Straits Times Index(STI) closed at 3,482.30 higher for the year 2007, which is an increase of 16.63% excluding dividends.
The 10 year annualised return for the STI is approx. 8.93% taken from fundsupermart. The average investor who diversifies would also expect to get almost the same results like 9-10% p.a. over the long term.
The STI alone is not a good indicator of measuring performance because investors cannot buy the STI. Instead investors will have to buy streetTRACKS Straits Times Index Fund(an exchange traded fund-STI ETF) listed on 17th Apr'02 designed to track the performance of the STI. Its objective is to replicate as closely as possible, before expenses, the performance of the STI. To provide a fair computation of the performance of the STI ETF, we should use its NAV from 3rd Jan'03 $14.05 as a base. The closing price for STI ETF for the year is $36.99. Total dividends received for the last 5 years is $3.33. Hence the annualised return for STI ETF is 32.7% and 37.4% including dividends, excluding management fee of 0.3% p.a. Also take note that the STI ETF is approximately 1/100th of the STI.
Some may ask why the large discrepancy in the annualised return of the STI and STI ETF? The reason is that STI ETF is only set up 5 years ago and these 5 years are bullish years. Another reason is that the STI ETF closed at $36.99 which is $2.17 or 6.22% higher than the STI. Market sentiments are still bullish which contributes to the bidding up of prices higher than the STI. As such I should also provide the previous 5 years annualised return of the STI which is 19.47% excluding dividends. To conclude, the management of STI ETF did 13.23% excluding dividends better than the STI by trying to mimic its share holdings.
STI ETF vs investment funds that invest in the Singapore market
To prove that the STI and STI ETF are no pushover, let us look at some of the funds that invest in the Singapore market. On average some of the funds like Aberdeen Singapore Equity, Schroder Singapore Trust and UOB United Growth Fund managed an annualised return of 20-22% over the last 5 years. The funds managed to beat the STI by 1-2%, however if fund management fees between 1-2% p.a. were included, their performance were only average or maybe some below average. Needless to say comparing the funds with STI ETF. Only DBS Shenton Thrift managed to get close with 29.88% annual returns over 5 years and 2nd runner up would be Lion Capital Singapore Trust with 26.06% annual return over the last 5 years too. Hence none managed to beat the STI ETF which did no stock pickings but merely imitate the stock holdings of the STI. This further proves what Warren Buffett said that it is better to invest in index funds as only 1-2% of fund managers globally managed to beat the index. Index funds also charge much lower management fees than investment funds.
Note: Fund % figures were taken from fundsupermart between the date of 31st Dec'07-2nd Jan'08.
Yardstick
Like most things we do everyday, we should have a yardstick to measure performance. I hope to do better in bear markets than in bull markets as I'm looking for companies with good future prospects at depressed market prices. I would be happy if my portfolio can outperform the STI ETF by 10% each year. For example the STI ETF this year gained 22.1%, I would do well if I can achieve >32.1% gain in portfolio for the year. I also consider in a year whereby my portfolio is down 20% and the STI ETF down 30% to be a better year.
Stock holdings
1) Kingsmen (145.9% gain)
Bought: $6,000
Market value at 31st Dec'07: $14,400-$45.62(trading fee) +$400(dividends)=$14,754.38
Reason why I buy: Bought at low P/E, industry leader, foresee many contracts in IR and F1, improving earnings and unnoticed by the market.
2) ChinaACorp (17.8% loss)
Bought: $2,500
Market value at 31st Dec'07: $2,100-$44.07(trading fee)=$2,055.93
Reason why I buy: Purely speculative by listening to Dad saying some 'big shot' buying tonnes of it. Could not find its financial statements. Formerly Acma Ltd.
Total portfolio market value at 31st Dec'07: $16,810.31 (97.8% gain)
Past performance is not a good gauge for future performance.
The 10 year annualised return for the STI is approx. 8.93% taken from fundsupermart. The average investor who diversifies would also expect to get almost the same results like 9-10% p.a. over the long term.
