STI ETFs are one of the most popular investment products in Singapore, especially for beginners. As a long-term investment, it’s a great investment because it’s low risk and low cost. Therefore, it’s a good place to start, especially if you want to safeguard your savings from the effects of inflation. STI ETFs are only ideal for individuals prepared to hold on to investments for more extended periods.
What Is STI or the Straits Times Index?
Before investing in an STI ETF, you need to understand what each of these terms means. Let’s take a look at each of them.
STI means Straits Times Index (STI). This is the stock index in Singapore. The STI dates back to 1966 and has been used to track the performance of the top 30 companies that are listed on the Singapore Exchange.
These 30 firms are drawn from 19 different industries and 5 different sectors representing Singapore’s diverse economy. The index is constructed jointly by the SGX, FTSE, and Singapore Press Holdings (SPH).
Companies in this stock index include UOB, DBS, CapitaLand Limited, Singtel, and Keppel Corporation, which are among the largest businesses incorporated in Singapore. The companies in this list are updated quarterly, and some may be removed, and others added. The review is based on the stock and weight of each company.
A stock index like the STI represents a section of the stock market. Like Singapore, each country has one or two major stock indices used as a barometer for their market. The U.S. has S&P 500 and the Dow Jones Industrial Average, Japan has Nikkei 225, while Hong Kong has Hang Seng Index.
Exchange-traded fund (ETF)
An ETF or exchange-traded fund is similar to an asset class, just like unit trusts and stocks. Just like stocks, they are also traded and listed on the stock exchange.
Once you buy shares of an ETF, you own a portion of the total fund. Through this investment, you can buy and sell the shares to profit and earn money via dividends.
Investing in exchange-traded funds enables you to track a stock index such as STI in Singapore. With it, you can replicate the performance of a particular index, assets, bonds, or commodities such as gold.
Now that we know what an STI and ETF are, we can define an STI ETF. This is an investment fund that’s used to replicate and track the performance of the STI. As an investor, you can do this by spreading out your investment in as many companies in the STI to ensure that your investment gets the best returns. Therefore, if the STI ranks a company like OCBC higher and increases its weight, your fund manager will increase your investment in the same firm.
Why Invest in STI ETF?
If you are not sure yet where you need to invest, here are some reasons why you should choose STI ETF.
Low-Risk Investment at Low Cost
Investing your money in an STI ETF allows you to invest in several blue-chip stocks without requiring a lot of capital. Because of the investment strategy, you don’t have to spend much cash purchasing stocks from individual companies in the index. Buying them individually will ultimately be expensive.
This form of investment also enables you to track the share index and gain exposure. It’s a long-term investment, which makes it low risk. In addition, Singapore’s economy is also growing; therefore, if you track a national stock index, you are investing in the country’s economy.
It’s also ideal for beginners who have no idea where to start. You can spread the risk on many companies and avoid incurring huge losses if a company winds up or performs poorly or there’s a stock market crash. If it’s your initial investment, you may also not know how to pick the right stock. STI ETFs offer broad exposure to multiple companies instead of putting all your money in one single stock.
Compared to actively managed funds, STI ETFs have fewer fees. Unlike the former, the primary focus is not to generate profit. An STI ETF just replicates the performance of an STI; therefore, the management fees are lower. Also, you won’t incur any charges when you trade your units.
However, like any other investment portfolio, there are basic charges such as brokerage fees and commissions. To get the lowest costs, you can compare online brokerage accounts to choose the most suitable.
They are Easy to Trade
Since STI ETFs are listed on the stock exchange, they can also be traded. The public can sell and buy shares on a market trading day. These assets are a long-term strategy, but you can opt to see if it makes sense, especially during market fluctuations.
As an investor, you should closely monitor your ETF. When the price is low, you can take advantage and buy more STI ETF shares. On the contrary, this can be an excellent opportunity to sell your units and earn a quick profit when they start rising.
What Are The Benefits And Risks Of Investing In STI ETF?
If you invest in an STI ETF, what are the benefits and risks?
