Out With the Old And In With the New – The Change in the Straits Times Index

It’s official. The trio of Jardine Matheson Holdings Limited (SGX: J36)Jardine Strategic Holdings Limited (SGX: J37), and Olam International Ltd (SGX: O32) are out of Singapore’s stock market benchmark, the Straits Times Index  (SGX: ^STI), as of yesterday, 21 September 2015.

The newcomers into the benchmark are namely Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6)UOL Group Limited (SGX: U14), and SATS Ltd (SGX: S58).

With the change in the index’s constituents, its economic characteristics have also been altered. Here’s what you need to know.

The key difference

Currently, Jardine Matheson, Jardine Strategic, and Olam International have a combined market capitalisation of around S$96 billion while the three new additions to the Straits Times Index only have a combined market capitalisation of S$14 billion or so.

Although the raw market capitalisation of a company is not the only thing that determines its weight in the Straits Times Index, it is still a contributing factor.

As recently as 31 August 2015, both Jardine Matheson and Jardine Strategic were part of the Top 10 shares in the index in terms of weighting. But, none of the three newcomers are in the Straits Times Index’s Top 10 shares by weight as of yesterday. Without the two Jardine entities, other large companies in the index – like Singapore Telecommunications Limited (SGX: Z74) and the three local banks, for instance – would now have an even larger weighting in the index.

Foolish Summary

For those looking at investing into the Straits Times Index through trackers such as the SPDR STI ETF (SGX: ES3) or the Nikko AM STI ETF (SGX: G3B), the increased concentration in certain sectors (as a result of heavier weights on certain companies) might be something to be aware of.

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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 Stanley Lim doesn’t own shares in any companies mentioned.