STI ETF: A Simple Way to Invest in Singapore’s Top 30 Companies
Investing In Singapore’s Economy
While at work (or even in school), you might have heard the term ‘STI ETF‘ being thrown around by your friends who invest.
Or your colleagues over lunch.
If you’re wondering what it is and why you should even care.
This article should give you a better idea as to what exactly is the Straits Time Index (STI) Exchange Traded Fund (ETF).
Why you should consider it as part of your investment portfolio.
And how to invest in it.
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.
TL;DR: STI ETF Guide
Click to Teleport
- What Is An STI ETF?
- Why Should You Consider Investing in an STI ETF?
- Why You Should Not Invest in the STI ETF
- STI Past Performance
- How Do I Buy STI ETFs?
So… What Is An STI ETF?
In order to understand what an STI ETF is.
I’ll need to break it down into two parts.
Straits Times Index (STI)
The STI is an index which consists of the 30 largest and most liquid companies listed in Singapore.
These companies come from a mix of different industries and sectors, and they serve as a proxy for most of the Singapore market.
Some examples include:
- Singapore Airlines.
Fun fact: the STI is actually used as the ‘benchmark index’ for other funds to peg themselves to.
For example, a fund is said to be performing better than the market if you ‘outperform the index’ and vice versa.
Exchange-Traded Fund (ETF)
An ETF is an investment that tracks the performance of an underlying index.
It is passively managed because it just buys into a myriad of companies based on whatever allocation the index is tracking.
Since the allocation is pretty much fixed by the index, you pay lower management fees as compared to a mutual fund, where a fund manager has to actively pick stocks to beat the market.
By investing in an ETF, you can access a range of companies within the ETF instead of trying to pick individual companies.
Think of it as buying a combo meal at McDonald’s.
By paying a set price, you’ll get the burger, fries, and drink all in.
Without having to go through the hassle of picking each item individually.
The fact that it is traded on the exchange (aka Stock Market) means that it has high liquidity (read: lots of buyers and sellers), which is a good thing for investors.
Straits Time Index Exchange-Traded Fund (STI ETF)
Therefore, an STI ETF is basically an Exchange-Traded Fund (ETF) which tracks the Straits Times Index:
Arguably, it was designed for passive investors who’re just getting started on their investment journey, as it is a straightforward way to diversify your investment portfolio at a low cost.
Now, let’s take a look at why and how you can look to STI ETFs as a way to get started on your investment journey.
Why Should You Consider Investing in an STI ETF?
If you don’t want to pick and invest in individual stocks on the Singapore market.
The next best thing is probably to buy the entire market instead.
And in order to do so, you’d have to buy an ETF which tracks the Straits Times Index (STI).
STI Index Components
Here’s a look at what are the top 30 companies (aka constituents) tracked in the STI:
|Straits Times Index (STI) Constituent||Last Traded Price||STI Weight (%)||Market Cap (S$)||Net Market Cap (S$)|
|DBS GROUP HOLDINGS|
|OVERSEA-CHINESE BANKING CORP|
|UNITED OVERSEAS BANK|
|JARDINE MATHESON HLDGS LTD|
|CAPITALAND INTEGRATED COMM TR|
|CAPITALAND ASCENDAS REIT|
|MAPLETREE PANASIA COM TRUST|
|MAPLETREE LOGISTICS TRUST|
|SINGAPORE TECH ENGINEERING|
|HONGKONG LAND HOLDINGS LIMITED|
|MAPLETREE INDUSTRIAL TRUST|
|YANGZIJIANG SHIPBLDG HLDGS|
|THAI BEVERAGE PUBLIC CO|
|JARDINE CYCLE & CARRIAGE LTD|
|FRASERS LOGISTICS & COMMERCIAL TRUST|
|DFI RETAIL GROUP HOLDINGS|
Source: SGinvestors.io | Information is accurate as of 26 July 2023
But before we go further, why buy an STI ETF?
Reason 1: These Are Local Companies You See Every Day
The best investments to make are ideally in companies which you know well.
And preferably, have regular interaction with them so you know how their businesses are doing.
Think about it.
You wouldn’t buy a TV from a brand unless you’ve personally enjoyed watching TVs from the same brand.
Or you’ve seen how it works at a friend’s place, and they have given raving reviews about the picture quality.
Or either you know what the brand does and how they make their TVs.
