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Instrumental returns of the STI over past 10 yrs

Last week State Street Global Advisers updated the ten year performance chart of the SPDR® STRAITS TIMES Index (STI) ETF as of the end of 2013. ETF stands for Exchange Traded Funds, which is basically an investment fund that can be bought and sold like a stock on the Singapore Exchange (SGX). There are two ETFs listed on SGX that track the performance of the STI – the SPDR® STI ETF and the Nikko AM STI ETF. The SPDR® STI ETF was introduced in April 2002, while the Nikko AM STI ETF was later introduced in February 2009.

Another feature of the ETF is that in order to provide returns that track the STI, the ETF invests in the stocks that make up the index, which are then appropriately weighted in order to resemble the performance of the index. These stocks become the primary assets of the fund. The fund will also be made up of multiple units, each of which has a Net Asset Value (NAV). When one refers to an ETF being 'open ended' it means there are no limits on the amount of units in the ETF unlike stocks where there is fixed number when issued. Hence in this case, the value of the fund depends on its net assets, ability to track the STI and the performance of the STI itself. Some of the largest stocks of the STI were discussed last week in last week's highlight. Essentially, you can "invest" in Straits Times Index using an ETF.

The performance chart of the SPDR® STI ETF is detailed with or without dividends. With dividends, the NAV of the SPDR® STI ETF gained 140.4% in the ten years ending December 2013. Without dividends, the NAV gained 78.7%. On an annualised basis, the NAV of the ETF averaged a 9.2% annual gain with dividends and a 6.0% annual gain without dividends.

Hence the composition of the annualised returns over the past ten years were as follows:

Average Annualised Percentage Return, 2003-2013*

Source: State Street Global Advisers

As noted above the ability of the ETF to track the STI will have an effect on the performance of the ETF. Over the same period of time the index gained 79.5% without dividends which also generated an average annualised return of 6.0% over the ten years. NAV will also take into account the costs associated with the ETF which are usually bundled together to form the total expense ratio. The current annual total expense ratios for the SPDR® STI ETF and Nikko AM STI ETF are respectively 0.3% and 0.39% of the NAV. This is lower than traditional funds that might charge between 1.00% and 2.00% per annum.

The Nikko AM STI ETF has a smaller unit size than the SPDR® STI ETF. At a price of S$3.00, the minimum investment in the Nikko AM STI ETF is $300 and the minimum investment in the SPDR® STI ETF is S$3,000. Despite the underlying STI ending the 2013 year with its price unchanged, growing participation in the Nikko AM STI ETF meant that turnover increased by 18%. The two ETFs distribute dividends on a semi-annual basis.

These two ETFs were also amongst the most liquid of SGX listed ETFs in 2013 and both ETFs are classified as Excluded Investment Products (EIP), which do not require retail investors to be pre-qualified by their brokers before trading.

Geoff Howie
Geoff Howie

Mr Howie is the Singapore Exchange’s Market Strategist - and the key contributor to the educational content and market insights of SGX My Gateway. He is also part of the Associate Faculty at SIM University,  educating students on the fundamentals of investing. 

He previously held lead broking and strategist roles across the Asia Pacific offices of a large international futures broker. Outside of his 15 year career in the financial markets he has also served as the Treasury Adviser to the Leader of the Queensland Liberal Party in Queensland Parliament.

Following High School in Hong Kong, he attended University of Queensland, receiving a Bachelors and Master’s degree in Economics, the latter extending into deferred PhD work after receiving the highest grading for first-mover research and modelling conducted on the Shanghai economy.

Mr Howie’s other notable achievements include receiving two Hong Kong Securities Institute Outstanding Achievers awards for the 2005 year.