Insights

The Enduring Appeal of Singapore’s Largest Equity Index ETF

The SPDR Straits Times Index ETF, which tracks the performance of the Straits Times Index (STI), is Singapore’s oldest and largest equity-based exchange-traded fund . What’s more, this year marks the 20th anniversary of its listing on the Singapore Exchange (SGX).



The appeal of the SPDR STI ETF is straightforward – with one transaction, an investor gains exposure to the largest 30 stocks listed on the SGX. The alternative for a retail investor who wishes to obtain this level of exposure would be to buy individual positions in each of these companies, which would be time-consuming and costly in terms of transaction fees. Also, if they sought to mirror the underlying index, the investor would need to rebalance regularly by buying and selling each holding.

A Cost-Effective Approach 

Investors are increasingly aware of how fees can impact their investment goals. ETF costs are typically lower than traditional mutual funds and often less than individual investments in an ETF’s underlying securities. With the SPDR STI ETF you can access Singapore’s most prominent companies for only 0.3% p.a. or only S$30 for every S$10,000 invested.

However, before investing in an ETF, it’s worth looking at the total cost of ownership (TCO). Two components make up the TCO of an ETF: tracking return difference and investor trading costs. Tracking return difference is driven by the expense ratio and portfolio management efficiency in matching the index returns. Given ETFs are bought and sold on an exchange – like stocks – any trading costs will include commission and the bid-ask spread.

Spreading the word

Another advantage for investors is the tight bid-ask spread of the SPDR STI ETF. The bid-ask spread is the difference between the cost of buying shares (the ‘ask’ price) and the price you receive when you sell a holding (the ‘bid’ price). This ‘spread’ is how market makers maintain their profitability, and it exists across all listed products. With a mutual fund, this spread might be referred to as an application fee and a redemption fee, but it’s essentially the same. A narrower bid-ask spread is advantageous for an investor because it reduces transaction costs and ultimately boosts returns.

The SPDR STI ETF has a tighter bid-ask spread than 29 out of the 30 most traded corporate stocks on the SGX . The reasons for this are twofold. Overall, the Singapore market has a high trading volume, making it easier to transact – buyers and sellers aren’t difficult to find. In fact, over the past year, more than 1 million units of the SPDR STI ETF were traded on the SGX every day . Secondly, the SPDR STI ETF is a popular investment vehicle, and healthy trading volumes can lead to narrower spreads — meaning that investors can buy and sell units of the SPDR STI ETF at a price that closely follows the market value of its underlying securities. 

Figure 1: SPDR® Straits Times Index ETF vs. Top 5 Constituents of the Straits Times Index

Stock Code (SGX) Name Average Bid-Ask Spreads
ES3

SPDR® Straits Times Index ETF

0.055%
DO5 DBS Group Holdings Ltd 0.042%
O39 Oversea-Chinese Banking Corp Ltd 0.098%
U11 United Overseas Bank Ltd 0.056%
Z74 Singapore Telecommunications Ltd 0.422%
J36 Jardine Matheson Holdings Ltd 0.161%

Source: SGX, Bloomberg. Average bid-ask spreads are the 30 day average as of 14 January 2022. 

Committed to Singapore

With assets under management of close to S$1.6 billion as of end of February 2022, the SPDR STI ETF is notably larger than its STI-tracking peers. Indeed, over the past few years, the ETF has attracted many investors who value its affordability, flexibility, and close links to their local market. Aside from pioneering Singapore’s first local ETF, State Street Global Advisors also created the world’s first ETF in 1993 and Hong Kong’s first ETF in 1999. With more than 20 years of experience operating in Singapore and across the region, State Street SPDR is committed to supporting the growth of the local ETF industry so that all investors, both young and old, can access low-cost, transparent investment solutions to achieve their savings goals.

In our next article , we will look at some of the mechanics underlying the SPDR STI ETF and explore how it is a valuable tool for investors looking to tap into Singapore's economic prospects and development. 


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