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Straits Times Index ETF generated 8.4% annualised returns over past 10 years

The Straits Times Index (SGX:^STI) is tracked by two Exchange Traded Funds (ETFs) – the SPDR® STI ETF (SGX:ES3) and the NIKKO AM Singapore STI ETF (SGX:G3B). The SPDR® STI ETF has been listed since April 2002 and the NIKKO AM Singapore STI ETF has been listed since February 2009.

Impact of Dividends  

Over the ten year period ending February 2014, the STI generated a 64.7% price return without dividends. This meant that before dividends the annualised price return of the Index over the 10 year period was 5.1%.

As noted above, the SPDR® STI ETF has been available to investors since 2002. Without dividends, over the ten years ending Feb 2014 the SPDR® STI ETF gained 63.9% in Net Asset Value. Including dividends, the 10 year return came to 123.56%. This meant that over the past 10 years, with dividends included, the SPDR® STI ETF returned 8.4% on an annualised basis.

Note that both ETFs have been available to investors for the last five years – with only a 0.4% differential in annualised performance for both ETFs.

ETFs & Net Asset Value

 An ETF is like a mutual fund that in these two cases, track the performance of the STI. Listed on Singapore Exchange (SGX), units in the ETFs can be bought and sold by investors like a stock listed on an exchange.

By owning units of an ETF that tracks the STI, the investor is able to get the diversification of the STI – in that there are 30 different stocks, representing 14 different sectors. There is also as much revenue attributed to outside of Singapore as there is within Singapore. Many of the STI constituents produce goods or services that have been in the region for a long time. For instance, the Straits Times Newspaper, produced by SPH was first published on 15 July 1845. The current size of these 30 businesses means that they make up more than half of the total market capitalisation of all stocks listed on SGX.

ETFs are also designed to minimize commissions and expense ratios compared to an average mutual fund. The main cost from an ETF arises from total expense ratio and brokerage commissions when buying or selling an ETF. The total expense ratio of the SPDR® STI ETF is of 0.30% per annum and, for the last financial year, was 0.39% for the NIKKO AM Singapore STI ETF. Hence, the ETF can be more economical than paying a Fund Management fee to maintain a stock portfolio that resembles the constituents and weightings of the STI.

Net Asset Value (NAV) reflects the value of the ETF unit owned by the Investor. ETF NAV is determined at the daily close of trading of all market(s) that ETF is invested in, with the process typically explained in the Trust Deed of the Prospectus. NAV per unit represents fair value or the basis for the ETF market price. The ETF market price can deviate from NAV per unit, as price will be determined by investor sentiment, affecting supply and demand for the units.

Different Unit Sizes

 The two ETFs have different board sizes and thus maintain different minimum transaction requirements. At a price of S$3.10, the minimum investment in the SPDR® STI ETF will equate to S$3,100 excluding broker commission and transaction fee. At a price of S$3.10, the minimum investment in the NIKKO AM Singapore STI ETF will equate to S$310 (excluding broker commission and transaction fee).

RSS Plans and ETFs

 OCBC and DBS Group have recently introduced new regular shares savings (RSS) plans, which are similar to the Phillips Share Builders Plan. RSS Plans allow investors to convert their savings into investments automatically, on a monthly basis. The key advantage of the

RSS Plan is dollar cost averaging meaning investors determine the dollar amount to be invested regularly rather than the number of shares – this means investors will purchase more units at lower prices and purchase fewer units at high prices, creating dollar cost averaging.

Besides stocks, all three institutions include one of the two aforementioned ETFs that track the STI. The Phillips Share Builders Plan allows investors to invest in the SPDR® STI ETF.

The RSS plans offered by OCBC and DBS Group include the Nikko AM Singapore STI ETF as a counter available for trading.

EIP Classification

 In 2012, the Monetary Authority of Singapore (MAS) introduced new rules requiring retail investors to complete Customer Assessment Reviews (CARs) with their financial intermediaries before investing in products classified as Specified Investment Products (SIPs).

