04 Nov Straits Times Index Exchange Traded Fund (STI ETF)
If you are interested to invest in the Straits Times Index (STI), it is available in SGX through the STI Exchange Traded Fund (ETF). It started in 2002 and is managed by State Street Global Advisors. STI is mainly a blue chip (major companies) index of the top 30 companies listed in SGX. As compared to S&P 500, it is a much narrower basket of stocks. Nonetheless, it is the most widely used indicator for Singapore market.
The Fund’s investment objective is to replicate as closely as possible, before expenses, the performance of the Straits Times Index. As this will disallow the Fund Manager to buy or sell based on his own judgement, it eliminates possible human errors or emotions in investments. And because of this mechanical investing style, the fund management fee is low (0.3% per annum) as compared to a typical actively managed fund (~1.5% per annum). Another advantage of ETF is that it can be easily traded (like stocks) via the exchange and thus, facilitates short term trading.
Although the ETF is convenient to buy and sell, it is better to buy and hold for the long term so as to have a longer time horizon as an edge. I believe using the dollar cost averaging (DCA) method (buying a fixed amount each month regardless of the ETF price) should be the initial and primary method of investing. It may sound boring but it is one of the safest and easiest, yet able to get reasonable returns for a person who knows nothing about investing. It eliminates the need for market timing and any form of analysis of specific companies in the stock market. One note to be taken seriously for DCA is that it takes great discipline to contribute regularly in buying the counter, especially when the market is not doing well. This is because the method actually takes advantage when the counter price is low (like a discount so you can buy more). If you are not able to do it, then it will defeat its purpose and thus, think thrice of the commitment level before you jump into it.
If you are interested in applying the DCA method for STI ETF, PhillipCapital has a Shares Builder Plan (SBP) where they accept a minimum of S$200/mth to purchase the ETF for you. The cost of each transaction is S$6 + GST (for investment <>www.poems.com.sg » Financial Services » Stocks & Shares » Share Builders Plan. I am currently suscribing to this plan, buying S$200 worth of STI ETF shares each month and I decided to do it long term. (Update: I have just increased it to S$400 in Apr 09!)
Here are some details about STI ETF:
Counter Name – STI ETF
Management fee – 0.30% per annum (max 1%)
1 Trading lot = 1000 shares
Currency – SGD
Performance of STI ETF (taken from the fund’s annual report on 30 Jun 07)
Moneytalk has a fantastic series of articles about STI ETF:
Disclaimer: The above viewpoint is strictly for information only and may not be suitable for your financial needs or goals. Please carry out more research or consult a qualified financial advisor to assist you. The Information is correct at the point of writing. The author, through this article, does not gain any monetary or other forms of benefit from any of the above mentioned institutions.