ETFs make it simple for investors who don’t have the time or inclination to pick stocks to participate in the stock market. However, not all ETFs are created equal.
You may have heard of the STI ETF, which has been ridiculed for its lacklustre performance. Compared to its counterparts the S&P500 ETF, which tracks US-listed companies and the Hang Seng ETF, which tracks Hong Kong-listed companies, STI ETF’s performance is really bad in recent years.
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Looking closer, this divergence could be driven by the fact that these ETFs contain more new economy stocks than the STI ETF, which primarily hold traditional stocks like banks.
Of course, there is nothing wrong with investing in the STI ETF, considering past performance is no guarantee of future results, and everyone’s risk tolerance is different. While the S&P500 has performed well in recent years, the period from 2000 to 2008 tells a different story.
Having said that, what if we had a ETF that tracks more Singapore companies which reflect the new economy?
There is, in fact, the MSCI Singapore ETF, which is comparable to the STI ETF but includes companies like SEA Limited in its portfolio. In fact, SEA is slowly but steadily becoming the largest component of MSCI SG and we may soon see Grab included in this index.
So, how does the STI ETF stack up against the MSCI Singapore ETF?
STI ETF
The Straits Times Index (STI) is a market capitalisation weighted index that tracks the performance of the top 30 companies listed on the Singapore Exchange and is widely regarded as a benchmark index and market barometer for the country. Essentially, the STI Index is made up of the top few largest companies listed on SGX by market capitalisation, and the bigger their market capitalisation, the larger the percentage this index carries.
On the Singapore Exchange, we have Nikko AM STI ETF (SGX: G3B) and SPDR STI ETF (SGX: ES3), which track the performance of the Straits Times Index. Going with either one is fine considering their expense ratios are identical at 0.30% p.a. For this article, we will use SPDR STI ETF since it has a larger AUM of S$1,610 million.
The SPDR STI ETF was launched in 2002 and offers a semi-annual dividend. It currently has a distribution yield of 2.64%, and in terms of valuation, the ETF’s price to earnings ratio is 15.85, while its price to book ratio is 1.10.
Portfolio composition
When we look at the index composition, we can see that the financial sector accounts for the majority of the index, particularly the three local banks, DBS, UOB, and OCBC.
Considering the significant weighting in financials, it’s unsurprising that the STI ETF is often said to represent the Singapore economy, given our thriving financial sector.
The top ten holdings in the STI ETF are seen in the image above; these are common household names that you should be familiar with. The remaining 20 are listed in the table below.
| Singapore Exchange Ltd. | Keppel Corporation Limited | Thai Beverage Public Co. Ltd. | Singapore Airlines Ltd. |
| Singapore Technologies Engineering Ltd | Mapletree Logistics Trust | Mapletree Industrial Trust | Venture Corporation Limited |
| Mapletree Commercial Trust | Genting Singapore Limited | Frasers Logistics & Commercial Trust | UOL Group Limited |
| City Developments Limited | Comfortdelgro Corporation Limited | Yangzijiang Shipbuilding (Holdings) Ltd. | Keppel DC REIT |
| SATS Ltd | Jardine Cycle & Carriage Limited | Sembcorp Industries Ltd. | Dairy Farm International Holdings Limited |
How has STI ETF performed?
Due to the low base last year, the STI ETF had an extraordinary year in 2021.
However, if one had invested since the beginning, the annual return would be 6.55% (assuming all dividends and distributions are reinvested). This return drops to 4.27% over ten years.
This graph depicts the hypothetical growth of $10,000 invested in the STI ETF from 2002.
MSCI Singapore ETF
The MSCI Singapore Index was created to track the performance of the Singapore market’s big and mid-cap companies. The index currently holds 19 stocks which are decided according to the MSCI Global Investable Market Indexes (GIMI) Methodology.
One ETF that tracks this is the iShares MSCI Singapore ETF (NYSEARCA: EWS) which is listed on NYSE Arca, the first all-electronic exchange in the United States. Any broker with access to the New York Stock Exchange should have this; all you have to do is key in the ticker symbol EWS.
The ETF has an expense ratio is 0.51% currently, which is higher than the STI ETF and its dividend is paid semi-annually with a yield of 2.33%, slightly lower than the STI ETF.