If we were to draw a parallel to companies on the STI ETF:
- DBS Bank: a bank which you probably have your first savings account with and deal with almost every day
- CapitaLand Limited: a real estate company which owns the shopping malls you visit on your way back from the office or school to get groceries and dinner
- Singtel: a telecommunications company which provides mobile data and home broadband plans to most Singaporeans.
Reason 2: These Companies Have a Regional Presence
You know how Singaporeans are always known to be highly competitive and ambitious (read: kiasu)?
The same applies to many Singapore companies.
Which are doing well locally but are also doing business outside of Singapore.
In fact, some of them are drivers in the growth stories of neighbouring countries like Indonesia and Malaysia.
Take CapitaLand Limited, for example.
The company has overseas investments and properties which contribute revenue back to the HQ in Singapore.
Reason 3: Diversified Across Many Industries and Sectors
If you look at the STI, many people may argue that it is heavily focused on the banking and finance sector.
While that is true.
It is important to note that Singapore’s market is also balanced out by companies from other sectors like entertainment, telecommunications, real estate and many more.
Why You Should Not Invest in the STI ETF
Here are some reasons why you should not invest in the STI ETF to consider.
1. Country Concentration Risk: Too Much of Your Portfolio Might be Concentrated in Singapore
Investing solely in stocks listed in Singapore makes the STI ETF highly vulnerable to any changes in Singapore’s economic or political conditions. If Singapore’s investment appeal diminishes, these stocks may underperform compared to stocks listed in other countries.
This risk extends beyond your investment portfolio as well as most of our jobs, property, and Central Provident Fund (CPF) monies are all based in Singapore. Having too much of your income and your assets concentrated in only one country could prove risky.
2. Volatility Risk
The price of the STI ETF is subject to significant fluctuations, akin to other stocks. During a stock market crash, the volatility can be exceptionally high, requiring investors to be prepared for potential price swings when investing in the STI ETF.
For context, here are some risk statistics of the SPDR STI ETF (ES3.SI):
The one that I look at more is the standard deviation.
The standard deviation of a stock’s returns represents the Chinese concept of “risk” well. Standard deviation measures the deviation of a stock’s returns from its expected returns.
In this case, if a stock performs well in the market above its expected or historical mean, the standard deviation of the stock increases.
Hence, there is a greater opportunity for investors to benefit from the above-expected results.
Of course, “danger” also lies in the sense that the performance of the stock can be much worse than what is expected.
As the SPDR STI ETF’s standard deviation is about 13.5, you can expect swings of +13.5% and -13.5%.
3. Tracking Error
The STI ETF may not perfectly mirror its underlying index in terms of price and returns. This deviation, referred to as tracking error, arises from factors such as bid and ask spread, transaction costs, and the liquidity of the underlying stocks.
What is STI Performance: STI Historical Data, STI Dividends and More
Similar to other forms of investment, past performance does not guarantee future returns!
But just to get an idea of what kind of returns you might be able to get.
Here’s a look at the respective STI ETFs’ past performance.
Note: “Benchmark” is the STI. So you should be looking at the figures under “Fund”. The figures between both funds differ slightly as the constituents they track differ slightly as well. To find out more, you’ll want to read the prospectus available on their websites to understand why there’s a difference.
SPDR Straits Times Index ETF: SPDR STI ETF (SGX: ES3) Share Price
|Annualised Performance||YTD||1 Year||3 Year||5 Year||10 Year||Since Inception
11 Apr 2002
|Benchmark Straits Times Index||1.17%||8.17%||11.68%||3.70%||3.97%||6.45%|
Note: Info correct as of 30 June 2023. Fund performance is calculated on a net-of-fees return basis in SGD terms on NAV-to-NAV (single pricing) basis, with all dividends and distributions reinvested, taking into account all charges payable upon reinvestment. The Index performances are calculated on a total return basis in SGD. Index returns do not represent actual ETF performance and are for illustration purposes only. Index performance does not reflect tracking errors, charges and expenses associated with the Fund, or brokerage commissions associated with buying and selling exchange-traded funds. It is not possible to directly invest in an index. Past performance is not necessarily indicative of future performance.
Meaning if you held onto SPDR STI ETF since its inception on 11 Apr 2002, you would be looking at an annualised return of 6.35%.
