The iEDGE Singapore Next 50 indices is finally out!
After months and months of debate and discussions, this initiative looks set to be a key step forward in rejuvenating Singapore’s local stock market.
The thinking behind this move? Authorities believe that mid-cap stocks on the SGX have been neglected for far too long. With the introduction of the Equity Market Development Programme (EQDP), the iEDGE Singapore Next 50 Indices will be launched to steer fund managers towards these under-appreciated companies.
While the majority of us are not fund managers, I believe some of us have the tenacity and knowledge to spot a great stock. You could choose to invest in the indices or ETFs that could provide potential upside, or simply use the list of intended stocks as a form of vindication for your own analysis.
So which are the companies that will be included in this index?
The Constituents
The iEDGE Singapore Net 50 Index will be split into two indices – one that is weighted by market capitalisation, and the other by liquidity. While the constituents will be the same, there will be some minor differences in the weightage.
The constituents are grouped by sectors. There are 10 sectors, ranging from industrials, financials, consumer non-cyclicals, technology, telecommunications, healthcare, consumer cyclicals, non-energy materials, energy and REITs.
The max weightage per stock is currently pegged at 5%.
REITs
With a total of 38 REITs listed on the SGX, it would be odd to not see any represented in the upcoming iEDGE Singapore Net 50. Yes, bluechips that STI has would not appear here, but there are still some notable quality REITs inside the list of 16 REITs featured.
CapitaLand Ascott Trust (SGX: HMN), Keppel REIT (SGX: K71U), Suntec Real Estate Investment Trust (SGX: T82U), and Parkway Life Real Estate Investment Trust (SGX: C2PU) all have a weight of 5%, signifying their stability and prospects.
A host of data centre REITs like NTT DC REIT (SGX: NTDU), Digital Core REIT (SGX: DRCU) and CapitaLand India Trust (SGX: CY6U) also made it to the list.
The new index is peppered by S-REITs, making up almost 50% of the total index. That’s significant, and depending on how you look at it, it can be both a good and and a bad thing.
The good – REITs are usually relatively stable, albeit from cyclical interest rates regime. And as we are heading towards a low interest rate environment, there are more upsides for REITs in the coming years.
The bad – I wouldn’t go as far as to say having too many REITs is a bad thing. But another index with a huge REIT weightage might just end up gyrating in sync with the STI that we have.
Nevertheless, these REITs could see higher prices as they will now be in the limelight as they become the major constituents of the iEDGE Singapore Next 50.
Industrials
Plenty of non-industrial companies are lumped under the Industrials sector.
On the top of the list we have beleaguered Comfortdelgro Corporation Limited (SGX: C52) and Singapore Post Ltd. (SGX: S08). Both companies have seen tough times and are trying their best to pivot and navigate through uncertain times. Both companies have robust balance sheet though, and trade at relatively cheap valuations.
Notable names that operate in the more industrial sectors includes the likes of SIA Engineering Co. Ltd. (SGX: S59), Hong Leong Asia Ltd. (SGX: H22), and Boustead Singapore Limited (SGX: F9D). These 3 companies are relatively the juggernauts in their sub-sector – SIA Engineering in air cabin retrofitting, Hong Leong Asia in building materials and Boustead in geospatial and energy engineering.
The list is finally wrapped up by companies in the transportation and logistics sector with SBS Transit Ltd (SGX: S61), Samudera Shipping Line Ltd (SGX: S56) and COSCO Shipping International Singapore Co Ltd (SGX: F83). Although these sectors are considerably evergreen, they are competitive, and these stocks have had decent track records.
Financials
Whenever “listed” and “financials” are put side by side, we automatically think of Singapore’s three listed banks.
But there are other listed financials components that make up the iEDGE Singapore Next 50 index. The heavyweights in this sector include Yangzijiang Financial Holding Ltd. (SGX: YF8) and iFAST Corporation Ltd (SGX: AIY). YZJ Financial focuses on debt, cash management and maritime assets, while iFAST has grown into a digital banking and wealth management platform with presence worldwide. Let’s not forget UOB’s brokerage arm UOB-Kay Hian Holdings Limited (SGX: U10), while will also be part of the constituents.
The other companies that have more of a property and construction proxy are the likes of Centurion Corporation Limited (SGX: OU8), Yanlord Land Group Limited (SGX: Z25) and Wee Hur Holdings Ltd. (SGX: E3B).
Consumer Cyclicals and Non-Cyclicals
Both sectors contribute between 7-9% of the Next 50 weights and Next 50 Liquidity Weights respectively.
The non-cyclicals count on familiar names like Sheng Siong Group Ltd. (SGX: OV8), Olam Group Limited (SGX: VC2) and Food Empire Holdings Limited (SGX: F03). Sheng Siong is the go-to retailer that has grown not only in Singapore but also to China as well, while Olam Group is another huge trading company that could rival Wilmar International. Food Empire Holdings on the other hand, produces coffee mixes that are popular.
Riverstone Holdings Limited (SGX: AP4) is the only consumer cyclical constituent, and the company is one of the largest cleanroom and healthcare gloves, with operations in Southeast Asia and China.
Energy and Non-Energy Materials
The energy constituents are made up by CSE Global Limited (SGX: 544) an integrated industrial automation, IT and intelligent transport solutions company, China Aviation Oil (Singapore) Corporation Ltd (SGX: G92) a jet fuel supplier and trading company and Geo Energy Resources Ltd. (SGX:RE4), a coal mining and trading company.
The non-energy materials sector is made up by Keppel Infrastructure Trust (SGX: A7RU), palm oil giant First Resources Ltd. (SGX: EB5), concrete juggernaut Pan-United Corporation Ltd. (SGX: P52), specialty chemicals Sunshine Chemical Holdings Ltd. (SGX: QES) and vacuum thin film deposition expert Nanofilm Technologies International Ltd. (SGX: MZH).
Technology, Telecommunications and Healthcare
3 familiar names make up the technology constituents – UMS Integration Limited (SGX: 558), Frencken Group Limited (SGX: E28) and Aztech Global Ltd. (SGX: 8AZ). On the other hand, the telecommunications sector is represented by none other NetLink NBN Trust (SGX: CJLU) and StarHub Ltd. (SGX: CC3).
And to wrap everything up, who can forget healthcare bluechip Raffles Medical Group Ltd (SGX: BSL).
My verdict
The Next 50 constituents are mostly familiar names, many of which could easily be considered blue chips as well. Some of them might even be former STI constituents. So in terms of quality and stability, there really is nothing to nitpick for those who want to invest passively.
In fact, there are also multiple periods where when backtested, the Next 50 constituents shows outperformed against the good old STI by a fair margin. So it would be safe to say that the Next 50 does compliment the STI quite well, allowing passive investors to participate in explosive growth in certain industries, especially during the shipping crisis or the pandemic, where shipping, logistics and glove making stocks went bonkers.
Are you already a shareholder of any of the stock constituents in the Next 50? Do you anticipate some front-running activity where retail investors load up on the shares?
I personally anticipate some stocks to appreciate higher, as this could be the fuse that could light up the much needed Singapore equities rally!
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when is launch date of iedge-singapore-next-50-indices in market.
thanks.
Launched: https://www.sgx.com/indices/products/sgn50n Just no ETFs tracking the index yet.