The Business Times

Diversity, dividends keep STI relevant in uncertain times: panel

Tan Nai Lun
Published Sun, Aug 28, 2022 · 04:49 PM

INVESTING in the Straits Times Index (STI) can help investors stay resilient amid macroeconomic uncertainties and rising volatility.

This is due to the index’s diverse components, as well as its high dividend yields, said speakers at a panel during the Invest Fair held on Saturday (Aug 27).

The panellists were speaking about investing in the STI during volatile times.

The STI is one of the best performing indices in the region, even though some investors have remarked that the STI was “boring” given that it has been stable over the years, said Jermyn Wong, who is head of SPDR ETF Singapore and one of the panellists.

The STI has risen around 8 per cent year to date, compared to other major indices such as the S&P 500 in the US and the Hang Seng Index in Hong Kong, which have fallen more than 10 per cent year to date.

“In today’s environment, perhaps boring is not such a bad thing,” Wong said.

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But Wong noted that the STI is “really not that boring” given that it is a dividend-paying index, with its historical dividend yield average between 3 and 4 per cent.

The STI is also one of the most diverse stock benchmarks across the world, said Geoff Howie, market strategist at the Singapore Exchange (SGX).

Some 50 per cent of revenue associated with the STI is reported outside of Singapore, and its 3 strongest performers – Sembcorp Industries, Jardine Cycle and Carriage and Yangzijiang Shipbuilding – operate in different sectors and geographical areas.

Howie also said the 3 local banks, which have been relatively defensive globally and have a high weightage in the STI, have helped the index maintain one of the highest yields across the world.

And investors are increasingly recognising such trends, the panellists noted.

SPDR ETF’s Wong noted that investors today are looking at the SPDR STI ETF – an exchange-traded fund (ETF) that tracks the performance of the STI – not just as an ETF or an asset class to buy and hold, but also as a tool for tactical asset allocation.

This may be because investors are trading more frequently given the uncertain climate, SGX’s Howie said.

“When markets are moving, we’re noticing investors are being a little bit more agile,” Howie said.

Index trading is also becoming more popular among daily leverage certificates (DLCs), said Marcus Ng, vice president of cross asset-listed distribution in Asia Pacific at Societe Generale (SocGen).

SocGen issues more than 250 DLCs – which are financial instruments that offer fixed leverage exposures to the underlying stock or index – on the SGX.

Ng said index DLCs now take up around 30 to 35 per cent of overall DLC volumes, compared to previously where they took up about 20 per cent of overall volumes. More investors are also having shorter holding periods and smaller position sizes.

“People are taking less risk in this kind of turbulent times,” Ng said.

The panel also noted that the index stays relevant as its components are up for review frequently.

“The beauty of index investing is that companies come and go, but the index is always still around, and the index changes and evolves over time to always be relevant,” SPDR ETF’s Wong said.

Looking forward, the panel expects the market will remain volatile given geopolitical and macroeconomic uncertainties.

“Definitely, it’s very important for investors to position themselves. Buy and hold will work. But you should have the correct mindset to be able to hold through turbulent times, otherwise, you’re going to be a victim of the market,” said SocGen’s Ng.

Ng added that DLCs are an option for investors looking to take a more active approach, whether it is to capture short term trading opportunities in the market or to hedge investment portfolios.

Meanwhile, Matthew Henshaw, senior manager of business development at FTSE Russell, also noted an increase in demand for sustainable investment products.

With more large asset managers and banks focusing on environmental, social, and governance (ESG) factors, Henshaw expects a lot more products coming through that may not have been on the horizon 2 or 3 years ago.

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