Investing our money to grow and beat inflation over the long-term is important to building our wealth and safeguarding our retirement. However, starting the investing journey can be filled with uncertainties and can also be daunting.
This is why the STI ETF is usually recommended as a good first investment to start learning about investments and building your confidence. In this guide, you will find everything you need to know about investing in the STI ETF.
What Is The Straits Times Index (STI)?
UK-based FTSE Group, Singapore Press Holdings and the Singapore Exchange (SGX) jointly created the FTSE ST Index Series. In the series, the Straits Times Index (STI) serves as the benchmark index for Singapore’s stock market.
Comprising the 30 largest and most liquid blue chip companies listed on the Singapore Exchange (SGX), the STI accounts for close to 80% of the total value of all listed companies on SGX.
The 30 companies on the STI aren’t always the same either. FTSE carries out quarterly reviews of the STI constituents, in March, June, September and December, and may delete or insert companies into the STI, based on its defined rules.
The STI is an index, which is calculated from the performance of individual stocks. As such, we cannot “buy the STI”. For those who wish to gain exposure to the performance of the STI, they can buy into an Exchange Traded Fund (ETF) that seeks to replicate the performance of the STI.
What Are The 30 Constituent Stocks That Make Up The STI Today?
At the STI comprises the 30 largest and most liquid stocks in Singapore, it is always a snapshot of Singapore’s market. It contains many household names you’ll be familiar with and even interact with on a daily basis.
|No.||Constituents||Market Cap (Billion)*||Index Weight (%)**|
|5||Jardine Matheson Holdings||US$31.2||6.49%|
|13||Jardine Strategic Holdings||US$24.1||2.50%|
|15||CapitaLand Mall Trust||$7.9||1.87%|
|16||CapitaLand Commercial Trust||$7.1||1.81%|
|17||Mapletree Logistics Trust||$7.3||1.75%|
|19||Mapletree Commercial Trust||$6.9||1.74%|
|27||Dairy Farm International||$6.6||0.86%|
|28||Jardine Cycle & Carriage||$8.5||0.85%|
* From SGX Stock Screener
** From FTSE Group STI Factsheet
Looking through this list, we can easily see why the STI can be a good place to start our investing journey. Many of these companies are household names we see around the island and regularly use. Even companies that may be less familiar, such as Jardine Matheson Holdings, owns businesses that we interact with regularly, and we just need to do some desktop research to learn more.
During the latest quarterly review in June, SPH has already been earmarked to be replaced by Mapletree Industrial Trust. While this has been announced, the respective deletion and insertion will only take place on a slightly later date, on June 22 in this case.
CapitaLand Commercial Trust is also in the midst of a proposed merger with CaptiLand Mall Trust. Once this is completed, CapitaLand Commercial Trust will also make way for another entrant.
The STI Reserve List
Once stocks are deleted from the STI, there is a reserve list of five stocks that will be inserted to take its place. Currently, the five stocks on the STI reserve list is:
#i Keppel DC REIT
#ii Suntec REIT
#iii NetLink NBN Trust
#iv Frasers Logistics & Commercial Trust
#v Keppel REIT
You can refer to the most updated list of the STI Constituents here.
What Is An ETF?
An Exchange Traded Fund (ETF) is a fund that seeks to passively mimic the performance of the index it is tracking, like the STI. The ETF manager’s job is not to make active investments to grow your investment returns, but to diligently ensure that the ETF continues to represent the index as closely as possible by performing rebalancing and other tasks.
Since ETFs do not attempt to do active trading to try to beat the market, fees for ETFs are lower than traditional mutual funds, also known as unit trusts. Because ETFs are traded on the stock market, you can also buy or sell them any time.
In trying to replicate the performance of the index, the ETF will typically have a tracking error. This is mainly due to the following reasons:
#i Transaction costs to buy and sell constituent stocks when they are deleted or inserted into the index
#ii Bid-Ask spread incurred when making the transactions
#iii ETF management fees and related costs
Read Also: Why It Makes Sense For You To Invest In ETFs
What Is A STI ETF?
There are currently two ETFs that track the performance of the STI:
#1 SPDR Straits Times Index ETF (SGX: ES3)
#2 Nikko AM Singapore STI ETF (SGX: G3B)
As their name suggests, the difference is that they are managed by two different companies – SPDR and Nikko AM. In essence, they both seek to do the same thing, and should give similar returns. You can refer to the fund fact sheets for both ETFs from SPDR and Nikko AM for more information.
The key difference will lie in how well they track the STI and the fees they charge. Since an ETF’s job is to track the performance of their chosen index closely, any deviation, even “positive” ones should be a sign of concern that the ETF isn’t doing an accurate job.
Just like the STI, these ETFs are market-weighted, so value of stocks they hold is in proportion to the capitalisation (total market value) of the company. As years go by and stocks on STI are reviewed, added or removed from the index, these STI ETFs will similarly track the changes by buying and selling the respective stocks.
How To Start Investing In The STI ETF?
There are 3 main ways for Singaporeans to invest in a STI ETF:
Method 1: Invest In A STI ETF Through A Brokerage
Since both the SPDR and Nikko AM ETFs are traded on SGX, you can simply invest by buying it through a stock brokerage the same way you would buy an individual stock.
For those who have not invested in stocks before, we have written a step-by-step guide to buying your first stock, and also compiled a comprehensive list of the online stock brokerages in Singapore and their fees.
Method 2: Invest Using Regular Shares Savings (Monthly Investment Plan)
Regular Shares Savings (RSS) plans, also known as monthly investment plans, is another good way to invest into a STI ETF over time, with starting capital of as little as $100 a month.
Benefits of this approach are simplicity (you set up a RSS plan online or at an ATM), recurring nature and the fact that it allows you to practise dollar-cost averaging implicitly.
Method 3: Invest Using CPF Investment Scheme
You can also use your CPF Ordinary Account to invest in a STI ETF. It is one of the four approved ETFs that can be invested under the CPF Investment Scheme (CPFIS). To do so, you need to apply a CPFIS scheme account with one of the local banks and link it up with your brokerage account.
The process of buying the STI ETF using CPF monies is the same as you would do with cash, you just need to indicate on your brokerage platform that you are using CPF to pay for the shares. You can invest as much as you like after the first $20,000 in your CPF Ordinary Account.
Once we have started investing in the STI ETF, and have built up our knowledge and confidence, we can also invest in individual stocks in Singapore. We can also broaden our investments by looking to invest in US and Hong Kong listed stocks.
This article was first published on 12 June 2018, and updated to include the latest information.
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