- Amid the socio-economic challenges since 2019, the STI has generated a 24.0% total return, in-line with the FTSE APAC Index 23.9% total return and FTSE APAC Ex-Japan Index 18.9% total return. The Index also maintains a 5.0% trailing dividend yield, compared to 3.4% for the FTSE APAC Index and 2.7% for the FTSE APAC Ex-Japan Index.
- Dollar Cost Averaging (DCA) is an alternative method to lump-sum investing, providing a means to build gradual ETF and stock exposure in the local stock and securities markets. From 31 Dec 2019 to 13 May, the indicative Compound Annual Growth Rate (CAGR) of month-end dollar cost averaging on an STI ETF amounted to 4.2%.
- The comparative CAGR of the STI ETF DCA could also have been further boosted by investing unutilised funds in SGS Bonds, T-bills and Savings Bonds. The most utilised Singapore-listed ETFs by DCA investors as of April 2024 included the Nikko AM STI ETF, ABF Singapore Bond Index ETF, Nikko AM Straits Trading Asia ex Japan REIT ETF, Nikko AM SGD Investment Grade Corporate Bond ETF and Lion-Phillip S-REIT ETF.
The composition of benchmark Indices such as the STI change over time to reflect the largest and most actively traded stocks of the exchange. This in itself provides a form of a passive, market following investment strategy subject to the usual market risks. For instance, at the end of 2019, the trio of DBS Group Holdings, Oversea-Chinese Banking Corporation and United Overseas Bank have seen their STI weighting expand from 39.7% to 50.6%. Over this period of time, the trio averaged total returns of 64.4%.
STI Total Return Indices calculated by Bloomberg and Refinitiv closed at all-time closing highs on 13 May. Since April 2002, the STI has been investable in the form of an Exchange Traded Fund (ETF) which from inception through to 13 May 2024 generated an annualised total return of 6.2%. This total return assumes the ETF dividends (which are currently paid semi-annually) are reinvested into units. Lump-sum investing into the STI ETFs at the end of 2019, with dividend re-invested into the ETF units, averaged 4.4% annualised total returns, not including transaction fees through to 13 May. At the same time, Dollar-Cost Averaging (DCA) into the SPDR STI ETF from the end of 2019 through to the end of 13 May generated an indicative 4.2% compound annual growth rate, not including transaction fees.
Due to the lower base for initial dividend distributions that comes with DCA, in addition to the DCA attempting to mitigate some of the timing risks that come with lump-sum investing, DCA would not generally expected to outperform lump-sum investing. However over the full 52.4 month tenure spanning 31 December 2019 to 13 May 2024, DCA investing kept near pace with the returns of a lump-sum investment in a STI ETF. As illustrated below, this was mostly attributed to the volatility that took hold of global stocks in 2020.
Note: Prices are month-end closes for the SPDR STI ETF, starting with the 31 December 2019 unit price of S$3.277 through to the 13 May 2024 unit price of S$3.374. There were also nine dividend distributions that were reinvested into units over the full 52.4 months. Sources: SGX, Bloomberg, Refinitiv (Data as of 13 May 2024).
This example illustrates the underlying concept of Dollar-Cost Averaging (DCA), where investing a fixed sum regularly allows one to purchase more shares when prices are low and fewer when prices are high. Using the SPDR STI ETF (ticker: ES3) as an example, a S$1000 investment bought 407 units in October 2020 at S$2.456 per unit, but only 290 units in July 2023 at S$3.447 per unit, demonstrating a 30% decrease in the number of units acquired as the unit price increased.
The DCA total return also assumes dividend distributions were reinvested into units. As illustrated above, since 2019 semi-annual dividend distributions in February and August have increasingly impacted the number of units acquired in March and September. For example, if the DCA began on 31 December 2019, the first distribution would have gone ex-div in February 2020, with S$0.056 paid per unit. At that time 305 units had been purchased at the end of December 2019 and 312 units had been acquired at the end of January 2020. The combined 617 units went ex-dividend in February 2020 at S$0.056 per unit, equated to near S$35. If reinvested at the end of March, this would mean S$1,035 was available to acquire a total of 416 units at S$2.485 per unit on 31 March 2020. More recently, in February 2024, the ETF went ex-dividend with a S$0.073 per unit distribution, which on 17,794 units acquired since the end of 2019, translated to S$1299, or 402 units to be purchased at the end of March at S$3.23 per unit, in addition to the 309 units acquired on the monthly S$1000 plan. Note the dividend distribution may have been available for reinvestment at the end of February, however, given potential time lags in adjusting the set DCA amount for the month, this educative example assumes the seven distributions over the period were invested the following month.
Assuming S$1,000 was invested at the closing price of the SPDR STI ETF at the end of each month starting from December 2019 to the end of April 2024, the theoretical outlay would have totalled S$52,998, with the tenure of the investing 4 years and 4 months, or 52 months. Based on the 13 May 2024 unit price of S$3.374, the 18,806 units bought since the end of 2019 would have been valued at S$63,451, for a basic Return on Investment (ROI) of 19.7%. As discussed above this generated a CAGR of 4.2%.
The comparative CAGR of the DCA on a STI ETF since 31 December 2019 could also have been further boosted by investing unutilised funds in SGS Bonds, T-bills and Savings Bonds. The most utilised Singapore-listed ETFs by DCA investors as of April 2024 included the Nikko AM STI ETF, ABF Singapore Bond Index ETF, Nikko AM Straits Trading Asia ex Japan REIT ETF, Nikko AM SGD Investment Grade Corporate Bond ETF and Lion-Phillip S-REIT ETF.
Note:
- DCA and ETF investing is also subject to market risk. For instance, using this DCA educative example, had the STI ETFs were back below S$3.00 per unit at say S$2.90 per unit on 13 May 2024, the Basic ROI would have been 2.9%, and CAGR would be 0.7%.
- The SGX Academy website includes more information on DCA via Regular Shares Savings Plans such as the DBS Invest Saver, FSMOne Regular Savings Plan, OCBC Blue Chip Investment Plan and Phillip Capital Share Builders Plan.
Enjoying this read?
- Subscribe now to the SGX My Gateway newsletter for a compilation of latest market news, sector performances, new product release updates, and research reports on SGX-listed companies.
- Stay up-to-date with our SGX Invest Telegram channel.