Hedge funds vs mutual funds vs ETFs: Which should I invest in?

Hedge funds vs mutual funds vs ETFs: Which should I invest in?
PHOTO: Unsplash

If you are building an investment portfolio in Singapore, hedge funds, mutual funds and Exchange-Traded Funds (ETFs) are probably some of the most common options you would have come across.

Even though these investment products share similar traits, there are also differences that may or may not resonate with your investment goals.

Want to know more? Read on because this article will reveal all that you need to know about investing in hedge funds, mutual funds, and ETFs.

Differences between investing in hedge funds, mutual funds and ETFs

These three investment options are commonly used by Singapore investors for portfolio diversification. Here's a quick glance before we take a closer look at each of them.

  Hedge funds Mutual funds ETFs
Buy/Sell Hedge fund companies/ managers Brokerage firms or Mutual fund companies/ managers On an exchange
Risk High risk Low risk Low risk
Liquidity Low. Usually come with a lock-in period Moderate but less than ETFs. Trade only once a day High. Can buy/sell any time
Availability Institutional investors and high-net-worth individuals General public General public
Level of Transparency Little to no transparency. Hedge funds do not disclose their portfolios to public Quite transparent. Holdings are reported periodically Very transparent. Most ETFs disclose their full portfolios on public websites

About hedge funds

Hedge funds are managed pooled investment funds that employ complex and aggressive strategies to deliver above-market returns for investors.

PHOTO: Unsplash

To do this, a hedge fund manager will take both short and long positions, buy and sell equities, initiate arbitrage and trade bonds, currencies, convertible securities, commodities and derivative products to generate maximum returns at reduced risk.

While investing in hedge funds promises highly lucrative potential, they are also riskier, less liquid and less regulated than mutual funds and ETFs in Singapore.

This is also the reason why they are restricted to accredited and institutional investors who can afford larger initial minimum investments and have the expertise to manage the risks associated with such investments.

About mutual funds

Like hedge funds, mutual funds are private investment options built from pooled funds from investors. The funds are managed by fund managers on behalf of the investors and they have total autonomy to decide which stocks or bonds to include in the holdings.

The upside of investing in mutual funds lies in wider exposure to shares at a lower price than direct investment. It is good for those who are unsure about where to invest and prefer to rely on the expertise of fund managers.

PHOTO: Unsplash

Investors can also expect much lower investment risk since most mutual funds will invest anywhere from 50 to 200 different securities to diversify the portfolio.

The typical disadvantages associated with mutual funds are the high fees, tax inefficiency, potential for management abuses and unavailability of intraday trading. Unlike ETFs which can be traded throughout the day, mutual funds can only be traded once per day after the market closes.

While this is not a huge problem for passive investors, it could mean there is a different order price than you expect if you place orders manually.

About ETFs

This is a form of portfolio investment in Singapore that is built out of a series of underlying assets or indices. An ETF will comprise a collection of publicly available products like stocks, bonds and commodities.

PHOTO: Unsplash

One good example is the Straits Times Index (STI) ETF which mirrors the performance of top 30 companies listed on the Singapore Exchange. The portfolio's returns will be based on the collected gains and losses in those underlying assets.

Investing in ETFs may not be as lucrative as buying an individual stock but it is a lower-risk product that may strike a chord with more risk-averse investors. It is widely used for portfolio diversification in Singapore.

Also, unlike mutual funds and hedge funds, which are strictly managed by fund managers, ETFs can be freely traded on exchanges like regular stocks. The high transparency and liquidity also made it a popular choice amongst retail investors.

Which should you invest in?

When deciding which is a better investment option for you, you must first assess your investment goals, risk appetite, funds available and how much control you want over your investment portfolio in Singapore.

If you are a seasoned investor with a healthy net worth and do not mind dabbling with lucrative but risky investments, working with a hedge fund manager may offer generous returns.

Some top hedge funds of 2023 include:

  • Bridgewater Associates - delivered a return of 20.5 per cent in 2023
  • Renaissance Technologies - delivered a return of 22.8 per cent in 2023
  • Two Sigma Investments - delivered a return of 21.7 per cent in 2023
  • 4. D.E. Shaw & Co. - delivered a return of 18.5 per cent in 2023
  • Millennium Management - delivered a return of 19.6 per cent in 2023

Mutual funds and ETFs are more suitable for low-risk investors. Between the two, mutual funds stand out in terms of variety. There is a huge number of mutual funds available for all different types of investment strategies, risk tolerance levels and asset types.