- They are low risk
- Easy to buy and sell
- They have lower charges
- It’s a long-term investment
- You can use a small investment capital
- You can invest in the future of Singapore
- Volatility risk during a stock market crash
- They have a tracking error
- Poor liquidity
- Fund management risk
- Country concentration risk
Fund Performance: Top STI ETFs
Index Fund: SPDR STI ETF
- Best for tracking top 30 companies in Singapore
- Expense Ratio: 0.3%
- Assets Under Management: S $1,642.31 Million
Index Fund: Nikko AM STI ETF
- Best for tracking the STI
- Expense Ratio: 0.3%
- Assets Under Management: S$ 580.29 Million
Index Fund: ABF Singapore Bond Index Fund
- Best for high-quality government bonds
- Expense Ratio: 0.25%
- Assets Under Management: S$ 1,044.85 Million
Index Fund: Phillip Sing Income ETF
- Best for high dividend stocks
- Expense Ratio: ≤0.7%
- Assets Under Management: S$63,809,482 Million
Index Fund: Lion Phillip S-REIT ETF
- Best for high dividend Singapore REITs
- Expense Ratio: ≤0.54%
- Assets Under Management:
Index Fund: SPDR S&P 500 ETF
- Best for top 500 U.S. stock
- Expense Ratio: 0.0945%
- Assets Under Management: $400,685.69 Million
How Does STI ETF Compare with Other ETFs in Singapore?
|ETF in Singapore||What it Tracks||Expense Ratio|
|SPDR STI ETF||Top 30 companies on SGX||0.3%|
|Nikko AM STI ETF||Top 30 companies on SGX||0.3%|
|ABF Singapore Bond Index Fund||Singapore govt + quasi-govt bonds||0.25%|
|Phillip Sing Income ETF||High dividend stocks on SGX||≤0.7%|
|Lion Phillip S-REIT ETF||High dividend Singapore REITs||≤0.54%|
|SPDR S&P 500 ETF||Top 500 on US stock market||0.0945%|
What Makes STI ETF Better Than The Competitors?
Based on the table, the STI ETF is better because it has a lower expense ratio which indicates that the management of the funds incurs low costs. The top ETFs track the top 30 companies listed on the Singapore stocks exchange.
The STI ETF is the most widely used indicator to represent the general Singapore stock market.
Is Investing In The STI ETF Right For You?
Just like with other types of investments, ETFs come with their own set of risks. Therefore, they may not be ideal for everyone. Before deciding to go this route, you need to consider that ETFs are not principal-guaranteed; hence you might lose a substantial amount of money or your entire investment.
STI ETFs are not a get-rich-quick scheme. They are lower-risk products, and the returns are also not as high. Since it has liquidity risk, it could deviate greatly from the net asset value. However, they are much better than what you could earn from a savings account in a bank.
To determine whether the STI ETF is the right for you, you need to first consider whether you qualify under the following categories of people,
You Can Hold Investments For Longer Periods
If you want to track the Straits Times Index, you have to be prepared to set some money apart for long periods. Therefore, this money should be cash that you can live without. ETFs might take a while before you see any real gain; therefore, you should only use cash that you don’t need to use. To see actual returns, you should avoid liquidating your investment for at least 4 to 5 years.
You Don’t Know How to Pick Stocks
If you don’t know where to start when it comes to investing in stocks, start by investing in ETFs such as SPDR STI ETF. Even professional fund managers find it hard to beat the index by picking stocks. Therefore, as an individual investor, you are much safer if you avoid individual investments and choose STI ETFs.
You Have a Small Investment Capital
Tracking the Straits Time Index doesn’t require a lot of capital investment. With a small capital, you can start with 30 stocks. Unlike other assets in the stock market, this provides enough diversification to protect your money, just in case any industry underperforms.
How Can You Invest In The STI ETF Index?
To invest in an STI ETF, you can do via any brokerage account that links to the SGX market. Since the exchange-traded fund can be bought or sold like a stock, you’ll just need to open the account and start trading.
As long as your broker is a trading member of SGX, they can deliver the STI ETF units to your Central Depository (CDP) account. When investing, keep in mind that the market rate for brokerage commission is 0.28% in Singapore. This also comes with a minimum of S$25 and excludes SGX fees and GST.
If you include the fees and GST, the total cost will be about S$28. As you trade, keep in mind that it’s not worthwhile investing small amounts of cash via a brokerage because the percentage may be too high.
STI ETF Alternatives
Whether you are considering Nikko AM STI ETF or SPDR STI ETF to track the index, there are cheaper alternatives that you can use. You can either use CPF or invest through investment plans.
Most investors get it wrong when guessing whether the stock market is undervalued or overvalued. To avoid this, you can decide to dollar cost average the STI ETF.
Dollar-cost averaging means that you have a monthly plan to set aside a fixed sum of cash that you’ll use as investment capital. It can be as little as $100 monthly, and you can use this to invest in STI ETF gradually.
