caps, frontier markets, and distressed credit. In 2026, several Singapore-domiciled active funds have outperformed their benchmarks after fees, particularly in the Asian small-cap space. Performance dispersion among active funds has widened, which means manager selection matters more than ever. According to industry data, the top quartile of Singapore active equity funds beat the benchmark by an average of 3.2 percentage points over one year, while the bottom quartile lagged by more than 4 percentage points. This dispersion supports the argument that active management can work, but only for those who can identify skilled managers.
Performance Dispersion Data
The wide gap between top and bottom quartile active funds underscores the importance of due diligence. Investors should look beyond short-term returns and assess a manager’s consistency across market cycles. Active share, or the percentage of holdings that differ from the benchmark, is a useful metric. High active share funds tend to have more divergent outcomes, which can be positive or negative depending on skill. In Singapore, funds with high active share in Asian small caps have delivered the strongest returns, while high active share in large-cap global equities has struggled to justify fees.
Investor Strategy: Blending Active and Passive
A practical approach for 2026 is a blended portfolio: use low-cost ETFs for broad market exposure and add active funds only in asset classes where manager skill can generate alpha. For example, a Singapore investor might use a global equity ETF for the core, a Singapore REIT ETF for local income, and an active Asian small-cap fund as a satellite. This limits the total fee drag while preserving upside potential. Rebalancing should be rule-based rather than emotional. Investors should also consider tax implications and liquidity differences; ETFs trade intraday on SGX, while unit trusts settle at end-of-day NAV. In a fast-moving market, this liquidity difference can matter, but for long-term accumulators, it is less important than cost and strategy fit.