Here are some popular mutual funds you may want to consider:

  • GMO Climate Change Investment Fund Z SGD Acc
  • BNY Mellon Global Funds PLC - BNY Mellon Mobility Innovation Fund SGD K Inc Hedged
  • BNY Mellon Global Funds PLC - BNY Mellon Mobility Innovation Fund SGD K Acc Hedged
  • Baillie Gifford Worldwide Long Term Global Growth Fund Class A SGD Acc
  • AIA Regional Equity Fund

An ETF is an ideal option for those looking for low-risk and less volatile investments. It requires a low-entry budget to start investing, making it suitable for young or new investors who want to start trading but have limited funds on hand.

The top ETFs to look out for in Singapore include:

  • SPDR Straits Times Index ETF (SGX: ES3)
  • Lion-OCBC Securities Hang Seng Tech ETF (SGX: HSS)
  • SPDR Gold Shares ETF (SGX: O87)
  • Phillip Sing Income ETF (SGX: OVQ)

Guide to investing with online brokers

Ready to trade? Here's a step-by-step guide to help you get started with online brokers like Moomoo and Tiger Brokers that promise the best trading experience at the lowest trading costs.

Step one Once you have selected a broker, visit their website and follow their account opening process. You are required to provide personal information, including your name, address, contact details, and a valid form of identification.
Step two After your account is approved, you are required to fund the trading account before you will be eligible to trade. Choose from the multiple funding options, including bank transfers, credit/debit cards, or electronic payment systems.
Step three Before making any trades, research the products that you are interested in trading. Analyse market trends, study company fundamentals, monitor economic indicators and consider any relevant news or events that may impact your trades. Most online brokers offer research tools and educational resources to assist you in this process.
Step four Develop a trading strategy that aligns with your investment goals and risk tolerance. Determine factors such as entry and exit points, stop-loss levels, position sizing, and risk management techniques.
Step five Once you are ready to execute a trade, specify the product, order type and the number of shares you want to trade on the trading platform. Always double-check the details before confirming the trade.
Step six Continue to monitor market movements, track the performance of your trades and consider implementing stop-loss or take-profit orders to manage risk and secure profits. Regularly review your trades and adjust your strategy if necessary.
Step seven Most brokers provide withdrawal options similar to the funding methods. Follow the broker's instructions to initiate a withdrawal request, which will usually be processed within a specified timeframe.

ALSO READ: T-bills vs Singapore Savings Bonds vs fixed deposits vs endowment plans: Which one is right for you?

This article was first published in ValueChampion.

homepage

trending

trending
    'Overwhelming response': Less than 2,000 books left after Yale-NUS adoption drive, June 14 fair open to public
    Pop Mart's new Labubu collection, inspired by convenience store food, to launch on June 13
    'Everyone looked at us with pitiful eyes': BTS' Jimin and Jungkook share funny military experiences
    Orlando Bloom undergoes $17k treatment to remove toxic chemicals from his blood
    'You got yourself a customer for life': Woman receives surprise gifts from SIA crew to celebrate her pregnancy
    Pamper yourself on your next shopping trip with these exclusive deals
    Police take down over 1,000 malicious IP addresses in Singapore in joint operation with Interpol
    Jetstar Asia ceasing operations: Passengers scramble to seek refunds, travel plans up in limbo
    Durians for $1.95 at FairPrice annual fair this June
    Honda Freed review: Understated small MPV with plenty of plus points
    More seniors to benefit as 3 local banks recognise CPF Life payouts as income proof for credit card applications
    50% savings, bigger house: Shaun Chen shares more on why he moved family to JB

Singapore

Singapore
    • Singapore and Johor Regent Tunku Ismail to swop land plots near Botanic Gardens
    • Maids working in households with kids must have immunity against measles: MOM
    • Singaporean owner of defunct company barred from raising funds for charity after regulation breaches
    • This 'officer' never sleeps: Geylang Serai market carpark to have digital sentry to keep watch on errant motorists
    • $55k dream renovation turns into nightmare; contractor borrows money from homeowner
    • Students must be more critical, discerning: Experts weigh in on online peer-tutoring channels
    • Teen, 16, convicted of rioting with deadly weapon after attacking victim at MRT station
    • Man who sued late mum's estate gets 38% share of rent for Yishun coffee shop over two decades
    • Man returns stolen Jinro toad statue to restaurant after CCTV footage emerges
    • Singapore women's football team withdraw from Asean Women's Championship

Entertainment

Entertainment
    • Put their logo and priced it 10 times higher: Netizens upset exact copy of Enhypen's merch available cheaply on Taobao
    • 'I'm going to die at this rate': BTS' RM recalls struggling with insomnia and self-doubt during military service
    • RM and V discharged from military service, Hybe headquarters decorated for BTS' return
    • Korean conglomerate heiress to debut in new K-pop co-ed group Allday Project
    • Disney, Universal sue image creator Midjourney for copyright infringement
    • Beach Boys founder Brian Wilson dies at age 82
    • R. Kelly files motion to be released from prison, alleging his life is in danger
    • Taylor Swift obtains restraining order against man claiming he had child with her
    • BTS members Jimin and Jungkook discharged from South Korea military
    • Chris Evans disappointed he was not 'invited to the party' for Avengers: Doomsday

