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As a reader of MoneySmart, you probably know the importance of saving and investing. That said, when it comes to investing, the choices can be overwhelming.
Today, there are hundreds of investment vehicles and methods in Singapore, catering to all sorts of risk appetites and accessible on so many platforms. And with so many investment fads and promotions online, it can be hard to see the trees in the forest.
So for 2022, let’s go back to basics and turn the spotlight on the SPDR STI ETF, or the SPDR Straits Times Index ETF (exchange traded fund).
Why did we choose to focus on the SPDR STI ETF?
Celebrating its 20th anniversary this year, the SPDR STI ETF was first listed on the Singapore stock exchange in 2002 by the global asset management State Street Global Advisors. That’s right, it’s been around way before index ETFs became cool.
But what is it, really?
The STI, or Straits Times Index, is Singapore’s very own stock market index, which tracks the 30 largest companies on the Singapore stock exchange. Like other stock market indices, the STI tracks private companies across different industries, giving us a snapshot of Singapore’s economy as a whole.
So when retail investors like you and I buy the SPDR STI ETF, our investment portfolios gain exposure to Singapore’s leading companies and, indirectly, our country’s economic growth.
Here’s how the SPDR STI ETF can help you meet your investment and savings goals:
1. It lets you invest your CPF monies
Many of us go to great lengths to optimise our cashback credit cards and camp for online shopping vouchers, yet we conveniently forget about our CPF monies (even though we earned it). Many usually think, if it’s accruing 2.5% p.a. interest that’s good enough, right?
Well, it’s actually possible to invest your CPF monies in the SPDR STI ETF for potentially higher returns — the SPDR STI ETF is a qualified product under the CPF Investment Scheme.
Since its inception, the SPDR STI ETF has grown by about 6.39% p.a., which certainly beats the 2.5% p.a. on your Ordinary Account.1 Although you can’t cash out your CPF investment returns, investing your CPF monies helps you secure a higher retirement sum, meaning higher retirement payouts and thus a better quality of life in old age.
Did we also mention that the SPDR STI ETF pays semi-annual dividends? As of 23 February 2022, the distribution yield was 2.74% — pretty decent!1 These dividends received can also be re-invested to boost the compound growth of your SPDR STI ETF investment as well.
Simply open a CPFIS account with DBS, OCBC, or UOB and you can purchase the SPDR STI ETF through the bank. Based on the past performance of the SPDR STI ETF, a S$1,000 investment would have grown to about S$3,300 in 20 years. Meanwhile, S$1,000 in your CPF Ordinary Account at 2.5% p.a. would have grown to about S$1,638 in the same time.1
2. It is a good starting point for beginner investors
Apart from optimising your CPF monies, the SPDR STI ETF is also an ideal first vehicle for beginners just dipping their toes into this investing thing. Why is it such a great starting point?
For one thing, the SPDR STI ETF is easy to invest in and doesn’t require a ton of capital. You can invest in it from as little as S$100 a month with your bank’s regular savings plan, which is an excellent way to get into the habit of investing (and can reap fantastic results thanks to the magic of compounding!).
Unlike a lot of other investment vehicles, the SPDR STI ETF is easy for beginners to understand. It tracks top Singapore companies like DBS, OCBC, UOB, Singtel and CapitaLand, all brand names that we grew up with and interact with everyday. And as long as Singapore’s economy continues to grow, the SPDR STI ETF will grow in tandem with it.
3. It follows Singapore’s inflation rate
Ever since COVID-19 started, banks have been offering very low interest rates on our cash savings and fixed deposits.
At the same time, the cost of living continues to rise. Our housing, groceries, utilities and even transport bills are going up — a phenomenon known as inflation. Thus, our cash savings are eroding to inflation as we speak.
Yes, it’s unfortunate, but this is the reality in Singapore as well as all over the world. So to protect our savings, we need to invest them in low-risk vehicles that can aim to deliver returns equal to or higher than the inflation rate.
The SPDR STI ETF is one such candidate. The fund’s underlying benchmark, the STI, is a local index that also tracks Singapore’s inflation rate. Thus, any monies you’ve invested in SPDR STI ETF can at least keep abreast of inflation.
