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SPDR STI ETF VS Nikko AM STI ETF: What’s The Difference Between These 2 STI ETFs Listed On The SGX?

How should you choose between these two different ETFs tracking the Straits Times Index (STI)?


SPDR STI ETF vs Nikko AM STI ETF

For those new to investing, putting your money in a benchmark country index is one of the easiest and safest ways to begin your journey. In Singapore, the benchmark index is the Straits Times Index (STI), and there are two STI ETFs – SPDR STI ETF and Nikko AM STI ETF – that we can invest in.

What Is A Benchmark Index?

A benchmark index of a country usually refers to the largest and most liquid stocks listed on its stock market. In Singapore, the Straits Times Index (STI) is made up of the 30 largest (by market capitalisation) stocks listed in Singapore. Combined, these companies comprise approximately 80% of the entire market value of stocks listed in Singapore. Hence, how the 30 stocks on the STI performs is representative of how the Singapore market performs. The STI is comprised of:

No. STI Constituent Stocks Stock Code Market Capitalisation (billion) Index Weight (%)
1 DBS Group D05 $78.7 18.5
2 Oversea-Chinese Banking (OCBC) O39 $49.0 11.5
3 United Overseas Bank (UOB) U11 $48.6 11.4
4 SingTel Z74 $43.4 6.8
5 Jardine Matheson
Holdings (JMH)
J36 $54.1 5.1
6 CapitaLandInvest 9CI $20.0 4.7
7 Keppel Corporation BN4 $12.3 3.8
8 CapitaLand Integrated Commercial Trust (CICT) C38U $14.4 3.4
9 Singapore Exchange (SGX) S68 $10.5 3.3
10 Ascendas REIT A17U $9.8 3.1
11 Singapore Airlines (SIA) C6L $16.3 2.5
12 Wilmar International F34 $26.1 2.4
13 Hongkong Land H78 $14.6 2.3
14 ST Engineering S63 $12.5 2.0
15 Mapletree Commercial Trust (MCT) N2IU $5.9 1.8
16 Thai Beverage Y92 $17.6 1.6
17 Genting Singapore G13 $9.4 1.5
18 Mapletree Logistics Trust (MLT) M44U $6.5 1.5
19 Venture Corp V03 $4.9 1.5
20 UOL Group Limited U14 $6.1 1.4
21 Mapletree Industrial Trust (MINT) ME8U $5.3 1.3
22 SATS S58 $5.1 1.2
23 Sembcorp Industries U96 $5.0 1.2
24 Jardine Cycle & Carriage C07 $11.4 1.1
25 City Development C09 $7.3 1.1
26 Frasers Logistics & Commercial Trust (FLCT) BUOU $4.6 1.1
27 ComfortDelGro C52 $3.2 1.0
28 Yangzijiang Shipbuilding BS6 $3.6 0.9
29 Keppel DC REIT AJBU $3.2 0.7
30 Dairy Farm International D01 $5.0 0.4
  514.4B 100%

 

Read Also: Here’s How The Stocks Within The Singapore’s Straits Times Index (STI) Have Changed Since 1998

Country indexes can be found across all major economies. In Hong Kong, the benchmark index is the Hang Seng Index (HSI) made up of 50 of the strongest stocks listed in Hong Kong. In Australia, it is the ASX 200, comprising 200 of the strongest liquid stocks listed in Australia. In the USA, it is the S&P 500, made up of close to 500 of the strongest stocks listed on the New York Stock Exchange (NYSE) and NASDAQ. The FTSE 100 is the 100 largest stocks listed on the London Stock Exchange (LSE).

A benchmark index also serves the purpose of allowing investors to measure (or benchmark) their investment portfolio performance against the market returns. Of course, investors should aim to beat the market returns in any given year, otherwise, we would have been better off investing in the benchmark index rather than taking additional risks or actively trading our portfolio.

How To Invest In The Benchmark Index?

We can’t invest directly in the benchmark index. We have to rely on exchange traded funds (ETFs) that track the benchmark index by replicating its component stocks.

In Singapore, there are two ETFs that track the Straits Times Index: 1) SPDR STI ETF; and 2) Nikko AM STI ETF. We can invest in these ETFs in the same way we typically invest in other stocks listed on SGX – via a brokerage account (and by having a CDP account).

With just a single investment into either of the STI ETFs, investors are able to gain broad exposure to the Singapore market.

Read Also: Complete Guide To Investing In The STI ETF

Which STI ETF Is Better – SPDR STI ETF or Nikko AM STI ETF?

Since there are two STI ETFs, the common question is which should investors choose?

Both the SPDR STI ETF and the Nikko AM STI ETFs aim to track the Straits Times Index (STI) as closely as possible. Here’s a comparison of its differences.

#1 Fund Managers

The most obvious difference is that the two STI ETFs are managed by different fund managers. The SPDR STI ETF is managed by State Street Global Advisors Singapore Limited, one of the largest fund management firms in the world. State Street Corporation can trace its history back to 1792 and has over US$4.1 trillion of assets under management.

Nikko AM STI ETF is managed by Nikko Asset Management Asia Limited, one of the largest asset managers in Asia. Nikko Asset Management has over US$271.5 billion of assets under management, and was founded in 1959.

In this regard, both can be said to be equally matched as they are managed by highly reputable and stable fund management firms.

#2 Track Record

The SPDR STI ETF was listed on the SGX on 17 April 2002, while Nikko AM STI ETF was listed on the SGX on 24 February 2009.

As the SPDR STI ETF has been around longer, it has a longer track record we can rely on for information. Nevertheless, both have been around for more than 10 years to look at their past track record.

