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17th April - “GROW" (Part 1)


Straits Times Index Investments

by Geoff Howie, Market Strategist, SGX

The Straits Times Index (STI), the benchmark index for the Singapore stock market, comprises 30 blue chip stocks listed on Singapore Exchange (SGX). Some of the largest constituents are Singapore’s biggest companies including Singtel, DBS Group, OCBC, UOB and Keppel Corp. The 30 stocks account for a large chunk of the total market capitalisation of the entire Singapore stock market; at the end of February, market capitalisation of STI companies stood at $531 billion, representing 55% of the total market capitalisation of S$973 billion, which takes into account non-active secondary listings.

The 30 STI stocks represent 14 different sectors including Aerospace & Defense, Banks, Beverages, Financial Services, Food Producers, General Industrials, General Retailers, Industrial Transportation, Media, Mobile Telecommunications, Oil Equipment, Services & Distribution, Real Estate Investment & Services, Real Estate Investment Trusts and Travel & Leisure.

The fact that almost every other stock of the Index represents a different sector has resulted in a diverse range of price performances of the constituents in recent years. Last year, CapitaMalls Asia generated a +71.7% price return while Wilmar International generated negative price return of -33.2% while the STI as a whole appreciated 19.7%. As of mid-March, 2013 price performances have varied from +12.8% for Jardine Cycle & Carriage to -12.5% for City Developments with the STI appreciating +3.8%.

Extending the timeframe, the STI generated positive returns in eight of the last 10 years to the end of 2012. The average annualised price return of the STI over this period amounted to +9.3% per year. This does not take into account the approximate 3.0% annual dividend yield of STI companies over these years. By comparison, over the 10-year period to the end of 2012, the average annualised return of the Urban Redevelopment Authority Property Price Index by residential type amounted to +6.3%.

Once upon a time, investing in a stock index was complex and reserved for those with an appetite for risk and leverage through futures contracts. Today, investors can invest in an index in one fell swoop through Exchange Traded Funds (ETFs). Two ETFs that track the STI are the SPDR STI ETF and the Nikko AM STI ETF. These ETFs provide investment funds that trade like a stock with the key product features of efficiency, transparency and flexibility. Please do note that the majority of ETFs are Specified Investment Products and require pre-broker approval before investments can be made.