4. It tracks the broad Singapore market
Now, some investors scoff at index funds, believing that active investing (like stock-picking or timing the market) is the way to go. An active investing strategy requires you to buy the shares of specific companies that you believe can outperform the market as a whole, or time your investments to capture short-term gains.
Active investing basically turns investing into a full-time job. You have to keep up with the news, do market research, read financial reports, manage your portfolio, watch the markets like a hawk, etc.
Unless you’re a professional trader, you probably don’t have that kind of time — in which case a broad-based index fund like the SPDR STI ETF is a much better way to invest.
The SPDR STI ETF provides a nicely diversified basket of assets across different sectors such as banking, telecommunications, consumer goods, and energy. Apart from company shares, it also represents other important parts of our economy, such as real estate investment trusts (or REITs).
COVID-19 has shown us that diversification is really important for helping us deal with volatile markets. Imagine if you had picked airlines and hospitality stocks just before the pandemic hit! A diversified basket, on the other hand, would have balanced the hard-hit industries with ones that improved, such as internet services and healthcare.
In addition, the SPDR STI ETF is adjusted periodically to align with the Straits Times Index. During these rebalancing exercises, the lower-performing companies are removed and replaced with better-performing ones. This ensures that the SPDR STI ETF evolves as the Singapore market matures.
5. It is highly liquid; lower fees
Not only is the SPDR STI ETF one of Singapore’s longest-running index funds, it’s also the largest ETF for Singapore stocks, with some S$1.6 billion of assets under management to date.1 It has grown exponentially in the past 2 years, as more and more Singaporeans started investing amid COVID-19.
Apart from proving just how popular the SPDR STI ETF is, this large fund size also offers two tangible benefits to investors: low fees and high liquidity.2
With an expense ratio of just 0.3% per annum, the ETF charges some of the lowest fees in the Singapore ETF market.2 Since high fees eat into our investment returns, the lower the better when it comes to expense ratios.
At the same time, a large fund size also indicates a higher volume of trading activity a.k.a. higher liquidity. This, in turn, means that SPDR STI ETF investors can buy or sell their ETFs easily and cost-effectively.
In summary, the SPDR STI ETF’s large fund size keeps costs low for investors, so we can enjoy higher returns — the cherry on top of all its other financial benefits.
Sure, the SPDR STI ETF may not have as much social media clout as the latest crypto or investing fads. But as Singapore’s OG index fund, it is a stock market mainstay and does not need to rely on hype. Find out more about the SPDR STI ETF here.
Sources
- State Street Global Advisors, February 23, 2022. The returns were calculated on an offer to bid/ single pricing basis on Singapore Dollar terms (taking into account any subscription and realization fee), with all dividends and distributions reinvested taking into account all charges payable upon reinvestment. Past performance is not necessarily indicative of the future performance.
- Bloomberg Finance, L.P., February 28, 2022.
Disclosure
Sponsored by State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501.
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Unless otherwise noted, the opinions of the authors provided are not necessarily those of State Street. The experts are not employed by State Street but may receive compensation from State Street for their services. Views and opinions are subject to change at any time based on market and other conditions.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell an investment. It does not take into account any investor’s particular investment objectives or investment horizon.
The prospectus in respect of the Singapore offer of the SPDR® Straits Times Index ETF (the ‘Fund’) is available at www.ssga.com/sg. The value of units in the Fund may fall or rise. Investors should read the prospectus before deciding whether to purchase Shares. Listing of the Shares on the SGX-ST does not guarantee a liquid market for the Shares.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
The Fund is not in any way sponsored, endorsed, sold or promoted by SPH Data Services Pte Ltd or Singapore Press Holdings Ltd (collectively “SPH”) or FTSE International Limited (“FTSE”). SPH and FTSE bear no liability in connection with the administration, marketing or trading of the Fund. No warranties, representations or guarantees of any kind are made in relation to the Straits Times Index (“Index”) or the Fund by FTSE or SPH. All intellectual property rights in the Index vest with SPH.
For more risk and additional information, please visit www.ssga.com/sg.
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