Comparing STI ETF and Singapore Equity Funds Performance

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18 Aug Comparing STI ETF and Singapore Equity Funds Performance

Passive investing advocates will always say that most unit trusts or mutual funds cannot beat the index and an investor is better off buying an index fund. This post will investigate the returns of STI ETF and the Singapore Equity Unit Trusts and ranks their performance.

Scope of Study

The source of data is SPDR STI ETF and Fundsupermart for Unit Trusts. To make a fair comparison, we will only consider funds which invest solely in Singapore equities. Data is taken as at 31 Jul 13.

We will only compare 5-year and 10-year performance since we have sufficient data and any returns in a period shorter than 5 years is not meaningful.

The Unit Trusts are notorious for their high sales charge and management fees. We will examine the impact of sales charge on investment returns. I have also factored the brokerage charges of 0.28% for STI ETF and projected its impact to 5- and 10-year returns.

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Comparing 5-year performance (without Sales Charge)

Out of the 11 funds with 5 years of existence, STI ETF ranked 9th with 4.5% returns. Most funds have beaten STI ETF if sales charges have not been considered. This means that the fund managers are adding value to investors by getting above market average returns. These returns are include reinvestment of dividends.

  1. DWS SGP SMALL/MIDCAP: 9.4%
  2. Nikko AM Shenton HIF Singapore Dividend Equity: 7.6%
  3. Aberdeen Singapore Equity Fund: 7.0%
  4. DWS Singapore Equity: 5.8%
  5. LEGG MASON WA Singapore Opportunity Trust: 5.8%
  6. Amundi Singapore Dividend Growth: 5.5%
  7. Schroder Singapore Trust: 5.5%
  8. United Singapore Growth Fund: 5.4%
  9. STI ETF: 4.5%
  10. NIKKO AM Shenton Thrift Fund: 4.2%
  11. LionGlobal Singapore Trust: 2.9%

Compare 5-year performance (with Sales Charge)

After factoring the sales charge, STI ETF jumped to a 4th position with 4.4% returns. This shows the impact of the sales charge on your investment returns. It may look small at the start but the opportunity cost compounds over time and become significant.

Nonetheless, there are unit trusts that have outperformed the STI ETF. The safe conclusion is that STI ETF is the market average and most funds are likely to revert to the mean in the long run. This means that the funds that outperform currently are less likely to continue to outperform, while the under-performing funds are likely to catch up. You can try to pick the funds that you think may outperform the STI ETF, but chances are similar to you picking your own stocks that beat the market. It isn’t easy.

  1. DWS SGP SMALL/MIDCAP: 7.6%
  2. Nikko AM Shenton HIF Singapore Dividend Equity: 5.8%
  3. Aberdeen Singapore Equity Fund: 5.2%
  4. STI ETF: 4.4% (factored 0.28% brokerage fee)
  5. NIKKO AM Shenton Thrift Fund: 4.2%
  6. Amundi Singapore Dividend Growth: 3.7%
  7. DWS Singapore Equity: 3.7%
  8. United Singapore Growth Fund: 3.7%
  9. Schroder Singapore Trust: 3.6%
  10. LEGG MASON WA Singapore Opportunity Trust: 3.4%
  11. LionGlobal Singapore Trust: 1.2%

Comparing 10-year performance (with Sales Charge)

There are only 3 funds with 10-year history. STI ETF is ranked in the middle and once again, it shows that it is indeed the market average returns. Never the best but never the last.

One interesting point to note is that Aberdeen Singapore Equity Fund is outperforming STI ETF lesser in the 10-year period as compared to the 5-year period. Aberdeen was outperforming STI ETF by 24% [(5.2%-4.2%)/(4.2%)] in the 5-year period. But if we look at the 10-year returns, Aberdeen was only outperforming STI ETF by 1% [(10.9%-10.8%)/(10.8%)]. This is what I mean when I said in the above paragraphs that funds tend to revert to the mean over the long run.

  1. Aberdeen Singapore Equity Fund: 10.9%
  2. STI ETF: 10.8% (factored 0.28% brokerage fee)
  3. LionGlobal Singapore Trust: 8.7%

I hope this short study about investment returns gives you a good understanding about the risks and rewards when investing money with professionals. No doubt they are good at what they are doing as we can see signs of out-performance. However, the cost of investing with the professionals is eroding the returns of the investors. The out-performance is not significant if the investment period becomes 10 years or more. With so many investment options, investors have to be more savvy to evaluate and make good money decisions.

Click Here For A Comprehensive Guide To the STI ETF



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8 Comments
  • Jason
    Posted at 13:55h, 18 August Reply

    Do you advocate investing in STI ETF or I buy a basket of stocks making up the STI and avoid the ETF expenses? Bearing in mind of course that I can’t buy up all the component stocks that make up the STI, and at best can only invest in a few. I’m leaning more to avoiding all avoidable expenses and therefore skip the ETF because of the sales charges and related expenses. Happy to hear your view.

    • Alvin Chow
      Posted at 14:18h, 18 August Reply

      hey Jason, if you do not buy enough sti components, you might not have enough divrsification or replicate sti returns.

      your returns would out-perform if you manage to pick the right sti stocks. but the reverse is true too, if you choose the wrong sti stocks, your returns would under perform.

      moreover, sti changes her components once in a while and your portfolio may have to catch up with changes.

      the etf charges are not high. I think the cost is justifiable for saving you the hassle and selection effort + risks.

  • Raymond
    Posted at 23:28h, 18 August Reply

    Hi Alvin, thanks for compiling the above information. Just want to point out your method of calculating the sales charge. For the ETF sales charge, I assumed you just deduct 0.28% from the original annualised gain of 4.5%? This is incorrect as the sales charge is just a initial one time charge and not a recurring charge every year, so for a 5 year or 10 year period, it would be quite negligible.

    For the equity funds, if you took the after sales charge performance values direct from FSM, I believe it is based on 5% sales charge. For the savvy investors, this sales charge can easily be avoided. Some examples include RSP one lump sum through FSM at 0% sales charge or buy through another distributor which charges around 1% sales charge. These methods do help increase the odds of beating the index. However do agree with you that over long term, they might revert to their mean.

    • Alvin Chow
      Posted at 20:28h, 19 August Reply

      Hey Raymond, I did not deduct directly. I deducted the 0.28% cost at the start of the 5- or 10-year period. Because of the deduction, the capital to start with was lesser. But I have made an error in the compounding effect. I have re-did the calculation, and you are right, the impact is smaller.

  • ryan
    Posted at 15:04h, 19 August Reply

    When comparing STI ETF to unit trusts available out there, one thing we need to bear in mind is the benchmark of the Spore only funds. The fund managers might use the MSCI Singapore as benchmark as opposed to STI Index. International funds mainly track the MSCI Singapore and not STI. There’s difference between the MSCI Spore and STI Index. The STI Index is quite skewed towards the Jardine Group of companies which is not the case for MSCI Spore. If I’m not wrong, the STI out performs the MSCI Singapore over the periods under review, thanks mainly to the Jardine Companies again. This is one nuance we need to take note of when making comparison.

    • Alvin Chow
      Posted at 20:30h, 19 August Reply

      I chose STI ETF because it is a convenient alternative for Singaporeans to invest in. It makes more sense to compare the products that retail investors will buy.

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