Lifestyle

Lifestyle
    • A taste of home: Burmese friends open cafe in Bras Basah selling authentic Myanmar cuisine
    • 'I'm doing all this from my heart': Senior volunteer on his love of helping the community for almost 30 years
    • Unable to bear children, she proposed annulment of marriage so he could start a family. He chose love
    • Jurassic World, inflatable playgrounds and more: Family-friendly events and activities this June holiday
    • Polestar 3 Long Range Dual Motor Performance Pack review: Sporty electric SUV that's big in performance and price
    • McDonald's and Tokidoki to release limited-edition collectible charms from June 12
    • Hello, oppas: South Korea's steamy musical Wild Wild is back in Singapore this June
    • 20 Father's Day 2025 deals and promotions: Dad dines free, Porsche test drive experience and more
    • More younger Singaporeans are getting Botox and collagen shots. How effective and safe are they?
    • Warning: These World Chocolate Day destinations might melt your heart (and tastebuds)

Digicult

Digicult
    • Slim, sleek, but slightly too short-lived: Samsung Galaxy S25 Edge review
    • World's best Dota 2 teams to compete for $1m prize pool in Singapore in November
    • Initiative by IMDA, AI Verify Foundation tests AI accuracy, trustworthiness in real-world scenarios
    • Under siege? Helldivers 2's latest city to be invaded by aliens could be spoof of Singapore
    • Honor 400 Series launches in Singapore with first free in-device AI image-to-video tool
    • Home Team humanoid robots to be deployed by mid-2027, $100m to be invested: Josephine Teo
    • Ado concert review: Singer without a face ignites fans while in cage with only silhouette visible
    • EU and US authorities take down malware network
    • Google Pixel 9a: The best AI-centric phone under $800 in 2025?
    • Western intelligence agencies warn spyware threat targeting Taiwan, Tibetan rights advocates

Money

Money
    • Best credit card promotions in Singapore (June 2025): Citibank, DBS, HSBC, UOB and more
    • Best bank offers in Singapore (June 2025): Blackpink Visa presale, Lilo & Stitch Hawaii vacation, up to 50% off flights and more
    • World Bank cuts global growth forecast as trade tensions heighten uncertainty
    • Queenstown 5-room loft breaks national HDB record at $1.65m
    • The biggest misconceptions about buying property in Singapore's CCR in 2025
    • 9 best personal loans in Singapore with lowest interest rates (June 2025)
    • Best fixed deposit rates in Singapore (June 2025): Minimum deposits from $500, rates up to 2.45%
    • SG60 Baby Gift: What to expect if you're expecting
    • The surprising reasons some Singaporean buyers are choosing smaller condo units (even when they can afford more)
    • 'Thank you for your hard work': Scoot gives 4.91 months of bonus, shares on TikTok

Latest

Latest
  • Trump says willing to extend trade talks deadline, but says that won't be necessary
  • Filipino families flee Northern Irish home after night of anti-immigrant violence
  • Palestinian boy who lost 9 siblings arrives in Italy for treatment
  • Ukraine brings home bodies of 1,212 soldiers killed in war with Russia
  • Taiwan cyber unit says it will not be intimidated by China bounty offer
  • Ex-CIA analyst sentenced to over 3 years for leak of classified information
  • North Korea appears to have stopped loudspeakers blasting noise, Seoul says
  • Trump met with cheers, boos at Kennedy Center as he attends Les Miserables
  • Men plead not guilty in NY to kidnapping, setting friend on fire with tequila for crypto

In Case You Missed It

In Case You Missed It
  • 2 women arrested for theft at Changi Airport transit area within an hour
  • 40 Singaporeans going on 'Single's Inferno' trips to Japan to find love, minus the cameras
  • Mum of 6 who juggles 3 jobs starts free breakfast club for children in Ang Mo Kio
  • Government official impersonation scam: Syndicate received gold bars worth $500k, cash from victims
  • Queues at VEP application centres in Singapore, JB after news of enforcement from July 1
  • Wrong food delivery: Man 'feels unsafe', calls police
  • Malaysian woman apologises to 11-year-old daughter for 'only' spending $300k on her birthday
  • Boy, 4, caught smoking under a Bangkok bridge sent to government-run shelter
  • 'I feel incredibly honoured': Drum major who dreamed of role as teen leads Singapore Police Force Band in centennial celebration
This website is best viewed using the latest versions of web browsers.