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Revisiting the STI ETF: 3 reasons to consider investing in Singapore

11 Aug 2023

The STI ETF offers exposure to a basket of stocks representing the Singapore economy. Find out how you can diversify your portfolio using the STI ETF.

This post was created in partnership with Nikko Asset Management Asia Limited. All views and opinions expressed in this article are Beansprout's objective and professional opinions.

What happened?

Whenever we mention investing in the Singapore market, one of the responses we commonly receive is that “Singapore stocks are boring compared to US stocks”.

Alternatively, some may argue that the returns of the Singapore stock market have been lacklustre compared to the US market. 

With Singapore’s National Day celebrations this month, we thought it might be worthwhile examining if there is a case to be made for holding Singapore stocks in our portfolios. 

3 reasons to consider investing in Singapore

#1 – Gain a slice of household names in a familiar market

Singapore may not be home to some of the world’s biggest brands such as Apple, Amazon or Meta. 

However, there are various household names that are behind the activities that we often enjoy doing. Many of these companies are also listed on the Singapore stock exchange.

As a start, we all love to visit shopping malls over the weekends, whether to enjoy some retail therapy, catching up with our friends over a meal or watching the latest movies in town (BarbieHeimer anyone?).

But did you know that some of our favourite malls such as VivoCity and Plaza Singapura are owned by real estate investment trusts (REITs) such as Mapletree Pan Asia Commercial Trust (SGX: N2IU) and CapitaLand Integrated Commercial Trust (SGX: C38U)?

vivocity singapore mapletree pan asia commercial trust.jpg
Image source: Mapletree Pan Asia Commercial Trust 

 

If you prefer thrill rides and activities, you would probably have visited Resort World Sentosa and spent a day at the Universal Studios Singapore theme park.

Hence, it might be worth knowing that Genting Singapore (SGX: G13) owns and operates Resort World Sentosa, which means that the company is behind attractions such as S.E.A Aquarium, Adventure Cove Waterpark, and the iconic Halloween Horror Nights event. 

genting singapore share price.jpg
Image source: Genting Singapore

 

For some of us whose weekends are for spending quality family time, we might shop for groceries at supermarkets to whip up a home-cooked feast. If you have shopped at Giant or Cold Storage stores, you might be familiar with DFI Retail Group (SGX: D01).

Apart from grocery stores, DFI Retail Group also operates convenience stores under the 7-Eleven brand, offering a late-night snack when we have to stay up late for work or to catch a football match. It also operates health and beauty stores under the Guardian brand in Singapore. 

DFI Retail Group share price.jpg
Image source: DFI Retail Group

 

Singapore Airlines Limited (SGX: C6L) needs no introduction. Besides operating our national carrier, they also operate budget airline Scoot which could be perfect for that short travel to neighbouring countries.

If you enjoy taking a cruise instead, then you may have heard of SATS Ltd (SGX: S58), which operates the Marina Bay Cruise Centre where the larger cruises depart from. In addition, SATS Ltd also has an extensive network in the airline food industry, supplying in-flight meals for some of your short and long-haul flights. 

singapore airlines share price.jpg
Image source: Singapore Airlines

 

The good news is that you would be able to invest in these household names on the Singapore stock market in a convenient way. Read on and we’ll be sharing how you would be able to do so.

#2 – STI offers a consistent and attractive dividend yield historically

Of course, investing is not just about whether a stock is ‘boring’ or ‘exciting’. It must also make sense from a returns perspective to ensure that we are able to meet our long-term financial needs. 

Hence, some may point to the outperformance of the US stock market compared to the Singapore stock market this year as evidence that it is not worthwhile investing in Singapore stocks. 

However, for investors who are looking to build their passive income, there are many stocks in the Singapore market that offer a consistent and attractive dividend yield. 

For example, OCBC offers a 12-month trailing dividend yield^ of 5.35% and Mapletree Pan Asia Commercial Trust offers a 12-month trailing dividend yield^ of 5.06%, based on SGX Stock Screener as of 27 July 2023. 

^The trailing dividend yield shows the shows a company's actual dividend payments relative to its share price over the previous 12 months.

STI ETF DBS UOB OCBC dividend yield

We can also examine the historical dividend yield offered by the Straits Times Index (STI), the benchmark index for the Singapore stock market that comprises of the 30 largest companies listed on the Singapore Exchange (SGX) by market capitalisation. 

