Is the STI a good index?

I had previously written a post that 30 stocks is definitely not enough for diversification: here. However, many investors are currently putting money into the Straits Times Index (STI) fund regularly.

As you may know, the STI is a basket of 30 stocks. The STI is actually not passively managed as there are reviews to choose the basket of stocks. In 2015 last year, there were changes to the index. Olam, Jardine Matheson, and Jardine Strategic Holdings paved away for UOL, Yangzijiang, and SATS.

STI is an actively managed index

I could not find out who is the review board that selects the stocks, but the changes made were announced by three parties: SPH, SGX, and FTSE. The changes were prompted by new rules requiring shares on the STI to have a reasonably high level of turnover or liquidity.

In my previous post, I said that buying only a selective few of stocks, albeit the total number of stocks, will not be able to represent the entire market. In our case, the STI is used to represent the Singapore stock market.

Since the STI is chosen on a criteria on level of turnover and liquidity, this basket might actually underperform or over perform the actual Singapore stock market. The period of over or under performance can last for periods until to decades.

For example, large cap stocks in the US have outperformed the market in the 1960s while small caps underperformed. Following the 1960s, the situation reversed with small caps outperforming the market. Making the link to Singapore, it is possible that the STI of 30 chosen stocks does unperformed the Singapore stock market, because it is not a representation of the market.


Do we have alternatives?

Sadly, the answer is no. I done a search, and there are two ETFs for the STI. They are namely the State Street Global Advisors SPDR STI ETF and the Nikko AM STI ETF. Both tracks the STI of 30 stocks.

There is, however, another index for Singapore. It is the iShares MSCI Singapore ETF. This is their website: link. It is stated on their website that it gives targeted access to 85% of the entire Singapore market.

I compare this to that of the STI. According to a link I found (dated 29 Jan 2016), the STI covers $211,599 million in market capitalisation as compared to the total market capitalisation of $297,656 million in total, coming up to 71%. From the MSCI Singapore Index (link: here, dated 29 Jan 2016), the total market capitalisation is $199,950 million. This gives 67%, which is lesser than the STI market capitalisation.

Holdings

These are the holdings by the respective indexes.

iShares MSCI Singapore ETF
Straits Times Index
Similar
Ascendas Real Estate Inv Trust
Ascendas Real Estate Inv Trust
Keppel Corp Ltd
Keppel Corp Ltd
Yangzijiang Shipbuilding (Holdings) Ltd
Yangzijiang Shipbuilding (Holdings) Ltd
Jardine Cycle & Carriage Ltd
Jardine Cycle & Carriage Ltd
City Developments Ltd
City Developments Ltd
CapitaLand Ltd
CapitaLand Ltd
Capitamall Trust
Capitamall Trust
ComfortDelGro Corp Ltd
ComfortDelGro Corp Ltd
Singapore Airlines Limited
Singapore Airlines Limited
StarHub Ltd
StarHub Ltd
DBS Group Holdings Ltd
DBS Group Holdings Ltd
Golden Agri-Resources Ltd
Golden Agri-Resources Ltd
Wilmar International Ltd
Wilmar International Ltd
Genting Singapore PLC
Genting Singapore PLC
Global Logistic Properties Ltd
Global Logistic Properties Ltd
Noble Group Ltd
Noble Group Ltd
Hutchison Port Holdings Trust
Hutchison Port Holdings Trust
Oversea-Chinese Banking Corp Ltd
Oversea-Chinese Banking Corp Ltd
SembCorp Marine Ltd
SembCorp Marine Ltd
Singapore Technologies Engineering Ltd
Singapore Technologies Engineering Ltd
Singapore Exchange Ltd
Singapore Exchange Ltd
Singapore Press Holdings Ltd
Singapore Press Holdings Ltd
United Overseas Bank Ltd
United Overseas Bank Ltd
UOL Group Ltd
UOL Group Ltd
SEMBCorp Industries Ltd
SEMBCorp Industries Ltd
Singapore Telecommunications Limited
Singapore Telecommunications Limited
Different
Capitaland Commercial Trust
Hongkong Land Holdings Ltd
Suntec Units Trust
SATS Ltd

SIA Engineering Co Ltd

Thai Beverage PLC

The conclusion I got from here is that they are very similar in composition. 26 stocks are the same as the STI.

Expense ratio

This is my findings on their expense ratio, looks around the same level as well.
ETFs
Expense ratio
SPDR Straits Times Index ETF
0.30%
Nikko AM Singapore STI ETF
0.42%
iShares MSCI Singapore ETF
0.48%

Conclusion

I would gather that both the STI nor the iShares MSCI Singapore ETF would be a good representation of the Singapore market (71% and 67% is not much of a difference). They have similar expense ratio as well. On the other hand, Vanguard charges 0.05% on the S&P, the home fund for Americans. However, due to the small size of the Singapore market, the best choice we have now is either one of the three ETFs.
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3 comments

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Cory
AUTHOR
6 March 2016 at 14:36 delete

I think what's matter most is the expense ratio.

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Serendib
AUTHOR
6 March 2016 at 18:27 delete

not to mention domicile - the US-domiciled MSCI Singapore ETF will attract 30% WHT on dividends for foreign investors. Only positive is low brokerage fees - so all in all, seems like a better bet only if you're a trader.

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7 March 2016 at 00:08 delete

Agree with you Cory. The more the earn, the less we make.

Thanks Serendib, what you mentioned is something I missed out. Since it is US domiciled, the 30% withholding tax takes away a large chunk of our return. It is a good point, thank you.

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