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Although many have asked questions on which investment account is better, no one has asked about the expected returns from opening these accounts.
I feel that knowing the expected returns is as important as educating readers on the pros and cons of opening an investment account with POSB/OCBC/POEMS.
Thus, I have created a spreadsheet for readers to use:
https://docs.google.com/spreadsheet/ccc?key=0AtcoupwJgDW_dG1FRDRTSmtEcU9JcEliZzFwRFJqa1E
Below are the assumptions made in creating the spread-sheet:
1. Investing commenced since inception of STI ETF (ES3).
2. Investing is done on the last trading day of each month at closing price.
3. Fees are charged according to non-promotional rates as stated in the FAQs.
4. Fees are charged on investment capital used in buying the shares.
5. Dividends are recorded on 'Record Date.'
(A fee is charged on the dividend received using POEMS ShareBuilder Plan, thus the dividend received is lower compared to the banks’ accounts.)
Why use STI ETF?
STI ETF has been around for a longer time (11 April 2002 - amended-) than Nikko AM STI ETF (24 Feb 2009).
At inception on STI ETF, STI at 3344.53 was nearer to the all-time high of 3889.68 than STI’s value at Nikko’s inception date.
Thus, STI ETF will give a lower and more conservative long-term return as investing starts near the peak as compared to investing in Nikko which started near the bottom of the recession.
Why last trading day of the month?
I don’t think there is much difference over the long-run with regard to the day in which to invest.
Last trading day is just my preference.
Fees as charged?
Dividends are recorded on the Record Date as that is the date when your shareholding is confirmed by the manager.
Since my purchases are at the close price, when the Record Date coincides with my purchase date, the dividends received are based on the pre-purchase number of shares.
I used Internal rate of return (XIRR function), which gives a more holistic measure of the true annual return as opposed to Compounded Annual Growth Rate (CAGR), which does not account for capital injection after the initial investment.
What you need to do is input your desired monthly investment amount and you will be able to see the total return and XIRR since 10 Jan 2008.
On top of that, you can also compare the returns across the 3 different regular investment plans by looking at the "Overview" section of the first worksheet.
As mentoned, 10 Jan 2008 is near the all-time high for STI, so the simulation can show how the investment plan would perform when u buy near the peak of the bull cycle.
Since we are near the 2007 peak, we can justify that the performance shown is close to what one would get for an entire economic cycle of bull and bear (similar to the peak-to-peak or trough-to-trough of a wave signifying one full cycle of the wave).
I feel that this is as close as we can get to determine the potential of the investment plans through an entire economic cycle (though the current bull market has yet to become a full fletched bear).
Please note that past performance DOES NOT guarantee future results.
Related post:
Tea with Matthew Seah: POSB Invest-Saver Account.
Bloggy Award
23 comments:
You probably picked the wrong period. Had it be a few month earlier the annualized results will be much much lower.
I have a post on this oh shit! what if i DCA to STI ETF at an all time high!
This is using a much more expensive cost. the cost of this is 2.5%!
But also note, the dividend rate of Nikko is lower and expense higher. your results may differ
Well is still an interesting finding.
Matthew i am wondering what if we do a trough-to-trough analysis ? Say Aug 1998 to May 2003.
Hi Kyith,
I just realised I made a mistake in the inception date. Apparently yahoo only has the historic price up till 10 Jan 2008 and I thought that was the inception date of STI ETF.
You have 9 additional data points which I have just added into my spreadsheet. Apparently, the returns became even higher!
Since your cost was 2.5%, the returns would likewise be lower. I do have 16 additional data points after 30 Apr 2012 (the last data entry on your post), while the end value is similar (3.22 vs 3.23), I do have 2 more dividend payout which contribute to a higher return.
Check out the revised version, split adjusted here
I do agree that Nikko has a lower dividend and higher expense. Thus, I reckon the result to be around 1% lower.
Hi Cory,
Can you provide me with the historic price data? Yahoo only has historic price from 10 Jan 2008.
oops realised my mistake.. now everything should be in order
Hi, is it possible to do a comparison using nikko sti etf data under ocbc bcip and spdr data for poems ?
In practice, the two etf have diff cost structures and tracking errors. Hence I thought such a comparison might be better.
I am aware the nikko etf is much younger, hence the period of comparison could be from it's date of inception in 2009 onwards.
Thanks in advance!
Hi K H Tan,
here you go:
Nikko AM STI ETF Simulator
Hi Matthew
So let us say if we can always accumulate a sum to invest, which is better? SPDR STI or Nikko AM STI?
I read thru your post...a bit confused...sometime u mention Nikko is good....sometimes u said SPDR is good...sorry can help to enlighten ? Thank you
Hi Matthew, thanks for providing the simulator.
Some suggestions to improve the spreadsheet:
1) I noticed the monthly amount invested doesn't reflect actual practice. Meaning, in reality, if the fees were $x, and I have $1,500 to invest monthly, my actual invested amt would be $(1500- x). The spreadsheet assumes I would need to fork out ($1500+x) out of my pocket for the dollar cost averaging (dca) plan. In reality, the dca plan only allows for increments of $100, so there's a slight desync.