Read Also: Active Investing VS Passive Investing, Lump Sum VS Dollar-Cost Averaging: Which Investment Strategy Suits You Best?

#3 Fund Size

A larger fund is typically looked upon as more trusted, stable and better able to enjoy economies of scale.

Since the SPDR STI ETF has been around longer, it has also been able to capture a larger slice of investments into the STI ETF. The SPDR STI ETF has $1.613 billion under management, while the Nikko AM STI ETF has $605 million under management.

#4 Performance

The performance of an ETF is usually based on how closely its returns are able to track the index it is trying to replicate. This also means that it will almost always underperform the market, as it charges a management fee and incurs trading costs while trying to match the benchmark returns.

The SPDR STI ETF delivered a 1-year annualised return of 10.79% (as at March 2022). In the past five years, the SPDR STI ETF has delivered an annualised return of 4.82%.

The Nikko AM STI ETF delivered a 1-year annualised return of 10.83% (as at March 2022). In the past five years, the Nikko AM STI ETF delivered an annualised return of 4.69%.

Comparatively, the Straits Times Index delivered a 1-year return of 11.36% over the same period and a 5-year annualised return of 5.25%.

Returns SGX Stock Code 1-year
(as at March 2022)
5-year annualised
(as at March 2022)
Straits Times Index (STI) 11.36% 5.25% per annum
SPDR STI ETF ES3 10.79% 4.82% per annum
Nikko AM STI ETF G3B 10.83% 4.69% per annum

Source: Nikko AM, State Street Global Advisors

As you can see, both the STI ETFs achieved a slightly lower return compared to the benchmark STI. The Nikko AM STI ETF delivered a better 1-year performance, while the SPDR STI ETF managed to deliver a slightly better 5-year annualised performance. Nevertheless, the margins between the two are not that big.

#5 Expense Ratio

The total expense ratio (TER) measures how much of a fund’s assets are used for its operations, including for administrative and miscellaneous reasons. The biggest component of a fund’s expense ratio is typically its fund management fees. Obviously, the lower the expense ratio, the better it is for investors.

Both the SPDR STI ETF and the Nikko AM STI ETF have an expense ratio of 0.3% per annum.

While both STI ETFs technically charge the same amount, SPDR is actually receiving more money because of its larger asset under management (AUM).

#6 Tracking Error

If we ignore management fees, performing worse off than the market is always frowned upon. However, for ETFs, performing significantly better than the index is also not viewed as a positive thing. This is because its job is to replicate the market returns as closely as possible.

The difference in replicating the market returns is usually referred to as tracking error. The SPDR STI ETF has a rolling 1-year tracking error of 0.1597% (as at March 2022), while the Nikko AM STI ETF has a 3-year annualised tracking error of 0.15% (as at March 2022).

The Nikko AM STI ETF seems to have a slightly lower tracking error. However, the way the two STI ETFs report it is different. SPDR STI ETF reports a 1-year rolling tracking error, while the Nikko AM STI ETF reports a 3-year annualised tracking error.

#7 Dividend

The component stocks within the Straits Times Index (STI) usually pay out dividends. In fact, Singapore stocks are known to pay some of the best dividends across Asia. These dividends will be paid to the respective ETF, which will subsequently pay out these dividends to its investors.

Both SPDR STI ETF and Nikko AM STI ETF have a distribution policy of paying out dividends semi-annually. This means that the ETFs do not pay out dividends immediately each time it receives them from their investments. Instead, both STI ETFs hold on to the dividends, and pay it out at regular intervals.

According to the SGX ETF Screener, SPDR STI ETF has a dividend yield of 2.84%, while the Nikko AM STI ETF has a dividend yield of 1.50%.

Read Also: Here’s How You Can Build A Dividend Income Portfolio To Replace Your Wage In Singapore

No. How They Differ SPDR STI ETF (SGX: ES3) Nikko AM Singapore STI ETF (SGX: G3B)
1 Manager State Street Global Advisors Nikko AM
2 Track Record Close to 20 years (Listed on 17 April 2002) More than 12 years (Listed on 24 February 2009)
3 Fund Size $1.6 billion $605 million
4 Performance (as at Sep 2021) 1-year: 10.79%
5-year: 4.82% per annum
1-year: 10.83%
5-year: 4.69% per annum
5 Expense Ratio 0.3% 0.3%
6 Tracking Error Rolling 1-year tracking error: 0.1597% 3-year annualised tracking error: 0.15%
7 Dividend 2.84% (paid semi-annually) 1.50% (paid semi-annually)

 

Why The STI ETF Makes A Logical Investment For Many

The STI ETF is a viable investment for both beginners and experienced investors.

For beginner investors, it offers a safe way to get started even without much investing knowledge or experience. We also don’t have to monitor our investments too closely, and can embark on a passive investing strategy, as our portfolio is instantly diversified with the 30 strongest stocks listed in Singapore. Of course, we can use this as a springboard to learning more about investing, and eventually setting aside a portion of our portfolio to invest in individual stocks in Singapore and even outside of Singapore.

Moreover, indexes are also regularly reviewed and adjusted, and any changes made to the index will be replicated by our fund managers. As fund managers are just replicating the adjustments made to indexes, their fund management fees are typically much lower than actively managed funds.

For experienced investors, it can be used as a great complementary passive investment strategy to diversify our risk, even as we take on riskier investments in the market.

Read Also: Step-By-Step Guide To ETF Investing In Singapore

This article was first published on 29 November 2018 and been updated to include the latest information.

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