Thursday, May 7

True performance of STI ETF and Unit Trust

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I did some research on the performance of local unit trusts which are focused on Singapore recently and compare it with the Straits Times Index and the performance of the STI ETF. The results proved to be quite interesting and I would like to share it my findings in this article.

The performance of unit trusts is often compared with a benchmark index. Thus, for unit trusts which are focused on equities listed on SGX, the appropriate benchmark would be the Straits Times Index. Any unit trusts that are worth your salt must be able to beat the Straits Times Index if you compare them with an appropriate time frame that is sufficently long.

Using data from fundsupermart, I have selected local unit trusts which are focused on equities listed on SGX and compare them with their annualized returns for the past 5 years against the Straits Times Index. You can see the data of these unit trusts in the diagram below and their annualized returns for the past 5 years are highlighted with a purple box.


Data of selected unit trusts from fundsupermart

So how do the performance of these unit trusts fare against the Straits Times Index for the past 5 years ? You can see their performances in the diagram below.



Out of the 8 unit trusts that I have used as a comparison, half of them managed to beat the Straits Times Index and that is quite decent after all. So the STI ETF is not such a terrific investment after all ?

There is one slight difference which is often overlooked. That one crucial difference is that the Straits Times Index, which the unit trusts are benchmarked against, does not take in the account of the giving out of dividends but the STI ETF does give out dividends.

So how much difference do the dividends play a part in affecting the performance of the STI ETF ? This time round, I calculated the 5 years annualized returns of the STI ETF with the effect of dividends being given out using Excel and it can be seen in the diagram below. If you wish to know more about the calculations, Mike from stistocks-info blog has an excellent article which can be found here.



Do take note that the dividends are adjusted for a stock split and the reason why I did not use a longer time frame was because I only managed to find the annualized 5 years and 10 years data for the unit trusts and the STI ETF was only listed in 2002.

As you can see from the diagram above, if you take into the account the effects of dividends, the returns are very different indeed. So how does that stack up with the performance of the unit trusts once again ?



The result is rather obvious. None of the unit trusts managed to beat the STI ETF when the effects of dividends are accounted for in the 5 years time frame that I selected. Do take note that the performances of these unit trusts are calculated on a bid to bid basis, in Sing dollars, with dividends being 'reinvested' at the dividend date as taken from fundsupermart.

However, 5 years is a rather short time frame to be used to compare between different investments. Preferably, I would use a time frame of at least 10 years but due to the limited data that I had, I can only use a time frame of 5 years. Otherwise, this serves well as a preliminary gauge on the performance of the STI ETF and the unit trusts.

Personally, I'm rather surprised by the results of my findings if the data that I have used are indeed correct. So if you are planning to buy a local unit trust that have their focus on equities listed in Singapore, do make a serious consideration before making your decision.
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23comments

  1. YanMay 9, 2009 at 4:40 PM

    Hi Kelvin,

    Would like to check if we buy sti etf from POEMs, where/ how do we check the dividends?
    cos i only realised that sti etf gave out dividends from your post! =)

    ReplyDelete
  2. yanMay 9, 2009 at 4:53 PM

    opps I ams so sorrie, kay!
    I typed the wrong name!

    ReplyDelete
  3. KayMay 10, 2009 at 4:03 AM

    This comment has been removed by the author.

    ReplyDelete
  4. KayMay 10, 2009 at 4:03 AM

    Hi Kelvin,

    It's alright. I make the same mistake at times too. You have to check the dividends information on the SGX website. Unfortunately, SGX has just launched its new revamped website and I am having some problems with using the website so I can't show you the link yet. I will post in the comments if I can find it.

    Kay

    ReplyDelete
  5. ChengMay 14, 2009 at 11:36 PM

    Hi Kay,

    Do take note of management fees. STI ETF from street tracks charges only 0.3% of management fee. Whereas other funds may charge 3-5% of management fee. It makes a whole lot of difference. :D

    Cheng

    ReplyDelete
  6. KayMay 15, 2009 at 12:19 AM

    Hi Cheng,

    Yup, that is part of the reason on the disparity in the performance of the STI ETF and the unit trusts.

    ReplyDelete
  7. BruceMay 18, 2009 at 11:21 AM

    it is not surprising to see the similar trend as that being observed in US. majority (one says that is 90%) of the actively managed unit trust of equity nature do not performance better than index fund.

    ReplyDelete
  8. KayMay 18, 2009 at 8:41 PM

    Hi Bruce,

    I guess I was thinking more from the public's point of view. My hunch is that the majority of the public do not know that most unit trusts cannot beat the index fund in the long run.

