MSCI Singapore ETF increasingly better than STI ETF
1. $STI ETF(ES3.SG$ STI ETF has been one of the popular choices for anyone who wants to get Singapore exposure without picking individual stocks.
2. However, I have heard investors complaining about the lacklustre performance of the STI in recent years and some have jumped ship to foreign stocks to chase after higher returns.
3. One of the reasons for the relative poorer performance is that growth stocks have beaten value stocks in recent years and Singapore stocks belong to the latter. There is a dearth of high growth tech stocks that are listed in Singapore.
4. The STI comprises 30 constituents with a heavy skew towards banking stocks: DBS, OCBC and UOB took up 43.73% of the weightage. REITs take up another 14.3%. The remaining ones are in property development, engineering, commodities and conglomerates. These are companies from the industrial age and are mature today with little growth to offer.
5. But don't write off Singapore stocks yet. A good number of Singapore stocks are able to distribute high dividends regularly and are suitable for investors who desire cash flow from their investments rather than high capital gains. Coupled with nil dividend tax, Singapore is a haven for dividend investors.
6. $iShares MSCI Singapore ETF(EWS.US$ iShares MSCI Singapore ETF (EWS) is gradually becoming a better alternative to STI ETF. Sea Ltd replaced Suntec REIT in the MSCI Singapore Index in May 2021 and Sea has a 12.78% weightage in the ETF currently. This is logical considering that Sea is Singapore's largest listed company (bigger than DBS market cap) and it is an elephant in the room that couldn't be ignored any further.
7. Why does STI not include Sea? This is because STI focuses on stocks listed on SGX while Sea is listed on NYSE. This is unlikely to change considering that SGX is one of the parties that decide on the rules and it is against its interest to include foreign listed stocks into the STI.
8. MSCI doesn't have the baggage and it expanded its mandate to include foreign listed but Singapore-based companies into the MSCI Singapore Index in 2020. Three companies were shortlisted: Sea, Maxeon Solar Tech and Razer. I believe more could qualify and PropertyGuru comes to mind considering that it is merging via a SPAC with a market value of US$1.8b.
9. It is not that Singapore has no tech companies. They are either private or have chosen foreign exchanges for their listings. SGX will need to attract more tech companies to list in Singapore otherwise it would remain solely relevant for dividend and value investors. Hopefully the SPACs would bring in some young tech companies next year.
10. MSCI Singapore ETF is not without its disadvantages. It is denominated in USD and that means there would be forex risk. The expense ratio is also higher at 0.51% vs 0.3% for STI ETF. Lastly, the dividends may be liable for 30% withholding tax. I am not sure if this is imposed and appreciate anyone with the experience to clarify on this. Otherwise it is prudent to assume the tax exists.
11. iShares MSCI Singapore ETF isn't that attractive over STI ETF at the moment because of these disadvantages. The pros don't outweigh the cons, yet. But increasingly it will be a better and broader exposure to Singapore's economy than STI ETF and I believe with more tech stocks, the potential capital gain would more than cover the cons to make it worthwhile.
12. Blackrock may even consider to re-list iShares MSCI Singapore ETF on SGX if the popularity increased. Fun fact: the same ETF was previously available on SGX but delisted in 2016. If it makes a comeback, the disadvantages would be dramatically reduced - no forex risk and nil dividend tax apply.
2. However, I have heard investors complaining about the lacklustre performance of the STI in recent years and some have jumped ship to foreign stocks to chase after higher returns.
3. One of the reasons for the relative poorer performance is that growth stocks have beaten value stocks in recent years and Singapore stocks belong to the latter. There is a dearth of high growth tech stocks that are listed in Singapore.
4. The STI comprises 30 constituents with a heavy skew towards banking stocks: DBS, OCBC and UOB took up 43.73% of the weightage. REITs take up another 14.3%. The remaining ones are in property development, engineering, commodities and conglomerates. These are companies from the industrial age and are mature today with little growth to offer.
5. But don't write off Singapore stocks yet. A good number of Singapore stocks are able to distribute high dividends regularly and are suitable for investors who desire cash flow from their investments rather than high capital gains. Coupled with nil dividend tax, Singapore is a haven for dividend investors.
6. $iShares MSCI Singapore ETF(EWS.US$ iShares MSCI Singapore ETF (EWS) is gradually becoming a better alternative to STI ETF. Sea Ltd replaced Suntec REIT in the MSCI Singapore Index in May 2021 and Sea has a 12.78% weightage in the ETF currently. This is logical considering that Sea is Singapore's largest listed company (bigger than DBS market cap) and it is an elephant in the room that couldn't be ignored any further.
7. Why does STI not include Sea? This is because STI focuses on stocks listed on SGX while Sea is listed on NYSE. This is unlikely to change considering that SGX is one of the parties that decide on the rules and it is against its interest to include foreign listed stocks into the STI.
8. MSCI doesn't have the baggage and it expanded its mandate to include foreign listed but Singapore-based companies into the MSCI Singapore Index in 2020. Three companies were shortlisted: Sea, Maxeon Solar Tech and Razer. I believe more could qualify and PropertyGuru comes to mind considering that it is merging via a SPAC with a market value of US$1.8b.
9. It is not that Singapore has no tech companies. They are either private or have chosen foreign exchanges for their listings. SGX will need to attract more tech companies to list in Singapore otherwise it would remain solely relevant for dividend and value investors. Hopefully the SPACs would bring in some young tech companies next year.
10. MSCI Singapore ETF is not without its disadvantages. It is denominated in USD and that means there would be forex risk. The expense ratio is also higher at 0.51% vs 0.3% for STI ETF. Lastly, the dividends may be liable for 30% withholding tax. I am not sure if this is imposed and appreciate anyone with the experience to clarify on this. Otherwise it is prudent to assume the tax exists.
11. iShares MSCI Singapore ETF isn't that attractive over STI ETF at the moment because of these disadvantages. The pros don't outweigh the cons, yet. But increasingly it will be a better and broader exposure to Singapore's economy than STI ETF and I believe with more tech stocks, the potential capital gain would more than cover the cons to make it worthwhile.
12. Blackrock may even consider to re-list iShares MSCI Singapore ETF on SGX if the popularity increased. Fun fact: the same ETF was previously available on SGX but delisted in 2016. If it makes a comeback, the disadvantages would be dramatically reduced - no forex risk and nil dividend tax apply.
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eatmi2 : Thanks for expert sharing and analysis.