How does investing in STI ETF works? What is the difference between SPDR STI ETF (ES3) & NIKKO AM STI ETF (G3B)? Also, for a beginner, would a lump sum investment or monthly investment be more suitable? - Seedly
 

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Asked by Jared Ho

Asked on 15 Jul 2018

How does investing in STI ETF works? What is the difference between SPDR STI ETF (ES3) & NIKKO AM STI ETF (G3B)? Also, for a beginner, would a lump sum investment or monthly investment be more suitable?

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Kenneth Lou
Kenneth Lou
Level 9. God of Wisdom
Answered on 16 Jul 2018

Hey Jared!

The Straits Times Index, Exchange Traded Fund (STI ETF) was designed for passive investors who are just getting started. In fact, most Singapore financial bloggers and our Personal Finance SG Community actually advocate the STI ETF as one of the first products you should consider for this very reason – diversity at low cost. Let us break it down simply.

Straits Times Index (STI)

  • The STI basically tracks the top 30 companies in the Singapore market which are traded
  • These include DBS, OCBC, Singtel, Capitaland etc. (from a mix of industry verticals, you can find the full list below)
  • Fun Fact: The STI is actually used as the ‘benchmark index’ for other funds to peg themselves to. For example, you are a better fund if you ‘outperform the index or a poorly managed fund who ‘underperformed the index’

Exchange Traded Fund (ETF)

  • An ETF is a passively managed investment fund which is traded on the stock market
  • Passively managed because it just tracks the index (for example, buys the top 30 companies based on a certain allocation) hence lower fees
  • Traded on stock market indicates that it has high liquidity of buyers and sellers, which is a good thing for investors

For investing in the Singapore’s market, one can try the SPDR Straits Times Index ETF (Singapore; code: ES3) or Nikko AM STI ETF (Singapore; code: G3B).

For the differences between the two, they are mainly surrounding the expense ratio and tracking error. You can refer to this image below, image credit: Motley Fool SG

Both largely have the same holdings, which are basically the 30 top companies in Singapore as described previously. You can view the full list at this link here.

For Begineers:

I would recommend Dollar Cost Averaging (Monthly investments) via one of the Regular Savings Plans (RSP) by DBS, OCBC or POEMS. This option is actually simpler to setup, primarily due to the idea that you won’t need a CDP account. The bank holds these funds on your behalf. You can also refer here to a table where we compare the different providers with different fees.

Why Dollar Cost averaging for the STI ETF? Read this: https://blog.seedly.sg/dollar-cost-average-dca-sti-etf-returns/

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Aik Kai
Aik Kai
Level 6. Master
Answered on 19 Jul 2018

I am going to break up your question into a few parts.

1) How does investing in STI ETF works?

If you mean the procedure, it is the same as investing in a stock. You need to open a CDP account with SGX and a brokerage account with any stock broker. Then, through your stock broker, buy into STI ETF. Some useful links:

Opening a CDP account: https://dollarsandsense.sg/step-step-guide-opening-cdp-account-singapore/

Comparison of stock brokers: https://blog.seedly.sg/the-ultimate-cheatsheet-cheapest-stock-brokerage-in-singapore/

Buying into STI ETF means you are buying into the top 30 companies listed in SGX. You can refer to a clearer explanation here: https://blog.seedly.sg/how-to-sti-etf-a-simple-way-to-invest-in-singapores-top-30-companies/

2) What is the difference between SPDR STI ETF (ES3) & NIKKO AM STI ETF (G3B)?

Essentially, they are managed by different fund houses, namely SPDR and Nikko AM. Although the fund idea is the same, which is to buy into the top 30 companies listed in SGX so that the fund replicate the index as close as possible, the similarity ends here.

Since different fund houses manage the fund differently, returns, dividends distribution, management style vary. Choose a fund house you are more confident in and you will be fine.

3) Also, for a beginner, would a lump sum investment or monthly investment be more suitable?

Depends on your budget. Some people have the budget to do lump sum while some have the money to do monthly only.

But is also depends on other factors too. Alvin from Dr Wealth has mentioned that historically, lump sum performed better but monthly investment is the best during economic downturn. All in all, I personally feel that it depends on your cashflow, although I would strongly advise monthly investment.

By setting up automated monthly investment plan, you will put in money automatically, regardless of the market condition. This automated action helps you to be disciplined and reduces the need to keep monitoring stock prices.

Hope this helps!

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Jay Liu
Jay Liu
Level 7. Grand Master
Answered on 18 Jul 2018

The difference is the funds managed are by different managers SPDR & Nikko AM. Difference in the expensive ratio, fund size, inception date and annual returns.
Do monthly investment aka dollar cost averaging. You buy more units when price is lower, buy less units when price is higher. Good for low capital and want to start investing.

Start with DBS rsp aka Nikko Am STI ETF. Easy to set up just use ibanking. For every transaction you do, they will mail you a physical letter.

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