Tan Kin Lian's Blog: Invest in STI ETF

Tuesday, October 13, 2009

Invest in STI ETF

Last year, my wife asked for my views on the shares to invest in. Previously, she kept her money in fixed deposits, but interest rate had dropped to below 1% for a few years already. The banks sold her a few structured products over the past years that gave a very poor return. e.g. 2% for 5 years, but fortunately her principal was intact.

I advised her to invest in the STI ETF. This is an exchange traded fund that is invested in the component stocks of the ST Index. It is a large, well diversified fund with low cost.

Her friends advised her to invest in some of the hot stocks that have higher liquidity and market interest. Fortunately, she took my advice.

For a while, the STI ETF lost money due to the market collapse earlier this year. I advised her not to worry, as it is a long term investment.

Recently, she told me that the STI ETF had made a large profit for her. The gain must be more than 30% over the past year. This was the best performing share among the few shares that she held.

Some people complained that there is not much liquidity in the STI ETF. For most ordinary investors who are investing for the long term, the liquidity is sufficient. The fund manager will create more units if there is demand.

8 comments:

wjsim said...: I'm hoping for regular saving plans to include the STI. A unit trust tracking the index will be perfect for such regular investments. However, knowing the reality of things, fund managers will never start such a fund because they will practically kill themselves.

What to do? Pay the brokers to buy ETFs lor...; October 14, 2009 12:30 AM
A Singaporean said...: POSB some time ago launched the MyHome Fund, which basically channels money into two ETFs: DBS STI ETF and ABF Singapore Bond Index Fund. A commentary is written here:
http://www.lioninvestor.com/myhome-fund-posb/

However, why would you want to invest in STI ETF through MyHome or any other fund, incurring yet another layer of costs for administering that fund, possibly costs that are non-transparent to you? Better to just buy STI ETF directly from a broker, where broker fees really aren't that expensive and are transparent.; October 14, 2009 7:40 AM
Vincent Teo said...: I hope the fund distributors out there will bring in more index funds. Currently the 3 Infinity Series funds available are not enough and their charges are also too high.; October 14, 2009 10:24 AM
Robert Tan said...: For the majority who want to invest in equities, investing through index funds is probably the better option.

For those who have the expertise, the time to do the necessary research and the right temparament, investing in specific stocks with limited diversification will probably give higher returns than investing in indexes.

This is because by investing in an index, both the gains and losses are moderated. If one can improve on the odds by selecting stocks which are more likely to give better returns and reduce the odds of investing in a poor company/business, then there is a case for buying selectively. In practice, this is easier said than done. Therefore, for most people, investing in indexes may be the better option.; October 14, 2009 12:58 PM
Anonymous said...: When you invest in an ETF, it's not the index per se you are investing in: it's a fund that mirrors the index, i.e. the fund manager takes a basket of underlying to mirror the performance of the index.

Which means to say there is a risk of tracking errors and other market risk exposures not dissimilar to plain equity investing. Also, there is foreign exchange risk to be considered if you invest in a foreign ETF.

All investments are about taking calculated risks. As the saying goes "high (low) risks, high (low) returns", and I get worried when people think ETFs bear little risks, because the reality is that the risks are comparable to unit trusts and equities. The only real advantage an ETF has is the lower brokerage and transaction costs.

I know of people who punt the markets, even in ETFs, and that's where losses can be substantial, even though there is the argument that you are limited only to the amount you put in-- do not walk away with the notion that because no leverage is involved, ETFs are necessarily safer bets.

End of the day, it's all about rational investing behavior and informed choices, regardless of your chosen asset class.; October 14, 2009 3:07 PM
Anonymous said...: Dude, people punt on anything. They punt on UTs , ILPs to make a couple of thousands and they are very happy. Of course, insurance agents love them because when they take profit it means there is potential of commission on next punt.The agents are the lubricator.
The genuine investors are screwed up by these people.; October 14, 2009 6:18 PM
Anonymous said...: Hi Dude, what is the risk of owning STI ETF?; October 17, 2009 4:03 PM
Aston Martin Middle East said...: very informative.......thanks for the information; November 11, 2009 6:12 PM