Buying a Straits Times Index ETF? Think Again

June 24, 2021

Singapore investors could be forgiven for thinking that the 11-year bull run in stocks has passed them by. However, that would only be the case were you solely invested in the Singapore stock market.

That’s because when talking about a “bull market” over the past decade or so, it’s clear that term is reserved for US stocks given the run up they’ve experienced.

Meanwhile, the local Singapore stock market, best represented by the Straits Times Index, has had a very disappointing past decade in comparison.

So, when it comes to investing our hard-earned money, we need to be putting it into assets that can rise over time and which will – ideally – beat inflation.

Looking at the numbers

For long-term investors, exchange-traded funds (ETFs) are a great way for investors to instantly get broad exposure to the stock market.

But anyone who had put their money into an ETF that tracked Singapore’s Straits Times Index would have missed out on opportunities in other markets.

The numbers say it all. Over the past 10 years, Singapore’s Straits Times Index returned just 3.3% on a price basis.

If you take into account dividends – so total returns – then that number does admittedly rise to 45.6%. On first glance, that might not seem like a bad return.

Yet if you work it out on annualised basis, using a compound annual growth rate (CAGR), it works out to an extremely poor 3.8%.

That barely beats inflation. If you had invested in an ETF tracking the Straits Times Index and subtracted the fees, you would have made less than that.

Compare this to the S&P 500 in the US over the past decade and the total return there for the period was 304%, or an annualised return of 15%.

Even Hong Kong’s Hang Seng Index, which has its own issues, saw a total return over the past 10 years of 81.9%, meaning an annualised return of 6.2%.

Old school issues

A lot of the problems for Singapore’s stock market stem from the fact that there are too many “old economy” companies that make up the index and which have been absolutely abysmal performers.

That lack of dynamism and innovation was exactly what drove the stock market in the US over the past 10 years with the likes of the “FAANG” stocks and other tech giants seeing their businesses grow from strength to strength.

That doesn’t mean innovation is non-existent here but the Singapore companies that are displaying that sort of growth are either rare, not part of the benchmark index or listed on another exchange – meaning investors are missing out by investing passively here.

Avoid losers

How do investors locally solve that conundrum? First off, I would say avoid buying an index made up of “past winners” which is what the Straits Times Index effectively is.

Instead, if you do want to go down the ETF route here in Singapore then look towards directing funds into the real estate investment trust (REIT) space, where multiple ETFs exist.

Besides that, we should also be properly diversified even within ETFs by identifying ones that can give us broad geographic as well as sector exposure.

Within Singapore, it’s worth looking at companies that can provide sustainable income that grows over time while also avoiding the biggest losers which have weighed down the Straits Times Index’s performance over the past decade.


Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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