For the month of January 2012, the benchmark FTSE Straits Times Index (STI) sustained a gain of 9.8%. Over the course of January, the STI made its month low at 2688.36 (+1.6%) on 3 January, well before reaching its month high at 2916.26 (+10.2%) on 27 January.  This means that in January, the STI did not return to the 30 December 2011 close of 2646.35. History shows that this type of market mode is rare, giving impetus for investors to seek support, education and apply risk management techniques within their investing.

In a timely manner, David Gerald, CEO and President of  Securities Investors Association (Singapore) has stated that “Singapore investors who elect to make their own decisions on selecting stocks rather than be at the mercy of bandwagons are encouraged to participate in our upcoming Analyzing Company Financial Performance For Stock Selection workshops”.
The FTSE Straits Times Index (STI) comprises 30 largest market capitalisation stocks in Singapore and the table below lists these constituents from the largest to the smallest weightage in the index. These relevant stocks, respective weightings and January 2012 performances are tabled below.

As detailed in the table, 27 of the 30 stocks posted inclined over the month of January, while 2 stocks posted declines. One stock, Singapore Technologies Engineering was unchanged at the end of the month. The performances of the STI constituents ranged from a decline of 19.7% (CapitaMall Trust) to a gain of 30.1% (Sembcorp Marine), while the Index as a whole rose 9.8% in the month of January 2012.

The stocks that most resembled the STI gain of 9.8% over the month, were Singapore Airlines (+9.3%), Fraser & Neave Ltd (+9.5%), Oversea-Chinese Banking Corp Ltd (+9.8%) and City Developments Ltd (+10.8%).

For broad index exposures, SGX offers Exchange Traded Funds (ETFs) for investors. ETFs are Specified Investment Products and more details on understanding the risks and nature of portfolio products can be found at www.sgx.com/mygateway. Investors consider the use of Exchange Traded Funds (ETFs) to gain exposure to the Singapore market for the three main reasons, efficiency, transparency and flexibility. These three rationale also hold an ETF acronym.

Efficiency

Broad diversification can be achieved in one single transaction with minimum investment. When an investor buys an STI ETF, they gain cost efficient exposure to a diversified portfolio of Singapore stocks through a single transaction.

The annual management fees are generally lower at less than 1% compared to unit trusts or traditional funds that might charge between 1% and 2%. For example, by buying into the SPDR Straits Times Index ETF, which is cash-based and denominated in Singapore dollars, investors can gain exposure to the 30 largest market capitalization stocks of the Straits Times Index. The minimum investment for the SPDR STI ETF is $2,980 and $293 for the Nikko AM STI ETF based on the 31 January 2012 closing prices.

Transparency

Investors can readily access real-time information such as ETF prices, fund information and index information on the websites of the Issuers, Index Providers and SGX. Market prices are published real-time through the trading day, and can be found here.

Flexibility

Investors can buy and sell ETFs anytime during trading hours and may employ the traditional trading techniques including stop order, limit order and short sales.

SPDR Straits Times Index ETF

On 30 January 2012, the Manager of the Fund, State Street Global Advisors Singapore Ltd., announced the Fund’s dividend distribution of S$0.055 per unit. The ex-date is 1 February 2012, record date is 3 February 2012 and the distribution will be made payable on 14 February 2012.

The ex-date is the trading day on and after the STI ETF trades with the declared dividend, thus buyers of the STI ETF on the ex-date will not receive the most recently declared dividends. The record date is the date that the STI ETF consolidates its list of unitholders with the dividend payments.

This STI ETF is included for investment under the CPF Investment Scheme-Ordinary Account (“CPF-OA”). The CPF interest rate for the CPF-OA is based on the 12-month fixed deposit and month-end savings rates of the major local banks. Under the CPF Act, the CPF Board pays a minimum interest of 2.5% per annum when this interest formula yields a lower rate.

As of 30 January 2012, the dividend yield of the STI ETF is 2.91% as reflected on the Manager’s website. This takes into consideration the past two dividend payments. Note that as per the STI ETF prospectus, State Street Global Advisors Singapore Ltd has the discretion to pay semi-annual dividends.

The Product Highlight Sheet states that the Manager employs an “indexing” approach intended to replicate as closely as possible the performance, before expenses, of the Straits Times Index.  The Manager will generally invest the Fund’s assets in all of the stocks comprising the Straits Times Index in the same approximate proportion as their weightings within the Straits Times Index.

More on the structure and risks associated with trading SGX ETFs can be found here.