If you have ever invested in Straits Times Index (STI) you might have come across SPDR STI ETF and Nikko AM STI ETF. SPDR STI ETF is managed by the State Street Global Advisors Singapore advisors, while Nikko Asset Management Asia Ltd manages the Nikko AM. These two STIs are reputable fund managers in the country.
Let’s take a deeper dive on both to see which you should invest with.
What is STI ETF?
STI ETF stands for Straits Times Index Exchange Traded Funds. The STI index comprises the top 30 companies listed on the SGX based on their market capitalization.
The Monetary Authority of Singapore regulates them.
The Singapore STI ETF is used as the benchmark index for the Singapore equities market. It includes companies such as UOB, DBS, Sheng Siong, Dairy Farm, OCBC, and CapitaLand.
It is also called the blue-chip index by investors and compares close to the S&P 500 in the US market. The reason for the name is mainly because the stocks in the STI are the Blue chip stocks.
SPSR STI ETF and Nikko AM STI ETF are exchange-traded funds that closely track and replicate the performance of the STI in Singapore. They are a great option if you want to invest across the Singapore market, but you will have to choose between the two fund managers. Click here to read more on STI ETF.
Why Choose to Invest in an STI ETF?
Here are some of the main reasons why investors choose to invest in STI ETF:
1. They Are Affordable
Buying into the SPDR STI ETF is one of the most affordable ways to invest in the Singapore Exchange Market (sgx).
With STI ETF, you can also invest in each of the 30 companies. If you were to do this by yourself, it would be pretty expensive to replicate the same on your own.
2. They Offer a Dividend Yield
Assuming you invest with Nikko AM or SPDR STI ETF, you will be rewarded annually with a 4% yield. This is great for investors who want to have a passive income from the dividends.
The STI (Straits Times Index) has the top 30 companies in the Singapore Exchange market(SGX). This offers diversification for investors because the companies are from different sectors. This will help you spread your risks during investing.
However, keep in mind that the STIs stocks are from the financial industry.
4. The STI ETF is Very Liquid
You can easily buy and sell ETFs at any time. All you need is a central depository account and a brokerage account. It is important to note that STI ETFs are traded on an open market.
SPDR and Nikko AM STI ETF Comparison Table
Here is a look at the differences between SPDR and Nikko AM according to yahoo finance.
|SPDR STI ETF (SGX: ES3)||Nikko AM STI ETF (SGX: G3B)|
|Dividends||S$0.115 per share
|S$0.1268 per share
|Last traded price (22 Feb 2021)||S$2.878||S$2.93|
One year: -4.15%
Three years: -2.57%
Five years: 5.94%)
|One year: -4.85%
Three years: -2.88%
Five years: 5.49%
|One year: -4.88%
Three years: -3.07%
Five years: 5.37%
|Total Expense Ratio||0.30% p.a.||0.30% p.a.|
|Tracking Error||0.2919% (Rolling 1-year annualized tracking error, as of 31st Jan 2021)||0.17% (3-year annualized tracking error, as of 31st Jan 2021)|
|Inception||11th Apr 2002||24th Feb 2009|
|Assets Under Management (AUM)||S$1,667.40 Million as of 22nd Feb 2021||S$508.00 Million as of 22nd Feb 2021|
|Platforms||– PhillipCapital’s Share Builders Plan
– FSMOne Regular Savings Plan
– OCBC Blue Chip Investment Plan
– FSM One Regular Savings Plan
What Are the Key Differences Between SPDR STI ETF Vs Nikko AM STI ETF?
Here is a table with the key differences between the two ETFs.
|SPDR STI ETF||Nikko AM STI ETF|
|Fund Size||S$1,629.6 million
(as of 23rd Aug 2021)
(as of 23rd Aug 2021)
|Total Expense Ratio||0.30%||0.30%|
(rolling 1-year tracking)
(usually Feb and Aug)
(usually Jan and July)
1. Fund Size
SPDR STI ETF is three times the size of Nikko AM STI ETF. However, this does not mean that it is much better. The fund size is only because SPDR STI ETF has been in the business for much longer.
SPDR STI ETF started in 2002, while Nikko AM was started in 2009, making it more popular with investors.
Most see huge funds as being more stable hence why people prefer investing in them. Huge funds have better economies of scale. This means that they have a reduced expense ratio overall.
Remember, you cannot just pick any large fund and say it’s better just because of its size. You also can discredit a small firm because of its size. It might have a good performance and a lower expense ratio. So be on the lookout for both.
2. Expense Ratio
The expense ratio offered by STDR STI ETF was 0.30%, while Nikko AM STI ETF offered 0.33% in 2018. This might seem like a slight difference by investors know that any coin matters in the market.
A high expense ratio will eat into your returns. When buying into ETFs, always go for the ones with the lowest fees.
SPDR and Nikko AM STI ETFs have the same expense ratio of 0.30% from the latest fact sheet.
3. Tracking Error in STI ETF
The Degree of tracking error shows us the performance deviation of an ETF from the Underlying Index’s actual performance.
