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Straits Times Index Exchange Traded Fund (STI ETF)

Stock Market bottle

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:

What is STI ETF?

Why Invest in STI ETF?

STI ETF vs Unit Trust

When to buy STI ETF

Dollar Cost Averaging for STI ETF

How to Buy STI ETF

STI ETF 1st Dividends for 2009

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.

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Founder of BigFatPurse.com and author of Secrets of Singapore Trading Gurus. Loves the financial market. Curious to find out what work and what doesn't work in investing.

(54) Comments

  1. hi,

    i’m also kinda interested in the STI ETF esp since i’m a total newbie to investing.

    I’m wondering if you would be able to clear my doubts on this…

    wats the difference in buying STI ETF through POEMS vs DBS VICKERS?

    is it the cost issue? since u mention $25 brokerage fee for POEMS, does it mean DBS VICKERS charge more??

  2. Hi Joanna,

    POEMS and DBS Vickers are both brokerage firms which means they help investors acquire the securities that we indicated and in return, we pay them commissions.

    You can check their commission charges at their respective websites. What I have found is that both charge the same rate (for SG shares and online transaction):

    First 50K = 0.28% (min = S$25)
    Next 50K = 0.22%
    Thereafter = 0.18%

    Besides brokerage fees, they will also collect,

    CDP Clearing Fees = 0.04% (max S$600)
    SGX Access Fee = 0.0075%
    GST = 7% of (brokerage + clearing fees + access fee)

    Since both firms have the same charges, it would be down to their service quality and investment tools available for you. I am sure some of your friends or family members should have account with either one. Ask them to show you the trading platform and select the one that you feel comforatble with.

  3. if you buy regularly from share building plan, that will cost you about 12.5% charge fee wouldn’t since you are actually buying 200 dollars worth of shares per month but the minimum brokerage commission is 25 dollars?

  4. Hi William, I pay $6 + GST for the charges. Min $25 fee is for normal stock transactions but does not apply to Share Builder Plan.

  5. No problem William. As for whether this is a good investment, it is rather subjective. It can be said to be the easiest way to invest and yet able to get a good return. But it definitely takes great discipline to keep investing. My recommendation is to increase the monthly investment amount such that the percentage cost will be reduced.

  6. I found that my StiETF SBPlan in POEMS charged me higher than the market on 18 Sept. POEMS charged me $2.59027/share but on that day the price was lower than this for the whole trading day, day low was 2.40 and day high was 2.50. Please check yours

  7. POEMS immediate reply:

    “Upon receipt of your email, we had highlighted this issue to the management and are investigating on this issue.

    We sincerely hope you will allow us more time for our investigation, and we will get back to you soonest possible to update you on the investigation results.”

    I will update when they give an answer.

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  9. Here was POEMS’s explanation:

    “Due to communication lapses, the respective counters, STI ETF and SGX, were not successfully executed on the 18th of Sep 2008. Therefore, the balance quantity was executed on the 19th Sep 2008. Please be informed that we will credit you with the rightful number of shares based on the weighted-average price of the SBP counter on the 18th Sep 2008.”

    “…Please be assured that measures are taken to prevent this situation from occurring again.”

    POEMS have reallocated the shares to me. Hope those affected are given a fair treatment. Glad that POEMS was honest about the mistake and willing to correct it.

  10. Is the management fee transparent to me when I buy and sell ETF online?
    So, what I will be charged are only brokerage rate, clearing fee, SGX trading fee and GST. Right?

  11. Alvin, sorry I probably didn’t make my question clear. When the management fee will be charged and in what way the fee is charged? Suppose that I bought 100 lots in the morning and sold them in the afternoon. Will I be charged one year’s management fee? Or the fee will only be charged when they deliver me the dividend (subtract the management fee from the dividend)? Or the ETF management will just give themselves the management fee from the profit they made rather than directly charging me?

  12. David, hope this will answer your question. Lifted from the prospectus:

    “The Manager shall be entitled to receive for its own account out of the Deposited Property of the Fund as
    soon as practicable after the last Dealing Day of every calendar quarter.”

    “The remuneration of the Trustee shall be payable out of the Deposited Property quarterly in arrears in four installments as soon as practicable after the last Dealing Day of every calendar quarter.”

    Deposited Property was defined as “all the assets, including Cash, for the time being held or deemed to be held upon the trusts of the Deed”

    “To the extent possible, the Fund’s fees and expenses will be paid out of the dividends the Fund receives.”

    Current expense is kept to 0.3% per annum. So the 0.3% will be paid in parts, 4 times a year. It will be paid out from the fund asset itself, especially from the dividends collected from the STI component companies.

  13. Alvin, thank you for taking the time to find the answers. As a matter of fact, I can’t understand many parts of the prospectus though I’ve read them before posting my questions. Thank you for adding your explanation in the last paragraph in your reply.

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  15. Hi,
    Have you guy received your STI ETF dividen on your POEMS Share Builder Plan, it was distributed on 11 Aug. I have not seen mine in SBP account. I think it supposed to be shown in SBP account on 13 Aug and be in time to reinvest the dividen on 18 Aug. Please check yours.

