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“Buy ETFs!” is one of the most frequent pieces of investment advice newbies tend to hear. But when Singaporeans talk about exchange-traded funds (ETFs), a popular category often comes to mind — the Straits Times Index or STI tracking family of ETFs. The most well-known of the bunch is the SPDR® Straits Times Index ETF (ES3), or the SPDR STI ETF.
You see, the SPDR fund was the first ETF known to track the Straits Times Index — which is a globally recognised benchmark that closely follows the Singapore economy as a whole. That’s why when you listen to the news on the radio, they’re always talking about how many points the STI has risen or fallen by. By tracking the index, the SPDR STI ETF helps investors gain exposure to the performance of Singapore’s top 30 companies, which together constitute a big chunk of the Singapore Exchange (SGX) total market capitalisation.
This year, the SPDR STI ETF celebrates its 20th birthday. Aww…They grow up so fast (sheds a tear)…. For a 20-year-old, it has been quite the overachiever. Here are some of SPDR STI ETF’s biggest milestones.
Birth of the SPDR STI ETF
Once upon a time in 1999, SGX was launched through the merger of 3 previous stock exchanges. At the time, the Straits Times Index (STI) already existed to track the biggest companies in Singapore.
Naturally, traders also wanted to trade ETFs in order to diversify their portfolios more easily. They were finally able to do so when indexing pioneer State Street Global Advisors (SSGA) launched the SPDR STI ETF in 2002, just 2 years and 4 months after the launch of SGX.
SSGA is one of the world’s biggest asset management companies and has played a hand in launching the first ETF not just in Singapore, but also in the US (1993), Hong Kong (1999), and Australia (2001).
As the investment manager, SSGA replicates the STI’s performance by investing the fund’s assets in the same shares and weightings as the index. Over the years, SSGA’s investment experts have rebalanced the ETF’s holdings (including, adding and removing certain stocks) according to index and market changes. This management style means that investors can maintain proper exposure to Singapore’s largest companies, even as the business environment evolves and we see companies rise and fall.
As you might already know, ETFs track baskets of securities. In the SPDR STI ETF’s case, the ETF tracks Singapore’s 30 biggest companies and the economy’s top-performing sectors, such as banking, real estate, and industrial goods.
Today, the fund is far from being the only ETF on SGX, but it is the biggest and considered the most representative of the Singapore market.
Growth from 2002 to 2022
The SPDR STI ETF is SGX’s most famous ETF, and considered to be one of the core investments any Singaporean should have since it is a tracker of the country’s economy. Those who have been buying the ETF from its inception would have benefitted from Singapore’s rapid economic growth over the past decades.
It is currently the biggest equities ETF on SGX. When it comes to ETFs, big is often better, as having a larger fund size enables the fund manager to offer a lower expense ratio — in other words, the cost of managing the fund is lower to the investor. The SPDR STI ETF’s expense rate is just 0.30% per annum. That’s just $30 for every $10,000 invested!
Since the SPDR STI ETF was launched in 2002, the fund has achieved returns of 230%. If you’d invested $10,000 back in 2002, you’d now be left with a cool $33,000 in 2020.
Based on the past performance of the ETF, here’s what you would have if you had invested $10,000:
|Year of investment ($10,000 invested)||Number of years invested||Performance returns as of 2022^||Estimated returns^|
In addition, if you had invested from end 2020 to end 2021 (one year), the performance returns as of 31 Dec 2021 was 13.10%. This means, the estimated returns^ on your $10,000 investment would be $11,310. It’s good to see such growth, despite the ongoing Covid-19 pandemic.
Recently, the total Assets Under Management (AUM) of the two ETFs that track the Straits Times Index (the bigger of which is the SPDR STI ETF) hit $2 billion, rising from $1 billion in June 2019. For comparison’s sake, it took 17 years for the STI to reach that first $1 billion. As for the SPDR STI ETF alone, it crossed the $1 billion mark for the first time in its history in June 2020 and contributed over 70% of the $2 billion AuM milestone in 2021.* $weet!
All the 30 companies tracked by the ETF are household names. As of 17 January 2022, its constituents are**:
Ascendas Real Estate Investment Trust
CapitaLand Integrated Commercial Trust
City Developments Limited
Dairy Farm International Holdings
DBS Group Holdings
Frasers Logistics & Commercial Trust
Genting Singapore PLC
Hongkong Land Holdings
Jardine Cycle & Carriage
Jardine Matheson Holdings Limited
Keppel DC Reit
Mapletree Commercial Trust
Mapletree Industrial Trust
Mapletree Logistics Trust
Oversea-Chinese Banking Corp
SATS (Singapore Airport Terminal Services)
Singapore Technologies Engineering
United Overseas Bank
Yangzijiang Shipbuilding Holdings
By investing in the SPDR STI ETF, you are giving yourself exposure to all of these companies, which is great if you don’t have the capital to diversify your portfolio by selecting individual stocks.
What does the future hold?
The performance of the SPDR STI ETF is closely intertwined with that of the Singapore economy in general. At this point in the pandemic, we are all concerned with when and how strongly the economy will recover.
Already, signs have been encouraging, as the economy logged a respectable 7% growth in 2021 following the slump in 2020 in the first year of the pandemic.
For investors, major themes for the future are likely to be post-pandemic economic recovery, as well the economy’s ability to respond to long-term challenges such as climate change and technological disruption.
Even the world’s best feng shui master can’t predict the future of the economy with 100% accuracy, but the Singapore government has always made the economy a priority, and the stability and business-friendly climate definitely help. So, for those who want to ride on the economy’s future success, buying the SPDR STI ETF is probably a good bet.
^The above estimates are based on certain assumptions and analysis made by SSGA/Third Party. There is no guarantee that the estimates will be achieved.
*Source: Bloomberg L.P., January 12, 2022
**This information should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.
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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.
This advertisement has not been reviewed by the Monetary Authority of Singapore. 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.
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