Keeping Score of the STI

In the year thus far, the Straits Times Index (SGX:^STI) has generated a total return of 6.8%. This brings the average annualised total return of the Index to 10.1% over the past three years.

The year-to-date return of the STI was similar to that of the Dow Jones Industrial Average which generated a total return of 6.0% in Singapore dollar terms. In addition, the risk associated with the STI, as gauged through volatility, was not as high as the Dow Jones over the time frame. The 180-day annualised volatility of the STI was only three-quarters that of the volatility of the Dow Jones.

Longer term, investable STI products have generated similar returns, with the 5-year average annualised return of the Nikko AM STI ETF (SGX:G3B) and the SPDR STI ETF (SGX:ES3) at 6.9%. The 10-year average annualised return of the SPDR STI ETF, which was launched in 2002, is at 8.3%.

Risk and Return Perspectives

To an investor, the performance of benchmark indices and their associated investable products are all relative. However, rather than being relative to another index, such as the Dow Jones Industrial Average, these returns are generally more relative to their investment goals.

Ask any investor for a half time report on the markets and it will not be long until you can ascertain where their goal posts are, and how many goals they have attempted to score. These goals very much depend on an individual investor’s objectives, risk tolerance and timing. Just as a game can clearly change before full time, past performances cannot guarantee future investment returns. Hence, investors should set realistic investment goals based on their personal tolerance to risk.

Investors with relatively low tolerance that wish to minimise administration, timing risk and gradually build broad market exposure, might kick off with a Regular Shares Savings Plan (RSSP). A RSSP invests a fixed dollar amount into a STI ETF and/or blue-chip stock on a fixed day every month. When the STI falls in price, this RSSP investor will be accumulating more units than the previous month, and vice versa. In the meantime, this investor could be receiving some of the net income of the stock or index through dividends.

On another side of the field, an investor with a higher risk tolerance might be less selective on stock plays, widening the field to occasional cyclical, defensive and small-cap plays in addition to throwing in some Specified Investment Products (SIPs). These SIPs could include Structured Put Warrants on the STI or MSCI Singapore Index futures to provide some protection to their portfolio in the advent of downside risk. Hence the way that this kind of investor keeps score of the market will be different to the way an RSSP investor keeps score.

Nevertheless, the STI does provide a benchmark for performance that can bring together the RSSP investor and the investor who accepts more risk. The RSSP investor will target a lower return than the STI on the benefit of not making a one-off lump sum investment, while the risk-tolerant investor will aim for higher returns because of the work undertaken in portfolio management and greater risk taken.

Recent STI Performance

As noted above, the STI generated a total return of 6.8% in the year thus far bringing its average annualised total return to 10.1% over the past three years. The 6.8% total return represents the weighted index return and the average year to date total return of the 30 stocks is higher at 7.8%. In generating the average return, there were 17 constituents that generated positive returns and 13 constituents that generated negative returns. Going back longer to a three year timeframe, reveals 26 constituents that generated positive returns and four constituents that generated negative total returns. The table of the 30 constituents is detailed below.

Note that over these three years, Ascendas REIT (SGX:A17U), Thai Beverage (SGX:Y92), Hutchison Port Holdings Trust (SGX:NS8U) have joined the STI. This is because the index providers also have a goal of ensuring the index is represented by the largest capitalised and most liquid securities of the Singapore stock market. This is one key aspect of index management that aims to keep the game going for both risk-averse and risk-tolerant investors.

Name SGX Code Market Cap S$ B Px Chg Pct YTD % Total Return YTD  % Total Return:Y-3 % Total Return:Y-3 annualised %
OLAM INTERNATIONAL O32 5.9 56.4 56.4 13.0 4.2
THAI BEVERAGE PCL Y92 18.5 35.2 39.1 217.6 46.9
NOBLE GROUP N21 9.4 29.9 31.1 5.6 1.8
COMFORTDELGRO CORP C52 5.3 21.9 26.1 107.2 27.5
JARDINE CYCLE & CARRIAGE C07 15.4 20.4 24.0 29.8 9.1
HONGKONG LAND HOLDINGS H78 20.9 17.2 20.4 66.3 18.5
JARDINE MATHESON HLDGS J36 52.7 15.7 18.4 39.4 11.7
JARDINE STRATEGIC HLDGS J37 50.3 11.9 12.7 41.9 12.4
DBS GROUP HOLDINGS D05 45.2 8.3 12.0 74.4 20.4
HUTCHISON PORT HOLDINGS TR-U NS8U 7.6 2.4 10.6 43.5 12.8
UNITED OVERSEAS BANK U11 36.3 6.5 10.2 48.2 14.0
CAPITALAND C31 13.8 6.6 9.3 40.0 11.9
ASCENDAS REAL ESTATE INV TRT A17U 5.4 3.6 7.0 30.2 9.2
CAPITAMALL TRUST C38U 6.6 0.0 4.2 19.9 6.2
SINGAPORE PRESS HOLDINGS T39 6.7 1.7 3.4 39.8 11.8
CITY DEVELOPMENTS C09 8.7 1.4 2.5 4.2 1.4
OVERSEA-CHINESE BANKING CORP O39 38.1 -1.9 1.7 37.6 11.2
SINGAPORE EXCHANGE S68 7.8 -0.1 1.0 23.3 7.2
STARHUB CC3 7.1 -4.0 -0.4 68.6 19.0
SINGAPORE AIRLINES C6L 11.6 -4.2 -0.8 -2.0 -0.7
SEMBCORP INDUSTRIES U96 9.3 -5.5 -1.6 67.7 18.8
KEPPEL CORP BN4 19.0 -5.7 -2.0 51.8 14.9
SINGAPORE TECH ENGINEERING S63 11.4 -7.1 -3.1 41.8 12.3
GLOBAL LOGISTIC PROPERTIES L MC0 13.5 -4.8 -3.3 73.6 20.2
SIA ENGINEERING CO S59 5.2 -7.7 -4.4 38.9 11.6
GOLDEN AGRI-RESOURCES E5H 6.5 -6.4 -5.6 -13.7 -4.8
WILMAR INTERNATIONAL F34 20.0 -9.1 -7.0 -35.2 -13.5
SEMBCORP MARINE S51 7.9 -16.2 -13.4 24.3 7.5
GENTING SINGAPORE PLC G13 14.0 -23.1 -22.5 -26.9 -9.9

Source: Bloomberg (data as of 26 September 2014) – please note total return based on reinvested dividends that have gone ex-dividend in the 2014 year to date.

Exchange Traded Funds (ETFs)

Exchange Traded Funds are open-ended investment funds listed and traded on a stock exchange. They aim to track the performance of an index and offer investors access to a wide variety of markets and asset classes. Singapore Exchange offers two ETFs that attempt to track the performance of the Straits Times Index – SPDR® STI ETF and Nikko AM Singapore STI ETF, representing the top 30 stocks from as many as 14 different sectors under the Industry Classification Benchmark, with a majority of them generating international revenues. As such, investing in ETFs allows investors to enjoy exposure to a diversified portfolio in a single transaction, with minimum investment. For more information on ETFs, please click here.

Regular Shares Savings (RSS) plans

RSS plans provide investors affordable access to ETF and blue-chip investments with as little as $100 per month, on a regular basis. The key advantage of the RSS plans is dollar cost averaging – this means investors will purchase more units at lower prices and purchase fewer units at high prices, over time the price paid for the portfolio of shares will be averaged over the different months.

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