Why invest in STI ETF ? Since the STI ETF tracks the Straits Times Index, we can take a look at the historical performance of the STI. STI is a benchmark that tracks the performance of stocks in Singapore generally. The picture below which is taken from fundsupermart, shows the historical performance of STI from 1985 up to 2008. The numbers in the picture indicate the onset of bear markets.
From a region of around 700 points in 1985, it managed to touch a high of around 3800 in 2007. The important point to take note is that STI always rise in the long run as seen from the picture above. Between this period of 1985 and 2007, Singapore has faced periods of economic turmoil such as the recession in 1985 and the Asian Financial Crisis in 1997. Yet STI is still able to rise throughout these years. Since the STI ETF tracks the STI, it is likely that the STI ETF is able generate positive returns in the long run.
A study was done by La papillion, an investor who blogs at bullythebear.blogspot.com. His analysis can be found here. The key findings from his analysis is that on average, STI will give a returns of around 7% in the long run and that excludes dividends. If one includes dividends, the returns is likely to be slightly higher. This return of around 7% is more than the Singapore Government Bonds, which only offer around 4% for long term bonds and definitely more than the interest rate being offered in the CPF accounts.
STI ETF also gives out dividends. Currently it distribute dividends twice in January and July every year. The dividends for the previous years can be found on the SGX website here.
As a conclusion, STI ETF will be appropriate as a form of investment for anyone has the intention to hold this investment for a long time. The returns offered by the STI ETF is likely to outperform other similar form of investments in the long run.
I will be doing a comparison between ETF and unit trust as a form of investment in my subsequent posts.
Posts
