Singapore ETF Quarterly – NIKKO AM & SPDR STI ETF January 4, 2024 144

  • Based on the weighted average consensus target prices*, the implied value for Nikko AM STI ETF and SPDR Straits Times Index ETF are $3.69 and $3.73, respectively. This is deduced by the weighted average consensus target price upside/downside percentage of its component stocks.
  • Half of the ETF holdings are in banks. Bank dividend yields are attractive at 5.7% with upside surprise in dividends due to excess capital ratios and push towards higher ROEs

 

KEY HIGHLIGHTS

 

ETF Background:

 

Both the Nikko AM Singapore STI ETF and SPDR Straits Times Index ETF stand as Singapore’s locally created exchange-traded fund, crafted to track the Straits Times Index’s performance. The Funds’ primary aim is to closely emulate, before expenses, the performance of the Straits Times Index. They present investors with a chance to diversify their holdings across Singapore’s leading companies and engage Singapore’s long-term growth potential through a single, cost-effective transaction.

 

Investment Highlights:

 

  • Investing in this ETF provides exposure to a diversified portfolio of these leading companies across various sectors.
  • Cost-effective option for gaining exposure to a basket of stocks without the need to individually purchase each stock.
  • Investing in an ETF is easy and can be done through a brokerage account. You can participate in the Singapore stock market without the complexity of picking individual stocks.
  • ETFs are traded on stock exchanges, offering liquidity as they can be bought or sold throughout the trading day at market prices. This liquidity provides flexibility for investors who may want to enter or exit positions quickly.
  • Dividend is normally distributed semi-annually at an average yield of 3.30%, which is attractive compared to 3.00% of the Singapore 10Y Government Bond

 

Target Audience:

 

  • Investors with minimal/no Singapore equities exposure
  • Investors who would like to diversity their holdings with single, low-cost transaction
  • Investors who find single stock investment too risky and prefer to invest in a basket of stocks instead of single or concentrated stocks
  • Investors who wish to invest through cash, CPF, SRS or through a dollar-cost averaging (DCA) plan like Phillip Shares Builder Plan

 

 

*Implied target price / dividend yield is sourced from Bloomberg, calculated by the weighted average of the component stock’s indicated dividend yield/indicated percentage change in price

 

Financials

Both ETFs have almost half of their holdings in Singapore’s major banks DBS, OCBC and UOB. These banks have established a long history in Singapore’s financial landscape, which is known for its stability, strong regulatory framework, and transparency. Each bank has its own strengths and areas of focus. An exposure to each of them provides diversification within the banking sector itself. DBS, for instance, has a strong digital banking presence, while UOB has traditionally focused on small and medium-sized enterprises (SMEs). OCBC has a diverse range of businesses, including banking, wealth management, and insurance. Singapore’s banks have been at the forefront of adopting digital innovations in banking services. They are continually investing in technology to enhance customer experience and efficiency, which could potentially translate into competitive advantages. They have also offered stable dividends, making them attractive to income-focused investors.

 

Real Estate

Singapore’s real estate market is known for its stability, transparency, and well-regulated environment. Strong governmental policies contribute to a secure investment landscape. Despite occasional fluctuations, Singapore’s real estate market has shown resilience over time, offering long-term capital appreciation. Limited land supply and steady demand often support property values. Singapore also has a strong rental market, driven by its status as a global business hub. Investment properties can provide a steady income stream through rental yields, particularly in prime locations. Continuous urban development and infrastructure projects, such as transport enhancements and smart city initiatives also add value to real estate investments by improving accessibility and liveability.

 

Industrials

Singapore’s strategic location in Southeast Asia makes it a key hub for logistics, manufacturing, and trade. Its connectivity to global markets via sea and air routes enhances the appeal of industrial investments. The country boasts a modern infrastructure, including ports, airports, and advanced logistics facilities. This supports efficient supply chain operations and makes it an attractive location for industrial activities. Singapore’s government also actively supports industrial development through incentives, grants, and initiatives aimed at fostering innovation, research, and development, attracting companies to establish a presence or expand their operations in the country.

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