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  19. Hi Alvin
    Do you know when we buy STI ETF using CPF, are they deducting the funds from our cpf under the “stock” or “professional managed funds” ?
    Thanks
    Joseph

  20. Joseph, here’s your answer:

    Taken from CPF: (ETF is considered managed products and not stocks)

    # Professionally Managed Products refer to:
    * Fixed Deposits
    * Insurance Policies*
    * Unit Trusts*
    * Singapore Government Bonds
    * Singapore Government Treasury Bills
    * Statutory Board Bonds
    * Bonds Guaranteed by Singapore Government
    * Fund Management Accounts (you cannot invest your Special Account savings in this)
    * Exchange Traded Funds*
    (* Please refer to the Frequently Asked Questions on CPF Investment Scheme for the risk classification tables for unit trusts, investment-linked insurance products and exchange-traded funds which Special Account savings can be invested in.)

    # Stocks refer to:
    * Shares
    * Property funds
    * Corporate bonds
    * Loan stocks

  21. Hi

    In order for me to understand better, can you please give me an example based on STI values from August 1, 2010 to July 26, 2011. How do we calculate the daily return, average daily return and annual return for STI and STI ETF?

  22. Hi Del,

    I am afraid I don’t get what you mean. And why would you be concern about daily returns?

    You can type ^STI in Yahoo Finance to see the returns over 1 year/1day or other timeframes.

    Hope that helps

  23. Hi Alvin,

    Thanks for your reply. it helps!

    do you have any idea how can we hedge the risk of investing in STI ETF using derivatives available on the Singapore Exchange?

    :)

  24. You can buy put warrants on STI if you want. But I discourage that since you either do it consistently (and lose money most of the time) or you are able to time the market (by buying puts before market moving down).

    • Hi alvin,

      Can you elaborate further by what you meant on “You can buy put warrants on STI if you want. But I discourage that since you either do it consistently (and lose money most of the time) or you are able to time the market (by buying puts before market moving down).”

      • You can buy put warrants and hold on to your STI ETF at the same time. If the STI moves down, you gain from the put warrants which can offset your loss in STI ETF. However, you need to be accurate with the STI price by the warrant’s expiry date. e.g., a put warrant may have a strike price of 2600 and expiry on 31 Oct 11. If STI does not go below 2600 by 31 Oct 11, you lose money on the warrant. Most warrant/option expires worthless and some say it is as high as 70%. Hence, unless you are able to lose 70% of the time, I do not see hedging useful in this instance. If you buy warrants when the risk of market crashing has increased, you will have to pay a high premium (because volatility increases). And you have to be accurate to time the market this way. Which is not easy.

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  27. (1+nominal rate) = (1+real rate)(1 + expected inflation)

    1) how to calculate the real rate for every mth using relationship above for the period of jan 08 to may 11? = )

    2) was wondering where to get the data on sti etf prices & sti form aug 1 2010 to july 26 2011 to calculate the daily return/average daiyl return and annual return for sti.

    Genial

    • 1) I am not an economist so I do not know how to do it. Anyway, economists always have different opinion on expected inflation rate and most of the time their predictions are not accurate.

      2) Yahoo! Finance has the data.

  28. after getting the data from yahoo! finance, how do we calculate the daily return, average daily return, and annual return? which figures should we take?

    • I am not sure why you are insistent in calculating daily returns.

      If you really want an answer:

      Daily return: (Closing price – Opening price)/Opening price

      Average daily return: (Sum up the daily return for x days) / (x days)

      Annual return: (Closing price on last trading day – Closing price on opening day)/(Closing price on opening day)

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  32. Hi Alvin, is this thread still alive?

    If I can afford it, will it be better to enrol in POEMS SBPlan or use dollar cost averaging to buy STI ETF direct from SGX say, every 6 months?

    • hi nkh, it depends on your investment amount. If you can afford, you should buy STI ETF direct. If you buy it through SBP, POEMS holds the shares for you and they charge handling fees for dividends among other stuffs. SBP is good for people with low capital and require a disciplined approach.

  33. hi i was just wondering. how do u find market risk premium for STI? i know its the expected return minus the risk free rates but i need someone to show me exactly how its done.

    • Hi Alan,

      Let’s say the STI in the past 10 years returned 9% and the 10-yr Singapore Government Bond yields have been 3%, the risk premium will be 6%.

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  35. Hi Alvin,
    Am new to ETF but am thinking of accumulating it through DCA with a 10-year view, or even longer.
    I have a UOBKH account. Can I just buy it myself like how I do with stocks? What would be the costs and how do they deduct the management fees?
    Jim

    • yes you can but you need to buy in full lots. 1000 shares for sti etf and 100 shares for Nikko am sti etf.

      it will be harder to do it consistently bcos you may be afraid to buy when market is dropping or buy more when market is bullish.

      management fee is deducted from the dividends received by the fund. remaining dividends will be passed to investors, 2 times a year.

      • Hi Alvin,

        I was thinking the same thing as Jim mentioned above. Supposed if I had something like 20k to invest into the STI a year. One approach is to buy 3 lots every 6 months and be disciplined in doing so. However, the limitation of this approach compared to SBP or POSB RSP is, I won’t be able to commit to the same amount because of the board lot size.

        What do you think of the approach of committing to a first investment of about 3 lots, then 6 months later…
        If the price goes up, buy 2 lots, if the price goes down, buy 4 lots. Whatever I didn’t not use from the planned 20k, I’ll roll it over to the following year until the price goes below the average price.

        Effectively, if the price keeps going up, it just means I’m storing it up for the next black swan. :)

        Any opinion to this approach?

        • Hi Adrian, yes it would work. You need to be very discipline about it, regardless how fearful or greedy you feel. You must still be able to pull the trigger as planned. To me, that we are our greatest risk

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