2) the spreadsheet doesn't factor in the dividend reinvestment (DRIPS) and monthly unused funds rollover that poems offer. (posb and ocbc doesn't offer these, but the DRIPS can be done by manually tweaking the amt to be deducted twice a year, everytime dividend is announced).
Ultimately, i m trying to answer these questions:
a) if I had $1,500 (or any other amt for tt matter) out of pocket to invest, am I better off investing in spdr sti etf thru philips sbp or nikko sti etf thru ocbc bcip ?
b) Does the answer also depend on the amt one is able to fork out per month ?
I realize this is not a apple to apple comparison and hence not easy to build a spreadsheet. Appreciate your help.
Once again, thanks in advance!
Thank you Matthew for the simulation spreadsheet. Its been very helpful to me and i shared it with my friends.
I am a recent fan of DCA with ETF and intend to made 50% of my investment portfolio that. The remaining 50% will be my warchest for opportunistic individual stock picking
Hi Phion,
I'm flattered. Glad my spreadsheets could be of some help to you and your friends.
All the best in your endeavours
P.S. Cool name you have, if thats a real name. haha =D
Instead of use DCA, I use market Cycle Investing strategy to STI ETF.
Use popular indicator like 50/200MA and look for golden cross or dead cross .
In addition, we can also use index PE as a gauge to evaluate of the index is under or value value.
So, sometime I nibble and sometime I gobble (borrow AK's analogy).
I apply this strategy to Shanghai index via UETF SSE50China when the index is ~2000 point. It went up >45% last 6 months. :)
Hy RayNG,
Actively looking to buy at the lower end of the price range definitely increase your returns.
Your method is more active than those who do not have the inclination nor the time to monitor the market regularly.
Different strokes for different folks.
IMO, the good old days of growth is 'gone'. Some gurus always quote STI index has 12% CAGR for the past 30 years. This is true when SG is emerging from 3rd world to 1st world economy.
Now, SG growth is reaching tipping point and its growth is ~3% (LHL said one).
So, to expect the STI to grow @ 10% CAGR for long term.... I think wait long long.
I think this apply to US economy as well.
I will bet China, Indonesia and other emerging market for DCA strategy.
HI Matthew,
Was searching for 'spreadsheet' on ASSI and this showed up.
I am looking more of something that helps to track monthly buy and dividend transactions. Am a noob at excel- google searches show such complicated excel sheets.
Would you know of one that'a available? Simple one. Thank you.
Hi WK,
I use my own spreadsheet. But I think mine is complicated as it was created to address my needs.
Could you explain more on what are the requirements and stuff that you would like to see in the spreadsheet? Simple is pretty vague...
I can create one for you if you'd like.
Matthew
Hi Matthew and AK!
I'm currently considering to invest in NikkoAM STI ETF via RSP but i have a few questions.
1) From the excel spreadsheet of nikkoam sti etf RSP simulator, it states that the XIRR is around 4%. Is this excluding dividend yield and also without dividend reinvested? If we include dividend yield then the total return is around 7-8%?
2) If you decide to invest in STI ETF now,to be more conservative, what kind of returns should you be expecting moving ahead for the next 10 years? Because Singapore is already very developed and the growth rate would most likely not be as much as before so i'm not sure if i should have the mindset that it will continue to generate 7-8% returns if i start now.
3) Are payables paid off by cash? From NikoAM STI AR in dec 2016, payables are greater than cash. Does this mean that they are paying more than they can afford?
4) Dividends given out is greater than net income for 30 Dec 2016&2017. Are they giving out more than they are able to afford?
5) Also, I noticed that there is a steep increase in payables for 31 Dec 2017. Any idea why?
6) I have also found out through their announcements that they have changed their distribution policy. Instead of giving out dividends from income received from underlying investments, they are now distributing from capital gains and capital as well. What are the risks we need to consider for this change?
7) Also any difference if you decide to start DCA using RSP at the peak price compared to starting near the low? From the simulator it only shows the XIRR for when you start near the peak and does not show the returns when you start near the low.
Hope to see your reply soon! Thank you!
Hi AK and Matthew!
I am currently considering to invest in NikkoAm STI ETF via RSP but I have a few questions.
1) Saw a excel spreadsheet of nikkoam sti etf RSP simulator and it states that the XIRR is around 4%. Is this excluding dividend yield and also without dividend reinvested? If we include dividend yield then the total return is around 7-8%?
2) If you decide to invest in nikkoAM STI ETF now,to be more conservative, what kind of returns should you be expecting moving ahead for the next 10 years? Because Singapore is already very developed and the growth rate would most likely not be as much as before so i'm not sure if i should have the mindset that it will continue to generate 7-8% returns if i start now.
3) Are payables paid off by cash? From NikoAM STI AR in dec 2016, payables are greater than cash. Does this mean that they are paying more than they can afford?