The tracking error for SPDR STI ETF is 0.1934% (rolling 1-year tracking), while Nikko AM is 0.15%. Both of these errors are negligible. But you might be wondering why there is a difference and why it matters.
Here are the reasons:
- Owning Constituent Stocks When the STI Changes
It takes time for the ETF managers to react when the STI adjusts its stocks. Any change in the constituent stocks leads to large buy and sell orders since the funds are significant.
It is also important to note that large orders may not be fulfilled quickly, which causes the difference in their holdings and their benchmark.
- The Trading Transaction Costs
In case of any index changes, the ETF manager will have to decide if it makes sense to follow or not. The reason for this is because any transaction cost incurred during trading will be passed to the investor.
The STI can also decide not to change, resulting in the ETF holding a higher percentage of a stock constituent than the tracked benchmark index.
If the stock in question is performing well, the tracking error will appear high than usual.
In short, the tracking error is viewed as an indicator of how actively a fund is managed for the investors to get a sense of corresponding risk levels.
4. Whether or Not the STI ETF Gives Dividends
Both Nikko AM and SPDR offer dividends semiannually. However, it is crucial to note that both funds pay their clients at different times of the year.
Also, both SPDR and Nikko AM take their fees from the yields before distributing the dividend to their investors.
The dividends are enough to cover the fees for both funds since the toe STI ETFs have meager expenses.
However, it is crucial to note that both funds state that if the yields are too low to cover the fees, the managers will take up short-term loans or sell units to cover the difference.
Nikko AM STI ETF pays their clients around January and July, while SPDR STI ETF pays their investors around February and August.
Reasons to Choose SPDR STI ETFs
SPDR STI ETF has had a better performance from all three performance comparison points when compared to Nikko AM.
SPDR performance dropped less even during the market plunge in 2020.
It is also important to note that SPDR has a large AUM compared with Nikko AM STI ETF and is excellent if you are investing in your retirement fund.
How to Buy SPDR STI ETF?
There are several ways in which you can purchase SPDR ETFs.
The first is that you can purchase SPDR STI ETF directly from the market through your brokerage account. Here you are the one who will decide how often you would like to purchase the ETF.
The other option is through the following platforms:
FSMOne Regular Savings Plan
With S$50, you can start a regular savings plan with FSMOne. FSMOne will provide you with great flexibility where they will allow you to purchase either SPDR STI ETF or Nikko AM STI ETF.
POEMS Share Builders Plan (SBP)
Here, you can start your investment journey with S$100 per month. It offers more ETFs to choose from other than SPDR. If you have less than two counters, you will incur a S$6 fee.
With a POEMS brokerage account, you can set up a systematic plan to purchase SPDR every month where the current brokerage rates will apply.
Reasons to Choose Nikko AM STI ETF
Nikko AM has a higher dividend per share when compared to SPDR STI ETF.
A good example was when investors who had invested in Nikko STI ETF in 2020 would have received S$0.1268 per share, while SPDR investors got S$0.115 per share.
It is also important to note the Nikko AM has a lower tracking error as well.
How Do You Buy Nikko AM Singapore STI ETF?
You can purchase Nikko AM from the market directly through your brokerage account. Banks such as OCBC and DBS offer Nikko AM as an investment choice for their regular savings plan and other financial products.
You can buy Nikko AM STI ETF through:
OCBC Blue Chip Investment Plan (BCIP)
This plan offers 21 counters and allows you to access blue-chip shares and Singapore’s ETFs from S$100 a month.
DBS/POSB Regular Savings Plan
You can set up a regular savings plan with a minimum of S$100 a month without a CDP or trading account. This plan comes with a sales charge of 0.5% or 0.82%.
You also have four different ETFs to choose from, with Nikko AM STI ETF having the options for Singapore equities.
You can also use FSMOne Regular Savings Plan to purchase Nikko AM STI monthly.
Things to Ponder: Why It Not a Good Thing to Buy STI ETFs
1. No Much Diversification
One common thing you will notice with STI ETFs, they are heavily weighted into the financial sector. So you will not be investing in different sectors when you buy in.
2. It Is Not Passive Investing
With STI ETFs, you will have to keep actively choosing markets to invest in. Note that these two STIs limit you to only investing in the Singapore market.
So why not choose an ETF that tracks the NASDAQ and has access to a global portfolio. Your money will give you better returns.
3. It Doesn’t Offer a Global Portfolio
While investing in ETFs, you should consider investing in ETFs with a global portfolio. Global ETFs perform much better than STIs, and you need to keep this in mind before making your investment.
There is a negligible difference between Nikko AM STI ETF and SPDR STI ETF. They are affordable to invest in, and they both give you a chance to invest in Singapore’s top 30 companies. However, Nikko AM is better as it offers a higher dividend yield for its investors even with a smaller fund size than SPDR.
- SPDR STI ETF and Nikko AM STI ETF offer dividends to their investors semiannually.
- STI ETFs are highly liquid because they are traded on the open market.
- STIs give you a chance to invest in the top 30 companies in Singapore.
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