In terms of valuation, the MSCI Singapore ETF has a price to earnings ratio of 19.65 and a price to book ratio of 1.47, both of which are higher than the STI ETF, owing to its exposure in stocks like SEA, which have a larger premium valuation than the old economy stocks contained in the STI ETF.
Portfolio composition
Companies in the financials industries currently account for a significant portion of the holding, similar to the STI ETF. Despite that, its holding is still lower at 37.6% compared to the STI ETF’s 46%.
The top ten holdings in the MSCI Singapore ETF are shown above, with the remaining holdings listed in the table below.
| Singapore Technologies Engineering | Mapletree Logistics Trust | Venture Corporation |
| Mapletree Commercial Trust | Genting Singapore | UOL Group |
| Capitaland Integrated Commercial Trust | City Developments | Capitaland Investment |
How has MSCI Singapore ETF performed?
MSCI Singapore ETF has underperformed STI ETF over the last ten years, with an annualised return of only 3.46% versus STI ETF’s 4.27%. Likewise, if we look at it from since inception STI ETF has performed better.
What’s more intriguing is that as the timeframe gets shorter, MSCI ETF has fared better, particularly for the 5 year, 3 year, and 1 year time periods, all of which are roughly 1% higher than STI ETF. From this result, we may witness a shift in both ETF’s performance as MSCI ETF begins to reflect more of the new economy.
The graph below illustrates how much money you would have made if you had invested $10,000 in the MSCI Singapore ETF at the same time as the STI ETF inception.
The performance of the STI ETF is not a reliable indicator of Singapore’s economy.
While the STI ETF has fluctuated in tandem with the growth of the Singapore economy, it may not be an accurate representation of the Singapore economy.
The table below shows the breakdown of Singapore’s nominal GDP for 2020, which refers to the total value of goods and services generated within Singapore. While finance and insurance account for only 15.7% of its GDP, the financial sector accounts for about 46% of the STI ETF.
Next, while real estate accounts for only 3% of Singapore’s GDP, it accounts for 21.98% in the index. On the other hand, our manufacturing sector, which accounts for 21.5% of Singapore GDP, is underrepresented in the STI ETF.
Given its significant weighting in financial and real estate, the MSCI Singapore ETF may appear to be similar to STI ETF. However, it’s worth noting that both of these categories are substantially lower in the MSCI Singapore ETF than in the STI ETF, implying that it’s more representative in some ways.
Furthermore, we may see MSCI Singapore ETF add additional companies that are indicative of the new economy in the future, such as Grab, which might breathe new life into an otherwise stagnant index.
So which one should you pick?
All in all, here is a comparison table comparing both indexes.
| STI ETF (SGX: ES3) | MSCI Singapore ETF (NYSEARCA: EWS) | |
| Inception | 2002 | 1996 |
| Number of Holdings | 30 | 20 |
| Distribution Yield | 2.64% | 2.33% |
| Price to Earnings | 15.85 | 19.65 |
| Price to Book Ratio | 1.10 | 1.47 |
| Expense Ratio | 0.30% | 0.51% |
| AUM | S$1,610 Million | S$571.9 Million |
| Holdings only in STI ETF | Holdings only in MSCI Singapore |
| Jardine Mathson Holdings Limited | SEA |
| HongKong Land Holdings Limited | |
| Thai Beverage Public Co. Ltd. | |
| Mapletree Logistics Trust | |
| Frasers Logistics & Commercial Trust | |
| Comfortdelgro Corporation Limited | |
| Yangzijiang Shipbuilding (Holdings) Ltd. | |
| Keppel DC REIT | |
| SATS Ltd | |
| Jardine Cycle & Carriage Limited | |
| Sembcorp Industries Ltd. | |
| Dairy Farm International Holdings Limited |
From what we have seen, MSCI Singapore appears to be a better choice for investors looking to invest in Singapore’s growth because it is more diverse and more representative of the new economy.
That being said, there are a few things to keep in mind.
To begin with, the expense ratio of the MSCI Singapore ETF is significantly higher than that of the STI ETF. Second, because the MSCI Singapore ETF is listed in the United States, any dividends received will be subject to a 30% withholding tax. Given that MSCI ETF is still primarily a dividend ETF, this makes it less appealing at the current juncture.
STI ETF may still be more appealing for investors deciding between the two unless it starts to shift towards a more growth stock oriented ETF where the majority of returns come from capital gains rather than dividends.
