A lot of people have often asked me during discussions on investment on what exactly is STI ETF when I tried to introduce them to it. Quite a few of them also seems to think that STI ETF is SGX which is the counter that represents the Singapore Exchange so I thought it will be good for me to write on this issue.
STI ETF stands for Straits Times Index Exchange Traded Fund and it is managed by State Street Global Advisors (SSgA). It has been listed on SGX since 17 April 2002. I am sure the Straits Times Index is familiar to most of us since it is an indication on the performance of the stocks in Singapore generally. But what is an Exchange Traded Fund ? ETF in short for Exchange Traded Fund, is a fund that tracks the index but can be traded like a stock. Thus STI ETF is a fund that tracks the Straits Times Index but can be traded like a stock on the Singapore Exchange.
Let me give an example of how STI ETF follows the STI. For example, at this point of time, STI is at 1711.13. This can be found on the main page of SGX where I have highlighted it with a red rectangular box.
Thus the STI ETF should be trading at a level of 1711.13 divided by 1000 which will give a price of around $1.71. At this point of time, the price of STI ETF is at $1.76 which can be seen in the picture below. I have also highlighted STI ETF and it's price with a red rectangular box.
Now some of you may ask how come the price of STI ETF is at $1.76 instead of $1.71 since STI is at 1711.13. This is because STI ETF does not really track STI exactly although it will try to track STI as closely as possible. It usually trades at a price slightly higher than the STI by a range of around 5 to 10 cents more but it is not really a cause of worry.
I will be touching the advantages of buying STI ETF as compared to stocks and unit trusts and perhaps some points one should take note when one buys the STI ETF in subsequent posts.
If you wish to find out about the STI ETF, the URL is here. The prospectus and the NAV per share can also be found at the link.
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hi. found your article very interesting and informative. however, just a query on the trading volume of the STI ETF. and if the trading volume is very thin, then is that a concern?
ReplyDeleteAs with all stocks, if the trading volume is very thin, it is a concern. This is because you may run into situations where you wish to buy or sell your stocks but you face difficulties in doing so since there are no buyers and sellers i.e. low trading volume. Moreover, even if there are buyers and sellers, the difference between the buying and selling price which is known as the spread will be rather significant and that means you will have a higher chance of receiving a less favorable price when you make any transaction.
ReplyDeleteWith regards to the trading volume of the STI ETF, it was a concern in the past. Nowadays, it is not so much of a concern. STI ETF can easily hit 100 lots these days and there are occasions where it has done 1000 lots before. Thus unless you are making purchases of such quantity for every transaction, it is not so much of an issue.
Hi Kay ,
ReplyDeleteYour explanation are clear and importantly easily understood by beginners like me. What do you think will be the right price (as of current position) to buy the STI ETF? Also what is the expected returns over a 5 yr and 10 year period. How is the managment fee deducted from the funds?
Guna
Hi Guna,
ReplyDeleteI can't really advise what is the right price to buy the STI ETF. The lowest the STI has hit is the level of around 1600 so the closer you can buy to this point, the better it will be. Currently, we are around 1200 points away from this level so you have to form your own judgement on whether the price is good enough. I believe you can look at the annual report for the returns for the past 5 years and 10 years period and that can give a good gauge of the expected returns although 5 years may be too short a time frame. The management fee is deducted from the dividends the fund receives.
Kay
Hi it is written that the etf is managed by State Street Global Advisors (SSgA). So is the dividend given by them as well?
ReplyDeleteHi,
ReplyDeleteBut how can I hedge the risk of investing in STI ETF using derivatives available on the Singapore Exchange?
Thanks