    ReplyDelete
  9. Travelsmart365May 18, 2009 at 11:14 PM

    SGAM has dividend.

    ReplyDelete
  10. KayMay 20, 2009 at 12:29 AM

    Hi Bee,

    The SGAM Singapore Dividend Growth Fund gives out dividends indeed and the annualized returns have already factored that in.

    ReplyDelete
  11. AnonymousMay 23, 2009 at 9:17 AM

    Hi Kay,

    Abit confused on how you would calculate/judge the annualise returns. Could you kindly show how they are calculated?

    How would a one time $100,000 investment into a ETF like S&P 500fare with a 20 yr time frame? Would the returns be " buying price - selling price, + dividends" ?

    I don't understand how your other post regarding investing in S&P 500 got the derived amount from $100,000 initial investment to grow to $300,000+ in a 18 yr time frame.

    Many thanks!

    ReplyDelete
  12. KayMay 24, 2009 at 1:13 AM

    Hi,

    I calculated the annualized returns using the internal rate of return method. As much as I would like to show you how it is being calculated, I think it will be too long for me to type it here. Besides, there are articles online which explain on this. You may wish to take a look at the links below which I think are useful.

    http://news.morningstar.com/classroom2/printlesson.asp?docId=3228&CN=COM

    http://hspm.sph.sc.edu/COURSES/ECON/irr/irr.html

    Formulas are available in Excel that enables us to calculate the internal rate of return so what I did was that I added in the relevant details such as the dividends, price and the dates into a spreadsheet and Excel will compute the annualized returns automatically. If I were to do this by hand, it would take a really long time.

    Regarding the S&P 500 paper, I wish to clarify that I am not the writer of that paper. Thus, I'm not that sure on how the author got the derived amount.

    ReplyDelete
  13. AnonymousMay 25, 2009 at 9:25 AM

    Thank you very much for the excellent links. Provided very useful information

    ReplyDelete
  14. KayMay 25, 2009 at 2:00 PM

    Hi,

    I'm glad to be of some help.

    Kay

    ReplyDelete
  15. nickJune 29, 2009 at 9:23 AM

    Hi Kay,

    How can we find out the past performance of the dividends given out to by the ETFs? I don't seem to find them on their prospectus nor their historical chart..

    p.s. i think this is a great website with insight. moneytalk(with action) indeed.

    ReplyDelete
  16. KayJune 29, 2009 at 9:32 PM

    Hi nick,

    Thanks for your compliment. The old SGX website had a record of the historical dividends but it seems to be not available on the new SGX website so I'm not sure of how to get such data.

    Kay

    ReplyDelete
  17. AnonymousJuly 13, 2009 at 10:43 PM

    Can you include alongside the returns, including dividends & other issues from the 3 local banks which are the proxies for the economy if not the stock market.

    Dumb

    ReplyDelete
  18. KayJuly 14, 2009 at 6:38 PM

    Hi,

    Perhaps I will do so in the near future since I will need time to collect and process the relevant data.

    Kay

    ReplyDelete
  19. FalcAugust 3, 2009 at 3:33 PM

    I was curious on the dividend rate of the other ETF listed here, eg. lyxor HS or topix. If my numbers below are correct, i'm puzzled why their dividends are always lower. Don't tell me HK and Japan blue chips traditionally give out less dividend or somehow the ETFs withhold?

    year / STI / HS / Topix
    2007 / S$0.0775 / U$0.04 / U$0.007
    2008 / S$0.12 / U$0.06 / U$0.009
    After rough conversion of 1.5
    2007 / S$0.0775 / S$0.06 / S$0.0105
    2008 / S$0.12 / S$0.09 / S$0.0135

    ReplyDelete
  20. KayAugust 3, 2009 at 8:19 PM

    Hi Falc,

    I am not that sure either. Perhaps the ETFs has a high expense ratio thus the dividends being distributed are lesser. There can be other factors too such as the overall corporate earnings and the distribution percentage of the companies in the respective markets.

    Kay

    ReplyDelete
  21. ZzzSeptember 25, 2009 at 10:56 AM

    Kay, your blog is so informative. I'm glad that I googled it out :)

    ReplyDelete
  22. KaySeptember 27, 2009 at 9:22 PM

    Hi Zzz,

    Thanks for your compliment. I'm glad that you found my blog to be informative.

    Kay

    ReplyDelete
  23. QUALITY STOCKS UNDER FOUR DOLLARSJanuary 2, 2013 at 5:53 AM

    I have nothing against indexes. But I think focusing on narrow indexes that are much out of favor is better than just broad indexes when buying a broad index you are assured to perform as well as the market performs but not any better.

    ReplyDelete

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