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Tuesday, November 7, 2017

STI ETF is Diversification - Think Again

Everyone is touting how the equity markets is so good this here, even in sunny Singapore. The Straits Times Index (STI) is up about 17% year-to-date (YTD) and it's almost harder to lose money than to make money.

But hang on. Look at these headlines.

CNBC, Oct 11: GLOBAL MARKETS-Asia stocks near decade-high on global equity surge, dollar sags
MarketWatch, Oct 16: Nikkei continues to surge to two-decade high, leading Asian market gains
The Standard, Oct 16: Hang Seng climbs 0.8pc to near decade high

The list goes on.
Jakarta Index: 6050 (High Jan 2015, 5450)
Korean KOSPI: 2549 (High Apr 2011, 2142)

But poor old STI is at 3381 when the high set in Oct 2007 was 3805.

Sure the components had changed between that time and now. But since it is market capitalization weighted, why hasn't it recovered since then? I did not even talk about the US markets which is definitely going to set new highs even if a monkey was in administration. As much as the man claimed credit, i don't think it was majority his actions or planned actions or inaction whatsoever. I digress.

Does it mean the Singapore Exchange did not have bright sparks? Not exactly.

Let's take a look at the IT or electronics sector, especially the amazing Venture Corp results just published. The average returns for the top 10 capitalized stocks in that sector is a grand total of 100.3%.


Image taken from SGX Newsletter.

Yes, that's right. The average company there doubled their price. How is that for +17%?

Unfortunately, the damn STI does not even have a single electronics company out of that list of 10. I originally thought Venture, because of it's high share price at around SGD10 early this year, would be in. I was pointed out that Venture is not in, and it's probably because of the market cap not making the Top30 at the time of decision.

As of today, Venture will make the next review so if the prices, and for the bottom dude currently (poor Hutchinson Port), does not deviate from here much, it will be added in next. The corollary thought for some must be that Venture is going in, so the index will be forced to buy it soon and therefore there is some upside to it. By the time you see this post though, it might already be too late.

I will end this post with the Top 10 holdings of STI ETF which mirrors the actual index. You decide for yourself if you have proper diversification there.

Snips from SPDR STI ETF Factsheet (as of Sep 2017)

Next time somebody sells you STI ETF because 30 = diversification. Ask them about what's inside. Their heart and the fund, both.


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