STI ETF And A Well Diversified Portfolio



Please read the disclaimer at the bottom of my blog if you wish to continue with the contents below.

I am starting to really like STI ETF(ES3) recently after accumulating it solely during the downturn(although not enough!). This is just my own personal opinion as I am sure many people out there still prefer to pick individual blue chips in hopes to beat the market and get better yield. 

STI ETF has a low expense ratio, and it drastically reduces unsystematic risk(One would get expose to that if they have concentration of a few individual stocks). I always believe in having a diversified portfolio both breadth(different uncorrelated asset classes) and depth(different kinds in the same asset class). Of course one cannot assume a complete -1 correlation between any two asset classes, but a bond asset class and an equity asset class would make a good cookie cutter to start with.

A well diversified portfolio is important as if a specific asset class goes awry, it may be offset by profits earned from other asset classes. Investing in only a single asset class could be very detrimental. A good example will be 2015. Those who invested purely in equities got hit pretty badly, compared to those who invested purely in investment graded bonds.

Another advantage of STI ETF is its self correcting mechanism.The 30 basket of stocks you hold in the ETF today might be completely different 10 years later. Recently Noble was removed from the index and replaced with CapitaCom Trust instead. This is a self weeding out function that is very beneficial for STI ETF investors. It weeds out the 'troubled' stocks and replace them with 'better' ones.

Not to mention, it gives almost close to 4% yield p.a at $2.60, One has to know that the yield might not be fixed as its highly dependent on the basket of stocks it has. STI ETF is also cash based and non synthetic which I personally prefer. This means it is likely to have most if not all of its investable assets in the actual shares of the STI's constituents. I like the fact that it does not use derivatives and that the $2.++ per share is divided into actual 30 stock components. This makes my purchase in a per share perspective very efficient in my view.

STI ETF Daily Chart
The market did rebound very quickly these few days and basing on technical indicators, it does look like its going to continue to be bullish for the short term. I am most likely going to stop accumulating this ETF and continue to go back to my boring bond hunting again. Why aren't I doing dollar cost averaging for STI ETF you might wonder? I will tell you why in my future post. Till next time!

2 comments :

  1. curious to know why you didnt do DCA on ES3. care to share?

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