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 this 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 an STI ETF.
Why you should consider it as part of your investment portfolio.
And how to invest in it.
Disclaimer: The information provided here is for discussion purposes only, and should NOT be construed as investment advice. As always, do your due diligence!
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 represent the Singapore market in its entirety.
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 get access to 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 which tracks the Straits Times Index.
Arguably, it was designed for passive investors who’re just getting started on their investment journey.
In fact, most Singapore financial bloggers and our Seedly Community actually advocate the STI ETF as one of the first products you can consider for this very reason: the ability 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).
Here’s a look at what are the top 30 companies (aka constituents) tracked in the STI:
|Constituent Name||SGX Identifier||STI Weight (%)|
|DBS Group Holdings Limited||D05||15.1|
|Oversea-Chinese Banking Corporation Limited||O39||11.3|
|United Overseas Bank Limited||U11||10.1|
|Singapore Telecommunications Limited||Z74||8.7|
|Jardine Matheson Holdings Limited||J36||5.7|
|Keppel Corporation Limited||BN4||4.1|
|Singapore Exchange Limited||S68||4.0|
|Ascendas Real Estate Investment Trust||A17U||3.1|
|Jardine Strategic Holdings Limited||J37||2.7|
|Hongkong Land Holdings Limited||H78||2.5|
|Wilmar International Limited||F34||2.5|
|CapitaLand Commercial Trust||C61U||2.3|
|Mapletree Commercial Trust||N2IU||2.1|
|CapitaLand Mall Trust||C38U||2.0|
|Singapore Technologies Engineering Ltd||S63||2.0|
|UOL Group Limited||U14||1.8|
|Mapletree Logistics Trust||M44U||1.7|
|Thai Beverage Public Company Limited||Y92||1.7|
|Venture Corporation Limited||V03||1.7|
|Genting Singapore Limited||G13||1.5|
|Singapore Airlines Limited||C6L||1.5|
|ComfortDelGro Corporation Limited||C52||1.4|
|City Developments Limited||C09||1.3|
|Singapore Press Holdings Limited||T39||1.2|
|Yangzijiang Shipbuilding (Holdings) Limited||BS6||1.0|
|Jardine Cycle & Carriage Limited||C07||0.9|
|Sembcorp Industries Limited||U96||0.9|
|Dairy Farm International Holdings Limited||D01||0.8|
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 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 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.
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 four different financial institutions which offer RSSPs:
- DBS/POSB Bank Invest Saver
- FSMOne Regular Savings Plan
- OCBC Bank Blue Chip Investment Plan
- PhillipCapital Share Builders 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).
What’s The Past Performance of STI ETFs?
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 ETF’s 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 their prospectus available at their websites to understand why there’s a difference.
SPDR STI ETF (SGX: ES3)
Info correct as of 29 Feb 2020.
Meaning if you held onto SPDR STI ETF since 11 Apr 2002, you would be looking at an annualised return of 6.47%.
Nikko AM STI ETF (SGX: G3B)
Info correct as of 29 Feb 2020.
Meaning if you held onto Nikko AM STI ETF since 24 Feb 2009, you would be looking at an annualised return of 8.73%.
In Light Of The Plunge in Oil Prices, COVID-19 Situation, and Overall Market Sentiment
There’re plenty of news surrounding how much the STI has dropped in March 2020.
In fact, the STI has seen its largest single-day drop in over 10 years.
It was the worst fall since the global financial crisis back in 2016.
Analysts have warned investors against thinking that this is an opportune time to enter the market and pick up bargains among the blue chips.
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 they 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 (eg. with insurance)
- You are only investing with money that you can afford to lose
And most importantly, you KNOW WHAT YOU ARE INVESTING IN.