4) Dividends given out is greater than net income for 30Dec 2016&2017. Are they giving out more than they are able to afford?
5) Also, I noticed that there is a steep increase in payables for 31 Dec 2017. Any idea why?
6) I have also found out through their announcements that they have changed their distribution policy. Instead of giving out dividends from income received from underlying investments, they are now distributing from capital gains and capital as well. What are the risks we need to consider for this change?
7) Also, is there any difference in XIRR between starting the DCA through RSP at the peak price compared to the bottom? Don't think the simulator tells me that.
Hope to see your reply soon! Thank you!
Hi Shi Hao,
I have sent Matthew a PM on FB to alert him to your questions here. :)
Hi Shi Hao,
1) XIRR of 4% includes dividend.
2) Singapore was developed 10 years ago, thus it should be right to assume Singapore to continue to be developed for the next 10 years. Hence, one should expect 4% growth for the next 10 years as well.
3) If you scroll down to Notes to Financial Statements, under 4. Payables, you will find that the items are Amount due to the Manager, Amount due to the Trustee, Provision for audit fee, and Other payables, These items are to be paid from the dividends collected ultimately.
4) If you scroll down to Notes to Financial Statements, under 5. Distributions, you will find that the dividends paid out are indeed lower than Net Income.
5) The bulk of the increase is from the increase in Amount due to the Manager. Management fee has not changed and stands at 0.2% of Asset Under Management. As the net asset went up almost 50% between 2016 and 2017, the Management fee also increased by around 50%.
6) Not sure where you got this information. In my opinion, it is unlikely for the fund to distribute from capital gains as the fund do not have sufficient cash to do so.
7) I do have a simulator for STI ETF near the peak of the Great Financial Crisis. the XIRR is similar at 4%. If this helps. You can view it here
Regards,
Matthew
Hi Matthew!
Thank you for the reply! I have more questions for you!
1) For the semi annual report there are no Notes to Financial Statements. So when i compare the liabilities which includes payables and distribution against net income, the liabilities are greater than the net income received for 30 Dec 2016 and 30 Dec 2017. So are they paying more than they can afford?
2) Do we compare net income against liabilities or do we compare net income against payables and distributions?
3) I noticed that the turnover ratio is around 10+% for the past few years. For ETF like this, what sort of ratio is considered high for you? Why is the turnover ratio not decreasing much over the years?
4) As for the information regarding the change in distribution policy, this is the link http://repository.shareinvestor.com/rpt_view.pl/id/727577.1/type/sgxnet/original_filename/1
Not sure if i interpreted what it is said correctly so would like you to help me interpret it.
Hope to see your reply soon! :)
Hi Shi Hao,
1) One would need a comprehensive understanding of the income statements, balance sheet and cashflow statements to perform an informed comparison. You have been comparing apples to oranges for a while now...
As I have mentioned earlier, perhaps not succinct enough, the Payables are paid from the Dividend Income (first item in the income statement).
You might want to check the items under Expenses in the income statement with the liabilities. You will find that the payables will end up in the Expenses. Hence, use "Revenue" instead of "Net Income" to determine if the fund can pay its liabilities.
2) Based on what you have been asking from the past comments, I believe you should compare Dividend Income (top line) with the payables and distribution, as discussed in point 1.
3) FTSE reviews the STI constituents semiannually and changes to the constituents were made in 2017. For example, the fund has to sell SIA Engineering to buy Jardine Strategic when FTSE announced Jardine Strategic will substitute SIA Engineering w.e.f 18-Sep-2017.
Turnover ratio was covered in one of my guest post.
4) I see, thanks. My guess is that the fund wants to keep the distribution consistent. It would be fine if the fund retains a cash pool from net income as "retained earnings" to supplement lower dividends during a financial crisis.
On the other hand, it would be detrimental to distribute from capital during a bear market.
Regards,
Matthew
Reader says...
I have recently chanced upon your blog. Read through your postings, and agree with many of your pointers and principles.
I am 37 this year. I started developing my interest in personal financial planning during my secondary school days from reading "Ask Dr Money' sections in The New Paper.
I was convinced by author's principles of buying STI ETF using the cost averaging method.
I have been buying STI ETF consistently since late 2004, and whenever I have excess cash. That is only share that I have been buying my entire life because it is fuss-free. But I didn't monitor my profits.
Do you think STI ETF is a good investment? Will it continue to be a good investment?
AK says...
It is probably suitable for long term investors who do not have the inclination nor time to do research.
Unless we suffer a lost decade or two, over a 20 to 30 years period, it should do pretty well.
"STI ETF has been around for a longer time (11 April 2002 - amended-) than Nikko AM STI ETF (24 Feb 2009). At inception on STI ETF, STI at 3344.53 was nearer to the all-time high of 3889.68 than STI’s value at Nikko’s inception date. Thus, STI ETF will give a lower and more conservative long-term return as investing starts near the peak as compared to investing in Nikko which started near the bottom of the recession." - Matthew Seah
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