Nikko AM STI ETF (SGX: G3B) Share Price
|Return (%)||1 Year||3 Years||5 Years||Since Inception
24 February 2009
Source: Nikko Asset Management Asia Limited as of 31 May 2023
Returns are calculated on a NAV-NAV basis and assuming all dividends and distributions are reinvested, if any. Returns for period in excess of 1 year are annualised. Past performance is not indicative of future performance.
Meaning if you held onto Nikko AM STI ETF since 24 February 2009, you would be looking at an annualised return of 7.93%.
In Light Of The Plunge in Oil Prices, COVID-19 Situation, and Overall Market Sentiment
There’s plenty of news surrounding how much the index is not performing well as a whole if you look at the cumulative performance of the SPDR STI ETF (SGX: ES3):
|YTD||1 Year||3 Years||5 Years||10 Years||Since Inception
11 Apr 2002
|Benchmark Straits Times Index||1.17%||8.17%||39.25%||19.90%||47.65%||276.58%|
Note: Info correct as of 30 June 2023. Fund performance is calculated on a net-of-fees return basis in SGD terms on NAV-to-NAV (single pricing) basis, with all dividends and distributions reinvested, taking into account all charges payable upon reinvestment. The Index performances are calculated on a total return basis in SGD. Index returns do not represent actual ETF performance and are for illustration purposes only. Index performance does not reflect tracking error, charges and expenses associated with the Fund, or brokerage commissions associated with buying and selling exchange-traded funds. It is not possible to directly invest in an index. Past performance is not necessarily indicative of future performance.
If you compare the index ETF’s performance to an individual stock like AEM Holdings Ltd (SGX: AWX), which has gone up by 2,373% from 30 June 2013 to 30 June 2023, while the SPDR STI ETF has only returned 41.96% within the same time period.
So… I guess the million-dollar question here is: should you buy an STI ETF over picking individual stocks?
Yes and no.
As explained earlier, buying an ETF that tracks the STI is investing in Singapore’s market.
Is Singapore’s economy going to disappear overnight? That’s a highly unlikely BUT not impossible scenario.
(Editor’s note: although that would probably mean the end of capitalism and the free world as we know it)
Is a single company going to disappear overnight? Well… It really depends as well, isn’t it?
On the flip side, if you understand the company’s fundamentals and know that it can weather this storm.
Then the overall drop in the STI presents an opportunity where you can cautiously make calculated investments.
Whether you decide to go with an STI ETF or a constituent of the STI, make sure that:
- You have sufficient rainy-day funds to tide you over this period of uncertainty
- You and your loved ones are sufficiently protected (e.g. with insurance)
- You are only investing with money that you can afford to lose
And most importantly, you KNOW WHAT YOU ARE INVESTING IN.
How Do I Buy STI ETFs?
If you want to get into it, you can choose to buy either the Nikko AM STI ETF (SGX: G3B) or the SPDR STI ETF (SGX: ES3).
Both largely have the same holdings, and they both track the top 30 companies in Singapore.
So, how do you buy an STI ETF?
Method 1: Lump-Sum Investment
Once you have both set up, all you have to do is:
- Step 1: Log into your brokerage account
- Step 2: Make sure you have enough money in your settlement account to pay for your trade
- Step 3: Select the STI ETF counter which you’re interested in buying
- Step 4: Submit the trade along with your ‘Buy’ price
If you’re successful, the cost of the STI ETF counter you bid for will be deducted from your settlement account.
And the STI ETF stock counter will be allocated to your CDP account (or, in some cases, custodian account).
It’s that straightforward.
Method 2: Monthly Investment via Regular Shares Savings Plan
This option is actually simpler to set up as compared to Method 1.
By opening a Regular Shares Savings Plan (RSSP), you won’t need to open a CDP account because your bank will hold your stocks on your behalf:
There are a total of six different financial institutions which offer RSSPs:
- DBS Bank Invest Saver
- dollarDEX Regular Savings Plan
- FSMOne Regular Savings Plan
- OCBC Bank Blue Chip Investment Plan
- PhillipCapital Share Builders Plan
- Saxo Regular Savings Plan.
Once you’ve decided which RSSP you’d like to go with:
- Step 1: Log into your RSSP account (via iBanking or the financial institution’s proprietary system)
- Step 2: Select how much money you would like to be deducted from your chosen bank account on a monthly basis
- Step 3: On a pre-determined date every month, the RSSP will automatically buy the STI ETF of your choice with your allocated amount of money
And that’s it.
You’ll receive a monthly updated report on your investments and get an update on dividends earned (either quarterly or semi-annually).