A Global Team Effort – The Creation of Singapore’s First Exchange-Traded Fund

Over the past two decades, the size and trading volume of the SPDR Straits Times Index (STI) Exchange Traded Fund (ETF) has steadily grown. Yet, its status as the largest STI-tracking ETF was certainly not assured when it was first listed on the Singapore Exchange back in 2002. However, like most great innovations, it took the skills and talents of several different groups to make the idea become a reality.

The Need for a Home-Grown ETF in Singapore

In 2001 and 2002, the Monetary Authority of Singapore (MAS) introduced widespread changes to the operating structure of Singapore’s financial markets. These developments were designed to make the Lion City a more desirable and accessible investment destination. Soon after, demand for an accessible vehicle that would allow investors to gain broad exposure to Singapore’s top listed companies increased.

The MAS was aware that State Street Global Advisors had helped launch the first US-listed index ETF in 1993. At the time, the ETF tracked the performance of the S&P500 and gave investors a new channel to access passive, index-based investment strategies at a low-cost. The ETF vehicle proved to be immensely popular with individual and institutional investors who utilized the tool as an essential building block of savings and portfolio construction.

In 2002, State Street Global Advisors, the Singapore Stock Exchange and Singapore Press Holdings joined forces to bring the same investment vehicle to Singaporean investors—paving the way for the launch of the SPDR Straits Times Index ETF. And as the Singapore market evolved, new industry experts like FTSE Russell, an LSEG Business, were also brought in to maintain the fund’s underlying benchmark (the Straits Times Index).

Here are the different roles played by each stakeholder.

The Original Index Creator and the Global Benchmarking Leader

Singapore Press Holdings launched and maintained the Straits Times Index in 1966. One of the oldest indexes in the world, it has been the barometer of the Singapore stock market for the past 56 years. Initially known as The Straits Times Industrials Index (STII), as it only included stocks in the industrials category, to coincide with a major sectoral reclassification of SGX stocks, in 1998 it was transformed into the Straits Times Index (STI), switching from a price-weighted to value-weighted index.

In January 2008, Singapore Press Holdings partnered with the Singapore Exchange and FTSE Group to continue to strengthen the STI’s continued position as the benchmark index. A revamped STI was introduced that adopted an international recognized methodology. At this point, the number of constituents was reduced from 50 to 30, capturing the top 30 companies listed on the SGX Mainboard, ranked by market capitalisation.

The evolution of the STI continued following the combination of FTSE Group with Russell forming FTSE Russell, an LSEG Business in 2015. FTSE Russell, an LSEG Business, which continues to manage the FTSE ST index methodology today, uses a free-float market capitalisation methodology to calculate the STI. FTSE methodology ensure the index accurately represents the investable universe for benchmarking purposes and can be easily replicated as the basis of index-linked products. Reviews are carried out quarterly, in accordance with the index ground rules.

The Singapore Exchange – Three Become One

The Singapore Exchange was created in 1999 with the merger of three existing local exchanges, with an inaugural goal of increasing the trading volumes in listed companies. Essentially, stock exchanges provide a regulated and secure marketplace for investors to buy and sell shares. In return for providing this service, exchanges charge both companies and investors various fees.

As such, creating an ETF would encourage more trading in underlying businesses and enable smaller investors to gain exposure to companies in the index efficiently.

For these reasons, the Singapore Exchange was keen to become involved in the launch of an STI-linked ETF. Interestingly, as a top-30 company, the Singapore Exchange is currently represented in the STI.

The Singapore Exchange, in partnership with the NYSE American (previously known as AMEX), had already launched five ETFs in 2001, but these were re-listings that already featured on NYSE American. Upon its launch in April 2022, the SSGA STI ETF would, therefore, become the first local ETF.

Selecting the Ideal ETF Manager

When it came to selecting a suitable investment manager for the ETF, SSGA was well-placed, given it already possessed the necessary skills and experience in this market. As one of the world’s leading asset-management companies, SSGA had, for example, demonstrated its ETF credentials by being the first to launch exchange-traded funds in the US, Hong Kong, and Australia.

Singapore’s ETF market has since grown steadily, and by March 2022, its turnover was in the region of S$660 million, with more than S$140 million represented by the SSGA SPDR STI ETF1.

Continual Evolution Amid a Changing Economy

Over the past 20 years, Singapore’s economy has evolved and grown, yet the Straits Times Index continues to develop in tandem with the ever-changing backdrop.

It’s a great testament to the skills and vision of the original stakeholders, coupled with impressive teamwork, that the pioneering SPDR STI ETF still fulfils the demands of local and international investors of all sizes.

There’s every reason to expect that the original parties will continue to play a leading role in supporting the evolution of Singapore’s ETF ecosystem.

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