The STI alone is not a good indicator of measuring performance because investors cannot buy the STI. Instead investors will have to buy streetTRACKS Straits Times Index Fund(an exchange traded fund-STI ETF) listed on 17th Apr'02 designed to track the performance of the STI. Its objective is to replicate as closely as possible, before expenses, the performance of the STI. To provide a fair computation of the performance of the STI ETF, we should use its NAV from 3rd Jan'03 $14.05 as a base. The closing price for STI ETF for the year is $36.99. Total dividends received for the last 5 years is $3.33. Hence the annualised return for STI ETF is 32.7% and 37.4% including dividends, excluding management fee of 0.3% p.a. Also take note that the STI ETF is approximately 1/100th of the STI.
Some may ask why the large discrepancy in the annualised return of the STI and STI ETF? The reason is that STI ETF is only set up 5 years ago and these 5 years are bullish years. Another reason is that the STI ETF closed at $36.99 which is $2.17 or 6.22% higher than the STI. Market sentiments are still bullish which contributes to the bidding up of prices higher than the STI. As such I should also provide the previous 5 years annualised return of the STI which is 19.47% excluding dividends. To conclude, the management of STI ETF did 13.23% excluding dividends better than the STI by trying to mimic its share holdings.
STI ETF vs investment funds that invest in the Singapore market
To prove that the STI and STI ETF are no pushover, let us look at some of the funds that invest in the Singapore market. On average some of the funds like Aberdeen Singapore Equity, Schroder Singapore Trust and UOB United Growth Fund managed an annualised return of 20-22% over the last 5 years. The funds managed to beat the STI by 1-2%, however if fund management fees between 1-2% p.a. were included, their performance were only average or maybe some below average. Needless to say comparing the funds with STI ETF. Only DBS Shenton Thrift managed to get close with 29.88% annual returns over 5 years and 2nd runner up would be Lion Capital Singapore Trust with 26.06% annual return over the last 5 years too. Hence none managed to beat the STI ETF which did no stock pickings but merely imitate the stock holdings of the STI. This further proves what Warren Buffett said that it is better to invest in index funds as only 1-2% of fund managers globally managed to beat the index. Index funds also charge much lower management fees than investment funds.
Note: Fund % figures were taken from fundsupermart between the date of 31st Dec'07-2nd Jan'08.
Yardstick
Like most things we do everyday, we should have a yardstick to measure performance. I hope to do better in bear markets than in bull markets as I'm looking for companies with good future prospects at depressed market prices. I would be happy if my portfolio can outperform the STI ETF by 10% each year. For example the STI ETF this year gained 22.1%, I would do well if I can achieve >32.1% gain in portfolio for the year. I also consider in a year whereby my portfolio is down 20% and the STI ETF down 30% to be a better year.
Stock holdings
1) Kingsmen (145.9% gain)
Bought: $6,000
Market value at 31st Dec'07: $14,400-$45.62(trading fee) +$400(dividends)=$14,754.38
Reason why I buy: Bought at low P/E, industry leader, foresee many contracts in IR and F1, improving earnings and unnoticed by the market.
2) ChinaACorp (17.8% loss)
Bought: $2,500
Market value at 31st Dec'07: $2,100-$44.07(trading fee)=$2,055.93
Reason why I buy: Purely speculative by listening to Dad saying some 'big shot' buying tonnes of it. Could not find its financial statements. Formerly Acma Ltd.
Total portfolio market value at 31st Dec'07: $16,810.31 (97.8% gain)
Past performance is not a good gauge for future performance.
2 comments:
wow that is some returns there for a portfolio!
Thanks! Kingsmen is my long term holding. Need to review ChinaACorp when they release their year end financial report. Wasn't very comfortable with it and hope to sell it even. Made a small gamble which is not my style. :( Like what Warren Buffett said, temperament is very important. Greed just overrides all rational thought in me. This mistake wouldn't happen again. :(
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