The SPDR® Straits Times Index ETF – A Uniquely Singaporean Fund
Singapore’s position as one of Asia’s leading markets rests on its strategic location, robust infrastructure, business-friendly policies and commitment to innovation. The country’s economy is underpinned by a diverse range of industries, including financial services, electronic manufacturing, biomedical sciences, and marine services. The country also has a burgeoning technology segment that is leading the way in areas like fintech, artificial intelligence, and e-commerce. This economic tapestry is mirrored in the Straits Times Index (STI), a globally recognized benchmark viewed as a barometer of Singapore’s economy.
To create a cost-effective, highly liquid way of gaining exposure to the STI, State Street Global Advisors launched the SPDR® Straits Times Index ETF (ES3), the first locally created exchange-traded fund (ETF) providing investors with access to the top 30 companies in Singapore.
The SPDR® Straits Times Index ETF is listed on the Singapore Exchange (SGX) under ticker ES3 and tracks the performance of the STI. It is priced continuously throughout the trading day, meaning that investors can quickly and efficiently buy or sell a position at any time.
One market, one ETF, multiple benefits
The SPDR® Straits Times Index ETF, the largest Singapore equity ETF in the world 1, invests in a portfolio of Singapore firms, reflecting the local market's breadth and depth. For instance, the ETF has significant exposure to the financial sector with holdings in the country’s leading banks. The real estate segment, which includes prominent property developers and a top real estate investment trust (REIT), is also well represented. Elsewhere, industrial and telecom names are prominent, as are consumer-related firms and utility providers. Moreover, the STI has risen by 22.5% in the past year and delivered positive returns over three and five years .2
Gaining exposure to this number of businesses in a single trade helps eliminate the risks associated with holding a single stock. Another attraction of the ETF structure is its low cost. As the ETF is passively managed, its fees are typically less than those of a mutual fund due to the lower number of transactions its managers are required to execute.
Investors also benefit from a high level of transparency, given that the ETF provides daily access to its holdings. As such, market participants know where their money is invested at any given time.
Risk factors to consider
Of course, the SPDR® Straits Times Index ETF is not risk free. The ETF is affected by the performance of the underlying stocks in the STI, which can go down as well as up. At the same time, any of these listed companies could face operating difficulties and potential bankruptcy. This would negatively impact the value of the ETF’s shares. In addition, there are liquidity risks – in other words, it might occasionally be challenging to buy or sell shares due to a market event or trading restrictions triggered by external developments.
Multiple routes to entry
Investors can access the SPDR® Straits Times Index ETF with a minimum holding of just one unit through several channels. These include direct investments via a securities account, with the trade usually executed by a stockbroker or bank. However, some market participants may be unwilling to try to time the market with a lump sum, so there is also the option to invest regularly through a savings plan that a bank or broker may offer.
The SPDR® Straits Times Index ETF is an eligible investment under the Central Provident Fund (CPF) Investment Scheme Ordinary Account. Therefore, Singaporeans can opt to invest in the ETF using their CPF savings. Additionally, the ETF can be accessed through Singapore’s Supplementary Retirement Scheme (SRS). This voluntary structure is designed to encourage citizens to invest for their retirement alongside their CPF savings.
Upbeat, flexible and diverse
State Street Global Advisors’ 2024 ETF Impact Survey revealed that proportionally more investors in Singapore hold ETFs in their portfolios than in other markets, such as Japan, Australia and the US. The diversification benefits offered by these vehicles and trading flexibility were cited as the leading reasons why they chose to invest in ETFs.
The survey also revealed that Singapore investors are relatively upbeat about their country’s economic outlook. Against this backdrop, the SPDR® Straits Times Index ETF would be considered by those investors seeking a balanced portfolio with a uniquely Singaporean flavour.