Friday 28 May 2021

Is STI ETF really not worth investing in?

I am writing more frequently nowadays considering that I am spending much more time at home. Weekends now kinda feels like a weekday as I find things to keep me occupied besides watching some dramas or movie. How have you been spending your days? Moving on to today's topic, there has been a huge amount of discussion on whether is it still worth it to put your money into STI ETFs considering it's slow growth and companies in it does not seem attractive enough. With STI ETFs recovering recently and going back to the $3 levels , today I like to explore on whether should we still be putting money into it. So first, definitely, let's talk about what STI ETF is:

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So we currently have 2 ETFs, namely the SPDR STI ETF and Nikko AM STI ETF that tracks the Straits Times Index. Both ETFs help investors buy into the diversified exposure of leading companies in Singapore.

As of 26 May 2021, the top 10 holdings of SPDR STI ETF and S&P 500 are:



I am sure most in people in Singapore are very familiar with the companies. The top 10 companies already account nearly 70% of the total assets. This is very much different from the S&P 500 where the top 10 companies only make up about 27 % of it's total assets. Of course, this is because there is only 30 companies in STI while there are 500 companies in S&P 500. Another huge difference is that most of the top 10 companies in STI have business that are in the region or in SG whereas the top 10 companies in S&P 500 provides to the world. What this also means is that you will need significant growth from the top 10 companies in stock prices to push the whole STI ETF. Similarly, if a company in the top 10 is affected, it could bring the STI down by quite a bit.

Why people go for different products

Definitely, the STI is great for those who prefer less fluctuation in their portfolio. Just like why people would prefer to put their money into different products for growth, the STI is also a different area that you can put your money in. I know that many people have build their wealth by investing in the SG stock market and I will be just stating my own experiences investing so far in it. I started investing in SG stock market in 2017 so far I have had stocks like SGX, OCBC and SPDR STI ETF which is in the green as I bought them at the right time when prices were relatively low compared to today. However, I have always my biggest losses from the SG market mainly because when I first started, I was very much absorbed into the idea of high yield and bought many stocks aimlessly like Design Studio which I have talked about in my previous video. STI ETFs are great to start investing first and slowly moving towards more volatile assets as the "base" would be there.

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Treat it as a "safer" or "stable" portion of your portfolio

*This is not a recommendation on how your portfolio should be structured and it is just as a opinion.

Singapore's STI ETFs does not fluctuate as much as US stocks and I am sure that's why some people prefer having their funds in the SG market. So then if you already have a portion of your money in any of the STI ETFs or if you are young, you can treat the STI ETF as the "safer" or "stable" portion although it will still fluctuate according to the direction of the US market or news.

My experience is that the price of the STI ETFs tend to be rather stable however it does not go up much and when it experiences a huge drop like when the pandemic strike, it took some time to recover back to it's current $3+ price but in terms of it's dividends, it is rather substantial. Of course, I would think that if you are investing in the US market or looking for larger capital growth, STI is really not what you will be looking at but it is a good diversification as part of your portfolio overall. There are definitely also stocks listed in the SGX that are attractive like iFast, Sheng Shiong and FLCT just to name a few.

My current holdings

As I have mentioned in my previous articles and videos, I do hold both SPDR STI ETF and Nikko AM STI ETF because I first invested in Singapore stock market before slowly moving over to the US market. I have to admit that my individual Singapore stocks (counters like Singtel and Design Studio) have given me huge losses but so far for my STI ETF holdings, dividends have been rather substantial and I like it that when refreshing my portfolio in the day time, it doesn't fluctuate as much as when I refresh it in the night. I would find STI ETF a good way to diversify your holdings otherwise if it really is too boring or doesn't garner the gains you like, I would say to give STI ETF a skip but do be prepared for the volatility in the US markets like what we have seen!

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