19 July 2011
Four Reasons to Invest in STI ETF (ES3.SI or G3B.SI)
by Alvin on February 27, 2011
#1 Low cost – management fee and sales charge less than 1% per year
If you understand compound interest and its effect, you would know that your investment capital would exponentially. Likewise, if compound interest can work for you, it can work against you as well. I am talking about fund management fees. They have eroding effects too. It makes a lot of sense to spend as little as possible for fund fees. This is one important criteria when you invest in any funds. STI ETF currently charges about 0.3% management fee, comparing to similar unit trusts which charged between 0.75-1.5%. This means that you have 100-500% of savings right from the start! And this has not factored in the compounding effect. Talking about sales charges, Fundsupermart currently charges 1.25% for the unit trusts and while you buy STI ETF from a broker, POEMS charges 0.18% to 0.28%. If you just buy a lot which cost you $3,000 and the minimum brokerage fee is $25, your percentage cost would be 0.83%, still lower than the unit trust’s sales charge.
#2 Growing Singapore economy
As a Singaporean, I am happy in where I am as I see Asia as an emerging affluent continent. Singapore being a business hub, would likely to flourish with Asia. I have faith in the economy and hence, buying into Singapore companies is one of the best way to participate in the growth of Asia. We have many established companies that have began expanding their influence in Asia and other parts of the world. Giants like Singtel, KepCorp, SembCorp, DBS, UOB, etc, are well managed and financially sound (I am not suggesting these are stocks to buy, they are just example to illustrate my point). As Asia grows, I believe they would gain some market share as well. And right now, they have consistent cash flow as they provide services that Singaporeans pay for everyday. To be able to buy into all these companies would require a large capital. But with STI ETF, you would be able to partly own the top 30 companies in Singapore, the bluest chips of all.
#3 Good Diversification
The STI has a mathematical methodology to identify the top 30 companies in Singapore. There will be periodic review of the constituent stocks and any replacement of the top 30 can be effected. STI ETF would track this index closely, and make adjustments accordingly. As such, you would always buy into the top 30 companies at any one time. You do not rely on any single company for investment growth. And in this 30 companies, they cover many industries and sectors. These are forms of diversification. This is especially important if you do not know how to pick stock.
#4 Buy the index if you cannot beat it
It has been said that most fund managers cannot beat the benchmark index. Is it true? Kay from Moneytalk did a comparison between STI ETF and the similar unit trusts. Taking the dividends from STI ETF into consideration (without factoring the fund costs for all funds), the STI ETF indeed outperformed the fund managers. There is a saying, “if you can’t beat them, join them”! If the fund managers are unable to beat the index, it would be wise to buy something that replicates closely with it – STI ETF.
Conclusion
Comparing to unit trusts, you can buy STI ETF at a cheaper rate and have a potential higher return. To me, it isn’t a difficult choice. Another important thing I want to warn you is that you still have to buy at the right time. Do not expect to buy the STI ETF at the height of a bull market and expect to see profits. Timing is important. I would like to quote Warren Buffett, “be fearful when others are greedy and be greedy only when others are fearful”.
#1 Low cost – management fee and sales charge less than 1% per year
If you understand compound interest and its effect, you would know that your investment capital would exponentially. Likewise, if compound interest can work for you, it can work against you as well. I am talking about fund management fees. They have eroding effects too. It makes a lot of sense to spend as little as possible for fund fees. This is one important criteria when you invest in any funds. STI ETF currently charges about 0.3% management fee, comparing to similar unit trusts which charged between 0.75-1.5%. This means that you have 100-500% of savings right from the start! And this has not factored in the compounding effect. Talking about sales charges, Fundsupermart currently charges 1.25% for the unit trusts and while you buy STI ETF from a broker, POEMS charges 0.18% to 0.28%. If you just buy a lot which cost you $3,000 and the minimum brokerage fee is $25, your percentage cost would be 0.83%, still lower than the unit trust’s sales charge.
#2 Growing Singapore economy
As a Singaporean, I am happy in where I am as I see Asia as an emerging affluent continent. Singapore being a business hub, would likely to flourish with Asia. I have faith in the economy and hence, buying into Singapore companies is one of the best way to participate in the growth of Asia. We have many established companies that have began expanding their influence in Asia and other parts of the world. Giants like Singtel, KepCorp, SembCorp, DBS, UOB, etc, are well managed and financially sound (I am not suggesting these are stocks to buy, they are just example to illustrate my point). As Asia grows, I believe they would gain some market share as well. And right now, they have consistent cash flow as they provide services that Singaporeans pay for everyday. To be able to buy into all these companies would require a large capital. But with STI ETF, you would be able to partly own the top 30 companies in Singapore, the bluest chips of all.
#3 Good Diversification
The STI has a mathematical methodology to identify the top 30 companies in Singapore. There will be periodic review of the constituent stocks and any replacement of the top 30 can be effected. STI ETF would track this index closely, and make adjustments accordingly. As such, you would always buy into the top 30 companies at any one time. You do not rely on any single company for investment growth. And in this 30 companies, they cover many industries and sectors. These are forms of diversification. This is especially important if you do not know how to pick stock.
#4 Buy the index if you cannot beat it
It has been said that most fund managers cannot beat the benchmark index. Is it true? Kay from Moneytalk did a comparison between STI ETF and the similar unit trusts. Taking the dividends from STI ETF into consideration (without factoring the fund costs for all funds), the STI ETF indeed outperformed the fund managers. There is a saying, “if you can’t beat them, join them”! If the fund managers are unable to beat the index, it would be wise to buy something that replicates closely with it – STI ETF.
Conclusion
Comparing to unit trusts, you can buy STI ETF at a cheaper rate and have a potential higher return. To me, it isn’t a difficult choice. Another important thing I want to warn you is that you still have to buy at the right time. Do not expect to buy the STI ETF at the height of a bull market and expect to see profits. Timing is important. I would like to quote Warren Buffett, “be fearful when others are greedy and be greedy only when others are fearful”.
Labels: Dollar Cost Averaging, ETF, STI ETF, Warren Buffett
