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An Investor’s Guide to the Straits Times Index

The Straits Times Index (SGX:^STI) measures the value of 30 of the biggest stocks listed in Singapore. These include some of Singapore’s biggest businesses such as the three locally incorporated banks, Singapore Telecommunications Ltd (SGX:Z74) and Keppel Corporation (SGX:BN4). Like the Dow Jones Index or Nikkei 225 index, the STI is often referred to as a stock market benchmark or bellwether. Today the index opened at a level of 3413, which is 48 points higher than the end of 2014 level of 3365.

 The STI is designed to change over time, not just in value, but in its 30 stock constituents. This way the Index is poised to adapt to include new businesses that become eligible for inclusion and remove those that do not meet the specified criteria. Hence, the index remains a representation of the largest active stocks on the exchange. Just as the Index composition was different in 2005; it could look different in 2025. One key point however, is that the Index remains investable through Exchange Traded Funds (ETFs). 

SGX lists two ETFs that track the STI through investing in the appropriately weighed constituents. Should there be a change in constituents; the ETF units held by investors will remain unchanged. Hence the underlying strategy behind these ETFs is to be invested in the biggest and most active stocks in Singapore, whichever those names may be.

Composition

The impact that each stock has upon the Index depends on its net market capitalisation. According to Index providers, FTSE Group, net market capitialisation is the company’s free float weighted shares multiplied by its current trading price. Hence each stock does not have a 3.33% equal weightage on the Index, rather it is varied. For instance, DBS Group Holdings Ltd (SGX:D05) has a larger impact on the Index with a 12% weightage than CapitaLand Ltd (SGX:C31) with a 3.1% weightage.

 Nevertheless with diversification objectives, investors may choose to be equally weighed to a selection of STI stocks in their own portfolios rather than emulate the weightages in their portfolio. This advent is even more so in recent years, with the two STI ETFs providing returns based on the weighted index performance.

 Diversity

The 30 STI stocks represent five different sectors and 19 different industries. This is based on the Global Industry Classification Standard (GICS®).

 There was enough variability in the five basic STI sectors last year to see a significant different performance across the four quarter’s best performing sectors (+29%) and least performing sectors (-13%). The balance in performances and weighting saw the STI generate a dividend inclusive 9% return over the year. 

And unlike other benchmarks of the region, Index diversity not only extends to the different business streams of the 30 constituent stocks, but the geographical revenue reach of the 30 constituents. Much of Singapore’s economic internationality extends to the STI with recent annual reporting suggesting approximately half their revenue associated with the 30 stocks is reported to come from outside Singapore. 

Quarterly Review 

The composition of STI is reviewed every three months and there are five stocks on the STI reserve list which will be used when a constituent of the STI is removed during the period up to the review. The five STI Reserve List stocks are Keppel Land Ltd (SGX:K17), UOL Group Ltd (SGX:U14), CapitaCommercial Trust (SGX:C61U), Suntec REIT and Yangzijiang Shipbuilding Holdings Ltd (SGX:BS6). Over the past few years Neptune Orient Lines SGX:N03), Fraser & Neave and CapitaMalls Asia (SGX:JS8) have left the STI, while Hutchison Port Holdings, Thai Beverage Public Company Ltd (SGX:Y92) and Ascendas Real Estate Investment Trust (SGX:A17U) have joined the STI. 

The current constituents are tabled below, with their respective full market capitalisation, industry and dividend yields.

Company Name SGX Code Industry Mkt Cap S$B Dvd Yld % Price vs. 12 month High in % Price vs. 12 month Low in %
Singapore Telecommunications Z74 Diversified Telecommunication Services 67.7 3.9 -0.9 21.3
DBS Group Holdings D05 Banks 49.7 2.9 -3.0 25.8
Oversea-Chinese Banking Corporation O39 Banks 41.6 3.4 -1.9 12.2
United Overseas Bank U11 Banks 36.7 3.3 -7.4 11.1
Jardine Strategic Holdings J37 Industrial Conglomerates 28.7 0.8 -9.7 6.4
Jardine Matheson Holdings J36 Industrial Conglomerates 28.7 2.3 -7.3 10.4
Hongkong Land Holdings H78 Real Estate Management and Development 24.3 2.5 -9.9 21.4
Wilmar International F34 Food Products 20.4 2.4 -9.9 9.3
Thai Beverage Public Company Y92 Beverages 19.1 3.4 -1.3 32.2
Keppel Corporation BN4 Industrial Conglomerates 16.1 5.4 -21.0 11.9
CapitaLand C31 Real Estate Management and Development 15.0 2.6 -5.1 28.5
Jardine Cycle & Carriage C07 Distributors 14.6 2.9 -16.3 6.5
Singapore Airlines C6L Airlines 14.2 1.7 -5.9 27.0
Global Logistic Properties MC0 Real Estate Management and Development 12.4 1.8 -13.5 7.1
Genting Singapore PLC G13 Hotels, Restaurants and Leisure 11.4 1.1 -30.8 4.4
Singapore Technologies Engineering S63 Aerospace and Defense 10.7 4.4 -14.0 9.6
City Developments C09 Real Estate Management and Development 9.2 1.6 -9.8 10.3
Hutchison Port Holdings Trust NS8U Transportation Infrastructure 8.4 7.6 -7.9 12.0
Singapore Exchange S68 Diversified Financial Services 8.4 3.6 -5.9 16.3
Sembcorp Industries U96 Industrial Conglomerates 7.7 5.1 -23.3 5.9
CapitaMall Trust C38U Real Estate Investment Trusts (REITs) 7.4 5.0 -4.9 14.7
StarHub CC3 Wireless Telecommunication Services 7.2 4.8 -5.4 4.2
Singapore Press Holdings T39 Media 6.7 5.1 -4.6 2.2
ComfortDelGro Corporation C52 Road and Rail 6.3 2.8 -9.5 52.9
Ascendas Real Estate Investment Trust A17U Real Estate Investment Trusts (REITs) 6.3 5.6 -1.1 20.9
Sembcorp Marine S51 Machinery 6.1 4.4 -29.3 3.2
UOL Group U14 Real Estate Management and Development 5.9 2.0 -5.6 24.6
Noble Group N21 Trading Companies and Distributors 5.9 1.1 -40.9 3.6
Golden Agri-Resources E5H Food Products 5.1 0.9 -35.0 1.3
SIA Engineering Company S59 Transportation Infrastructure 4.5 5.0 -22.3 2.3

  Source: SGX StockFacts

  Simple Index Mechanics

 Once upon a time the Index would have been trading at a base price of 1000. As an educative example on how an Index can move, assume that just one of the index stocks moved in the ensuing session.  The impact on the Index would be determined by two things – the size of that’s stock move and the index weightage that the stock. Hence if the stock gained 5% over the session and the stock represents 10% of the index weightage – the Index would move five points to 1005. The five points was calculated by multiplying the 5% move by the 10% weightage which equates to half a percent – which applied to a base price of 1000 is five points.

 STI ETFs

 As noted above there are two ETFs that track the STI.  The SPDR® Straits Times Index ETF and Nikko AM Singapore STI ETF pay dividends and trade in board lot sizes of 100 units. From its inception in April 2002 to the end of February 2015, the SPDR® Straits Times Index ETF has generated an annualised gain of 8.6% .  From its inception in February 2009 to the end of February 2015, the Nikko AM Singapore STI ETF has generated an annualised return of 15.8%.  Accompanying these returns was market risk and the key caveat that past performance is not indicative of future performance.

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