Thursday, 17 September 2015

Why the STI ETF is better than most unit trusts

Are you a full time employee who finds it hard to make time to monitor one’s investment due to commitments? Or feel daunted by the market jargon and maze of financial statements when investing in the stock market?

If your answer is yes to either question, it may be good to leave your investment to fund managers. In my opinion, the best way is by investing in an ETF which tracks the Singapore Stock Index.

What is the Straits Time Index fund (STI ETF)?

Alvin from Bigfatpurse has written a comprehensive post about it.

For those who are busy or daunted by the lengthy article. Below are 5 points to know:

1)The Straits Time Index (STI) comprises of 30 companies listed on the SGX and is a net market capitalization weighted index

2) You do not invest directly into the STI index; this is done by investing in either the i) SPDR STI ETF or ii) Nikko AM STI ETF. There are listed on the SGX with stock codes ES3 and G3B respectively

3) While these 2 ETFs attempt to track the STI index, there is a small degree of tracking error

4) Investing in ETF is ideal for individuals who have a small investment capital or has no interest or knowledge to pick stocks

5) ETF are passive management funds while there is an alternative group of funds doing active management of funds called unit trusts

Bigfatpurse did an analysis on the returns of the SPDR STI ETF against unit trusts who possess a long track record investing in Singapore equities. Based on the 10 year performance of these unit trusts, the SPDR was ranked second in his analysis as of Feb 15.

How about at end August 2015? For the past two months, we had witnessed a stock market rout. Perhaps given the top dollars paid for these unit trusts’ managers, their brilliance would have protected our money better than the passive SPDR STI ETF. Here are the 10 year performance:

1 SPDR STI ETF – 5.7%
Schroder Singapore Trust – 5.7%
3 Nikko AM HIF Spore Div Equity – 5.5% 
4 Aberdeen Singapore Equity Fund – 5.5%
5 Amundi Spore Dividend Growth – 4.8%
6 Deutsche Singapore Equity – 4.7%
7 Nikko AM Shenton Thrift –3.8%
8 LionGlobal Singapore Trust –3.4%
9 United Singapore Growth – 3.3%

As of end August 2015, the SPDR STI ETF is now tied for first place on a 10 year performance basis. This is despite the higher expense ratios paid to fund managers who supposedly possess a wealth of investing experience or are top graduates. If we were to account sales charge, the STI ETF will lead the unit trusts.

Hence, for the lazy or time strapped individual, passive investing via ETFs may be a simple way to invest wisely. 

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