Is STI-ETF really a bad investment strategy? - Seedly
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Asked by Anonymous

Asked on 30 Apr 2019

Is STI-ETF really a bad investment strategy?

Recently chanced upon this article about the STI-ETF claiming it's a bad passive investment. Is it true? What should we do if we have already gotten the STI-ETF? And for those that have yet to invest in it, should we dive into it?

https://www.singsaver.com.sg/blog/singapore-sti-bad-passive-investment-strategy?utmsource=facebook.com&utmmedium=social&utmcampaign=M20190430blogloosti&fbclid=IwAR27pIaseBy9jBDLv-0lZCDQhY0cR0HrzaXK8YXAZfPY7PWkh0pcwS5_OO0

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STI is made up of Singapore's top 30 largest market capitalisation companies. And as what the article depicted, top 5 counters (3 of which are banks) constitute 50% towards the value of STI.

You can find the constituents of STI Index here

https://sginvestors.io/analysts/sti-straits-times-index-constituents-target-price

Hence it is rather skewed in a way and not an actual representation of the entire Singapore's market as opposed to other markets which has a relatively good mix of industries tapping on various sectors etc.

Is it a bad strategy? Not necessarily.

S&P 500 rose 17% YTD

STI rose 11.9% YTD

Calculating the beta of STI (with S&P as the main market index), STI's beta is 0.69.

In good times, S&P 500 moves up by $1, STI would move up $0.69. However, if S&P 500 falls by $1, STI would only fall by $0.69.

With risk comes reward, vice versa.

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Billy Ko
Billy Ko

on 02 May 2019

Thanks for helping me to explain Cheng Chuan. That is indeed what I wanted to convey, hence I figured using beta as it is a good representation of volatility but am having troubles in obtaining the beta for each individual index
Ang Yee Gary
Ang Yee Gary

on 08 May 2019

If u read Prof damodaran There are 2 main type of beta A regression beta which can change depends on your time period and the underlying index u are using The second type of beta is dependent on the nature of the company and the amount of debt of the company In summary u can calculate beta however u want and whatever u want It must still makes sense To compare sti and Dow Jones u can calculate a few things Sharpe ratio The amount of returns for the amount of risk (volatility) Treynor ratio J
Jansen Ng
Jansen Ng, Business Student at Ntu
Level 4. Prodigy
Updated on 02 May 2019

I read the article but wasnt as shocked as what u are protraying from the phrasing of your question. STI is concentrated in sg among the top 30 companies, which means diversification, but low compared to like S&P. I read somewhere that about 50% of STI is controlled by 5companies (but dont quote me haha i forgotten my source).

Nonetheless, STI is still possible for those who just started investing, because it is so simple to invest in STI with a DBS/POSB account, and you get dividends from it. Long term wise, you are probably looking for a peace of mind knowing it wont collaspe, good for ppl who find it difficult to sleep on volality, because STI should be a set up and forgot option.

Of course, for those who reads up on investing and have our hands in it, then we can move on to other instruments and alternatives, deciding which etfs/funds/stocks to pick based on our individual criteria.

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HC Tang
HC Tang, Financial Enthusiast, Budgeting at The Society
Level 8. Wizard
Updated on 07 Jun 2019

I actually felt the same before IM65 wrote that post.

Add on is that though over the years if STI vs STI has growth , but rather mundane. When we do STI vs S&P500, STI looks rather pale and way less growth.

So to each his own. I wouldn't recommend going long term on STI, especially IM65 has proven it in the above articles.

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Loo Cheng Chuan
Loo Cheng Chuan

on 02 May 2019

Thanks for reading the article. My Name is Loo, 1M65 is the name of the strategy and movement. Ha... so cute to be called 1M65.
HC Tang
HC Tang

on 02 May 2019

Haha. Yes sir we spoke before. I agree with your thought line on STI šŸ˜ƒšŸ‘
Yu Ming Jin
Yu Ming Jin
Level 3. Wonderkid
Updated on 13 May 2019

Capital gains should not be the sole indicator to determine a sound investment decision. There are numerous factors that one should consider before investing (in STI), namely your risk appetite, portfolio-type, and investment horizon. For example, if 90% of your portfolio is made out of US equities, it might be a good idea to add some G3B/ES3 into your portfolio to increase diversification into different markets. Perhaps, you might be losing out on some potential gains. However, the upside (+security) might override the "missed opportunities".

In a few words: Good investment decision =/= maximum amount of capital gains (even if these gains are "safe")

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It's a highly concentrated equity fund with lots of geographic and sector risk.

There are better markets to track, especially in countries that have a better future outlook.

Our top companies don't innovate much as well and are big defencive incumbents.

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Harvey Tan
Harvey Tan
Level 5. Genius
Answered on 07 Aug 2019

If you are looking for growth, look elsewhere. The US and China market are so much larger and provide better opportunities for growth. Personnally, I allocate 2.5% of my portfolio to STI ETF. At the end of day, need to have some skin in the game in my home country.

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Luke Ho
Luke Ho, Money Maverick at Money Maverick
Level 6. Master
Updated on 09 Aug 2019

It's not a great investment strategy for the following reasons

1) Serious lack of diversification

2) Huge opportunity costs, even relative to if you want to invest strictly in indices only https://www.moneymaverickofficial.com/post/why-you-should-invest-aggressively-now-and-how-you-still-can-have-peace-of-mind

3) Low yields

4) High risk for the yield that you're getting (low risk-return ratio, even though the beta isn't very high - the yield is even lower).

There are some common reasons why people stiil insist on the STI ETF or tout it as a good investment (or worse, a safe investment) - to look at it objectively. 1) Lack of Forex Risk, which is common with better performing indices

2) Lack of withholding tax

3) Low costs

4) Local market exposure with companies whose information is readily available and whose services you utilize (which creates a sense of security and generally decreases the odds that the stock will plunge horribly, being a consumer)

5) Convenient investment instrument - in relation to both accessibility (how you can invest and how quickly) and liquidity (how quickly you can sell your shares if required).

I'd advise people to aim higher because you can, which I can help with - but it's not a horrible investment strategy, I just wouldn't go as far as saying its a good one.

You can always drop me a PM if you'd like exposure to instruments that are both safer and higher yielding. https://www.facebook.com/luke.ho.54

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Ang Yee Gary
Ang Yee Gary

on 02 May 2019

Https://tradingeconomics.com/singapore/stock-market Sti is a good market to buy at 2003 and 2009. It mean reverts and thus the next crisis will see it drop to a lower level before it rebounds back.