This method comes in handy for people without enough capital to invest, especially if you are fresh out of school. You can buy more units when the prices drop and purchase less when the STI ETF prices go up. After a set period, you would have purchased enough shares to earn you a good return.
In Singapore, some companies such as POEMS, OCBC, POSB, and Maybank Kim Eng offer this monthly investment plan for STI ETF. OCBC and POSB offer Nikko AM STI ETF, while POEMS only offers the SPDR STI ETF.
On the other hand, Maybank Kim Eng offers both SPDR STI ETF and Nikko AM STI ETF. All four companies also offer a minimum investment of S$100 per month.
Historically, STI ETFs pay a 3% dividend annually. Of all the four companies, POEMS is the only one that reinvests the dividend back into the firm. The other three don’t reinvest but rather distribute the cash to your bank account.
Aside from monthly investment plans, you can also use a CPF Ordinary Account to invest in STI ETF. This ETF is approved to be invested under the CPF Investment Scheme (CPFIS). To activate this, you’ll need to apply for a CPFIS scheme account through one of the local banks and link it to your brokerage account.
To buy the STI ETF via CPF, you’ll use the same process as cash but indicate that you are using CPF on your brokerage platform. With this account, you can invest all the money after the first S$20,000. Keep in mind that the STI ETF might drop in value when the price fluctuates.
Which STI ETF is Better?
The SPDR STI ETF (stock code: ES3) is the best option. This is because it’s the largest and oldest STI ETF in Singapore. Established in 2002, the company’s asset under management is valued at SGD $1,642.31 Million as of 09 Sep 2021.
Does STI ETF Pay A Dividend?
Yes, STI ETF pays an annual dividend. The average dividend yield is approximately 3-4%. The amount of dividends you receive in your account is calculated based on the unit holding and the underlying company’s ownership.
Should I Use CPF To Buy An STI ETF?
If you are not a seasoned investor, it’s not wise to invest your CPF into STI ETF. However, CPF still provides risk-free returns to your investment.
But if you are a pro, the purchase process is similar to when you are using cash. With a CPF Ordinary Account, you can invest all the money after the first S$20,000 into an STI ETF of your choice.
How to Get Started When Buying the STI ETF
If you are considering buying these ETFs, here is a step-by-step guide to help you get started.
Choose an STI ETF to Invest In
Before choosing an investment, keep in mind that these trades work like stocks on the Singapore Exchange. You can select either SPDR STI ETF or the Nikko AM STI ETF to track the STI ETFs.
They are different in terms of fund size, annual returns, and tracking error. You can decide to invest in both SPDR and Nikko AM.
Choose How to Buy Units
You can buy these units via dollar cost averaging or a brokerage account, as we discussed above. You can decide between monthly investment plans or lump sum payments. With lump-sum investing, you must have a large capital.
After making these key decisions, you can now start investing and monitoring the markets to spot more opportunities. Depending on which plan you are using, you can use the information you get to either buy or sell your ETFs.
Where Can You Get Your Daily Singapore Stock Market News on STI ETFs
Once you invest, you need to stay on top of all your transactions. This means that you have to monitor the stock market for any changes and news. Apart from your fund manager, you can use other sources to get information about how the market is performing. Here are some of them.
Dr. Wealth App
This app provides accurate market data from Singapore, Malaysia, Hong Kong, China, and US stocks. Since the STI ETF is the most important indicator of market performance, the app will provide this information to help you grow your portfolio.
The Business Times
This is the only daily newspaper in Singapore that focuses on business and financial news. You can also access it online for credible information about the markets in Singapore.
You can also get information about the ETFs via this financial portal specifically for the Singapore stock exchange. It also has stock analysis, prices, and market news.
The Edge Singapore
This online business website publishes daily Singapore stock market news. They have weekly updates and offer strategies and business insights from the Asia-Pacific market.
This platform is ideal if you are investing in Singapore blue-chip stocks. They put together financial information, stock news, and analysis.
- The STI ETF is the most widely used indicator to represent the general Singapore stock market.
- The STI has been used to track the performance of the top 30 companies listed on the Singapore Stock Exchange.
- This financial product is low risk and low cost; therefore, ideal for beginner investors.
- You should only invest in this fund if you are willing to wait for returns for an extended period.
If you want to invest in STI ETF, you can contact us at Instant Loan. We will send you up to three loan quotes from legal, financial institutions in Singapore for comparison.