Based on the average dividend yield across the last 10 years, the Straits Times Index off¬ers one of the highest dividend yields when compared with other global market indices. As of 28 February 2023, the STI generated an average dividend yield of 3.7% across a 10-year period^. This is above the dividend yield of other major indices, such as the Hang Seng Index and the S&P 500 Index.

image.png
Source: Bloomberg as of 28 February 2023. This chart is purely for illustrative purposes only and not to be relied upon as financial advice in any way. ^Dividend yield of the Straits Times Index is not the same as that of the Nikko AM Singapore STI ETF fund. Past dividend yields are not indicative of future dividend yields.

 

In addition, investing in Singapore may present less foreign currency risk for local investors compared to investing in overseas markets, as the stocks are denominated in Singapore dollar. 

#3 – Gateway to faster-growing markets

As a developed economy, Singapore’s long-term economic growth is naturally lower than developing economies such as China and Indonesia. 

However, as a regional and global hub, there are still opportunities for investors in the Singapore stock market to tap into growth opportunities in these faster-growing markets. 

In fact, it is estimated that companies that hail from beyond Singapore’s shores represent about 36% of the US$650 billion in total market value of companies listed on the Singapore Exchange, based on Bloomberg data as at January 2023. 

In the STI, there are several companies that are based overseas with their core business outside Singapore as at 31 June 2023, according to the SGX. 

For example, Thai Beverage (SGX: Y92) is a large beverage producer renowned for the Chang Beer brand and generates the bulk of its revenue in Thailand. 

Emperador (SGX: EMI) is a Philippines-based manufacturer and distributor of brandy, whisky and other spirits, and is the world’s largest brandy maker by volume. 

image.png

How do I get exposure to the Singapore stock market?

The easier way to invest in these companies is through an ETF that tracks the performance of the Straits Times Index (STI), such as the Nikko AM Singapore STI ETF. 

The index consists of all the companies mentioned earlier, including CapitaLand Integrated Commercial Trust, Mapletree Pan Asia Commercial Trust, DFI Retail Group, Singapore Airlines, and SATS*. It also includes other household names like DBS, UOB, and OCBC*.

This means that as a holder of the Nikko AM Singapore STI ETF, you would be able to get exposure to these Singapore blue-chip companies in a low-cost and simple way. The ETF has a total expense ratio of 0.30% p.a. as of 31 December 2022, and a 3-years annualised tracking error of just 0.13% as at 30 June 2023. 

The Nikko AM Singapore STI ETF thus offers investors an opportunity to build a diversified portfolio of Singapore stocks without having to perform individual stock picking or in-depth company research. 

What are the risks of the STI ETF?

The performance of stocks within the STI is dependent on the health of the Singapore and global economy, and a sharp economic downturn could lead to a decline in their share prices. 

For example, the STI saw a maximum peak-to-trough decline of close to 28% between January 2020 and March 2020 as the Covid-19 pandemic led to concerns about an economic recession. 

Compared to ETFs that track other market indices such as the S&P 500, the Nikko AM Singapore STI ETF may have lower trading liquidity. 

What would Beansprout do?

There is no one-size fits all approach to investing, and investors who are looking for exposure to the tech giants may not be able to do so by purely investing in Singapore. 

However, there are several reasons why we would still consider Singapore stocks in our portfolios. 

By investing in Singapore blue-chip companies, we can get a slice of some of the household names that we are familiar with, such as our favourite shopping malls and supermarkets. 

We can also find stocks which offer an attractive and consistent dividend yield in the Singapore stock market, allowing us to diversify our portfolio or build a passive income. 

Lastly, companies listed in Singapore are expanding overseas, offering us exposure to some of these faster-growing markets. 

The Nikko AM Singapore STI ETF offers investors an opportunity to build a diversified portfolio of Singapore stocks in a simple and low-cost way. Click here to find out more about the Nikko AM Singapore STI ETF. 

If you are looking to invest in an ETF that offers exposure to Singapore but would prefer to take a more conservative approach, you can also consider the ABF Singapore Bond Index Fund. 

Lastly, if you would like to gain exposure to the bond issuances of Singapore blue chip companies, then it might also be worthwhile looking at the Nikko AM Investment Grade Corporate Bond ETF. The ETF offers access to the Singapore dollar-denominated corporate bonds with a relatively low risk of default, and its holdings as of 27th July 2023 include the bonds issued by DBS, UOB and OCBC Bank*. 

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