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Index Tracker For The Masses

Singapore skyline 1Recently, the SPDR Straits Times Index Exchange Traded Fund (SGX: ES3), or STI ETF, that tracks the Straits Times Index (SGX: ^STI), was reclassified as an Excluded Investment Product (EIP).

Previously, the STI ETF was classified as a Specified Investment Product (SIP) and investors looking to invest in the ETF had to undertake Customer Knowledge Assessment with their brokers to show that he or she has the relevant knowledge or experience to invest in such shares. Before the move, many lamented that classifying the STI ETF as an SIP is unnecessary given the low risk of the ETF.

By buying the ETF, investors are getting exposure to all 30 stocks in the STI, instantly diversifying their portfolios. The STI ETF, just like the STI, consists of companies such as DBS Group Holdings Limited (SGX: D05), Singapore Exchange Limited and CapitaLand Limited (SGX: C31). Around 46% of the ETF is invested in the Financial sector and DBS Group is the largest holding in the ETF, at 10.6% of the overall fund.

The return on investment of the ETF, inclusive of dividends, for the past ten years has been 10.2% per annum. This means that investors have doubled their money around 7 years, according to the Rule of 72.

Investors can also purchase the ETF through Central Provident Fund Investment Scheme (CPFIS). Incidentally, STI ETF is the only Singapore-equity ETF that is permissible to buy through CPFIS. The only other ETF that is available through the scheme is ABF Singapore Bond Index Fund (SGX: A35).

The STI ETF has one of the lowest expense ratios among locally-listed ETF at 0.3%. This means that the cost to the investor is very low, as compared to unit trusts which could charge as much as 2%..

According to the STI ETF website, the historical price-to-earnings ratio is currently 12.9. The price-to-book ratio is at 1.42 and the distribution yield (or dividend yield) is 2.7%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.