STI ETF – A Strategy

The Exchange Traded Funds (ETFs) listed on the Singapore Exchange (SGX) has gained popularity among investors. The trading value of these ETFs from July 2008 to March 2009 was S$2.12 billion which is 35 per cent higher than the same period a year ago. (Source: The Straits Times, 23 April 2009)


On 9 February and 25 February, I wrote on Straits Times Index (STI) Exchange Traded Fund (ETF). The STI ETF was among the most popular of all the ETFs listed on SGX, according to SGX’s senior vice-president.


The STI ETF tracks closely the benchmark index which is the STI. STI as an index is computed based on the daily share prices of 30-component stocks on SGX. These 30 component stocks are big-cap stocks with some of the bluest of the blue-chip stocks, such as Singapore Telecom, UOB, DBS, OCBC, Keppel Corp, etc.


As an investor, you will need substantial capital if you buy up one lot each of all 30-component stocks. This does not make sense for retail investors. STI ETF is designed for investors to own a fraction of 30-component stocks through pooling of money from investors by the Fund Manager who then purchases these companies out of the invested money.


Since STI ETF is traded on the SGX much like the other shares, you can buy and sell it at daily prices.


A strategy I adopted is to buy STI ETF whenever there is a huge dip in the STI index during this volatile period. The investment value for one lot of STI ETF can be $1,850 based on yesterday’s transaction. As you accumulate STI ETF whenever STI drifted downwards, you can achieve dollar cost averaging, thus lowering your overall cost of investment per unit of share.


If you believe that for the longer term horizon that the STI will move above 2,000-point level when the global economy get back on its feet, then it may be a good time to accumulate STI ETF during this period. The downside risk is that in a shorter term STI may again slump to near 1,450-point level or below and you may then wish that you have waited to buy STI ETF at near this level. This will depend on your investment risk profile and your investment holding power.


At this point, it is anyone’s guess on how the market will move. It is hard to time the market, but you have to make a stand and assess the risk you are willing to take.


Written on 4/23/2009 1:57 PM


Copyright © 2009, the author known as LKT in Singapore.


The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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