Instrumental Returns Of The STI Over The Past 10 Years

 04/02/14 3:00 pm
 
Last week State Street Global Advisers updated the ten year performance chart of the SPDR® Straits Times Index (STI) ETF as of the end of 2013. ETF stands for Exchange
 Traded Funds, which is basically an investment fund that can be bought and sold like a stock on the Singapore Exchange (SGX). There are two ETFs listed on SGX that track the performance of the STI – the SPDR® STI ETF and the Nikko AM STI ETF. The SPDR® STI ETF was introduced in April 2002, while the Nikko AM STI ETF was later introduced in February 2009.

Another feature of the ETF is that in order to provide returns that track the STI, the ETF invests in the stocks that make up the index, which are then appropriately weighted in order to resemble the performance of the index. These stocks become the primary assets of the fund. The fund will also be made up of multiple units, each of which has a Net Asset Value (NAV). When one refers to an ETF being “open ended”, it means there are no limits on the amount of units in the ETF unlike stocks, where there is a fixed number when issued. Hence in this case, the value of the fund depends on its net assets, ability to track the STI, and the performance of the STI itself. Some of the largest stocks of the STI were discussed inlast week’s highlight. Essentially, you can “invest” the in STI using an ETF.

The performance chart of the SPDR® STI ETF is detailed with or without dividends. With dividends, the NAV of the SPDR® STI ETF gained 140.4 percent in the ten years ending December 2013. Without dividends, the NAV gained 78.7 percent. On an annualised basis, the NAV of the ETF averaged a 9.2 percent annual gain with dividends and a six percent annual gain without dividends.

Hence the composition of the annualised returns over the past ten years were as follows:
[chart]

As noted above, the ability of the ETF to track the STI will have an effect on the performance of the ETF. Over the same period of time the index gained 79.5 percent without dividends, which also generated an average annualised return of six percent over the ten years. NAV will also take into account the costs associated with the ETF which are usually bundled together to form the total expense ratio. The current annual total expense ratios for the SPDR® STI ETF and Nikko AM STI ETF are respectively 0.3 percent and 0.39 percent of the NAV. This is lower than traditional funds that might charge between one percent and two percent per annum.

The Nikko AM STI ETF has a smaller unit size than the SPDR® STI ETF. At a price of $3.00, the minimum investment in the Nikko AM STI ETF is $300 and the minimum investment in the SPDR® STI ETF is S$3,000. Despite the underlying STI ending the 2013 year with its price unchanged, growing participation in the Nikko AM STI ETF meant that turnover increased by 18 percent. The two ETFs distribute dividends on a semi-annual basis.

These two ETFs were also amongst the most liquid of SGX listed ETFs in 2013 and both ETFs are classified as Excluded Investment Products (EIP), which do not require retail investors to be pre-qualified by their brokers before trading.