Friday, 25 September 2015

Make sure you know what STI ETF is all about

In the current market downturn, its always good to stock up on STI ETF's. You know, chuck your money at ETF's, do nothing and wait, collect dividends.

There are a couple of Singapore ETF's currently in the market, but I guess the one that is most well known would be State Streets SPDR ETF (can be found under the ticker STI ETF on any brokerage site) But how well do you know what you are chucking your cash into when you buy these ETF's, and what should you look out for? Or are you anyhow investing again?

1) Its components


The STI itself is dominated by a few large cap stocks, which then negates the benefits of buying into the ETF. By looking at its holdings, 50% of its returns in going to depend on how bullish you are on DBS, Singtel, UOB and OCBC. If you already have these stocks in your portfolio, there would not be much of a point to buy the ETF

2) Its sector weightage


To put it more clearly, buying ETF's means you are bullish on banks, telecos, property and the Jardine group. If you think there are risks in each sector, e.g banks with slowing loan growth, telcos with the 4th operator, property with the cooling housing and china market, and jardine's slowing consumer discretionary growth, then the ETF may not be suitable

3) Total expense ratio
There's actually a hidden cost to buying ETF which is in the total expense ratio that comes to 0.3% for STI ETF. Its still way lower than those charged by mutual funds and a mini plus side is that its taken out of the dividend distribution so you don't actually physically pay the etf every year

4) Dividends


It pays a 3.3% dividend yield, so even if the index gets stuck around the 2800 level, you still get a healthy yield that can handily beat your fixed d, cpf and government bonds.

In conclusion, ETF's are a good thing to have if you don't have any exposure to banks/telcos in Singapore and can't decide what to buy in a downturn. Just chuck your cash in there (even better if you use dollar cost averaging), sit back, wait it out and get 3.3% a year in dividends.

3 comments:

  1. Hi LX

    I thought Jardine already being replaced.. Pls verify as follow.

    http://www.channelnewsasia.com/mobile/business/uol-yangzijiang-and-sats/2100218.html



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  2. Hi Rolf, thanks for that clarification. I guess the ETF guys are still in the process in switching out their stakes. This means that the index will be concentrated

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