Passive investing advocates will always say that most unit trusts or mutual funds cannot beat the index and an investor is better off buying an index fund. This post will investigate the returns of STI ETF and the Singapore Equity Unit Trusts and ranks their performance.
Scope of Study
We will only compare 5-year and 10-year performance since we have sufficient data and any returns in a period shorter than 5 years is not meaningful.
The Unit Trusts are notorious for their high sales charge and management fees. We will examine the impact of sales charge on investment returns. I have also factored the brokerage charges of 0.28% for STI ETF and projected its impact to 5- and 10-year returns.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Comparing 5-year performance (without Sales Charge)
Out of the 11 funds with 5 years of existence, STI ETF ranked 9th with 4.5% returns. Most funds have beaten STI ETF if sales charges have not been considered. This means that the fund managers are adding value to investors by getting above market average returns. These returns are include reinvestment of dividends.
- DWS SGP SMALL/MIDCAP: 9.4%
- Nikko AM Shenton HIF Singapore Dividend Equity: 7.6%
- Aberdeen Singapore Equity Fund: 7.0%
- DWS Singapore Equity: 5.8%
- LEGG MASON WA Singapore Opportunity Trust: 5.8%
- Amundi Singapore Dividend Growth: 5.5%
- Schroder Singapore Trust: 5.5%
- United Singapore Growth Fund: 5.4%
- STI ETF: 4.5%
- NIKKO AM Shenton Thrift Fund: 4.2%
- LionGlobal Singapore Trust: 2.9%
Compare 5-year performance (with Sales Charge)
After factoring the sales charge, STI ETF jumped to a 4th position with 4.4% returns. This shows the impact of the sales charge on your investment returns. It may look small at the start but the opportunity cost compounds over time and become significant.
Nonetheless, there are unit trusts that have outperformed the STI ETF. The safe conclusion is that STI ETF is the market average and most funds are likely to revert to the mean in the long run. This means that the funds that outperform currently are less likely to continue to outperform, while the under-performing funds are likely to catch up. You can try to pick the funds that you think may outperform the STI ETF, but chances are similar to you picking your own stocks that beat the market. It isn’t easy.
- DWS SGP SMALL/MIDCAP: 7.6%
- Nikko AM Shenton HIF Singapore Dividend Equity: 5.8%
- Aberdeen Singapore Equity Fund: 5.2%
- STI ETF: 4.4% (factored 0.28% brokerage fee)
- NIKKO AM Shenton Thrift Fund: 4.2%
- Amundi Singapore Dividend Growth: 3.7%
- DWS Singapore Equity: 3.7%
- United Singapore Growth Fund: 3.7%
- Schroder Singapore Trust: 3.6%
- LEGG MASON WA Singapore Opportunity Trust: 3.4%
- LionGlobal Singapore Trust: 1.2%
Comparing 10-year performance (with Sales Charge)
There are only 3 funds with 10-year history. STI ETF is ranked in the middle and once again, it shows that it is indeed the market average returns. Never the best but never the last.
One interesting point to note is that Aberdeen Singapore Equity Fund is outperforming STI ETF lesser in the 10-year period as compared to the 5-year period. Aberdeen was outperforming STI ETF by 24% [(5.2%-4.2%)/(4.2%)] in the 5-year period. But if we look at the 10-year returns, Aberdeen was only outperforming STI ETF by 1% [(10.9%-10.8%)/(10.8%)]. This is what I mean when I said in the above paragraphs that funds tend to revert to the mean over the long run.
- Aberdeen Singapore Equity Fund: 10.9%
- STI ETF: 10.8% (factored 0.28% brokerage fee)
- LionGlobal Singapore Trust: 8.7%
I hope this short study about investment returns gives you a good understanding about the risks and rewards when investing money with professionals. No doubt they are good at what they are doing as we can see signs of out-performance. However, the cost of investing with the professionals is eroding the returns of the investors. The out-performance is not significant if the investment period becomes 10 years or more. With so many investment options, investors have to be more savvy to evaluate and make good money decisions.