MAS later allowed certain products, notably ETFs that met certain criteria, to be exempt from the SIP classification and be reclassified as Excluded Investment Products (EIPs). Thus, like ordinary stocks, EIPs can be bought and sold by retail investors without needing to complete a CAR. Both the Nikko AM Singapore STI ETF and SPDR® STI ETF are now categorised as EIPs.

STI Stocks

 The current 30 stocks of the STI, different sectors, Index weightings and annualized ten year returns (where relevant) are detailed in the table below.

Name SGX Code % Index Weight Mkt Cap S$B Total Return YTD % Total Return 12M % Dvd Ind Yld % ICB Subsector Name
DBS Group Holdings Ltd D05 10.6 39 -7.4 4.9 3.7 Banks
Singapore Telecommunications Ltd Z74 9.9 56 -3.8 2.3 4.8 Mobile Telecommunications
Oversea-Chinese Banking Corp Ltd O39 9.7 32 -8.5 -6.1 3.6 Banks
United Overseas Bank Ltd U11 9.4 32 -3.0 6.8 3.4 Banks
Jardine Matheson Holdings Ltd J36 6.7 38 8.0 -11.8 2.5 Diversified Industrials
Keppel Corp Ltd BN4 5.8 19 -5.5 -0.8 3.8 Oil Equipment & Services
Jardine Strategic Holdings Ltd J37 3.6 37 3.0 -16.6 0.8 Diversified Industrials
Hongkong Land Holdings Ltd H78 3.5 14 5.9 -9.3 2.9 Real Estate Holding & Development
Genting Singapore PLC G13 3.0 16 -12.0 -9.0 0.8 Recreational Services
Global Logistic Properties Ltd MC0 3.0 12 -9.3 1.4 1.5 Real Estate Holding & Development
Wilmar International Ltd F34 2.8 22 0.3 2.9 2.3 Food Products
CapitaLand Ltd C31 2.7 12 -9.6 -20.2 2.9 Real Estate Holding & Development
Singapore Press Holdings Ltd T39 2.5 7 0.0 2.5 3.7 Publishing
Thai Beverage PCL Y92 2.3 16 15.7 4.9 2.5 Brewers
Singapore Technologies Engineering Ltd S63 2.2 12 -5.8 -6.2 1.9 Aerospace
Singapore Exchange Ltd S68 2.2 7 -7.0 -8.9 4.2 Investment Services
City Developments Ltd C09 2.1 9 -2.0 -12.6 0.9 Real Estate Holding & Development
Singapore Airlines Ltd C6L 2.0 12 -2.1 -2.6 2.6 Airlines
CapitaMall Trust C38U 1.9 7 0.6 -6.2 5.7 Retail REITs
Sembcorp Industries Ltd U96 1.8 9 -4.6 5.0 2.9 Oil Equipment & Services
Jardine Cycle & Carriage Ltd C07 1.6 15 20.3 -13.9 3.2 Specialty Retailers
Noble Group Ltd N21 1.6 7 -0.5 -7.5 1.1 Diversified Industrials
Hutchison Port Holdings Trust NS8U 1.5 6 -1.7 -17.9 9.1 Transportation Services
ComfortDelGro Corp Ltd C52 1.5 4 -3.2 5.3 3.6 Travel & Tourism
Golden Agri-Resources Ltd E5H 1.4 7 3.7 -1.4 1.9 Farming & Fishing
Sembcorp Marine Ltd S51 1.3 8 -10.3 -7.8 3.0 Oil Equipment & Services
Olam International Ltd O32 1.2 5 45.3 31.6 1.8 Food Products
StarHub Ltd CC3 0.9 7 -5.8 0.7 5.0 Mobile Telecommunications
CapitaMalls Asia Ltd JS8 0.9 7 -13.0 -17.4 2.1 Real Estate Holding & Development
SIA Engineering Co Ltd S59 0.4 5 -3.6 6.5 4.5 Transportation Services

Source: Bloomberg (Data as of 24 March 2014)

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