Saturday, 5 March 2016

Visualising the Straits Times Index

The STI benchmark for Singapore's stock exchange is easy to visualise as it has just 30 well publicised constituents. Go on, click the sector headings to drill down.

It's easy to see how diverse it is. Is it too concentrated?

I hold both STI tracking funds (ES3, G3B). I was worried of overexposure to banks, and underexposure to the REITs that recently enriched one of my uncles. Anecdotes are a poor way to make financial decisions, I know, but what you gonna do? Us Asian kids are drilled in the aspirational and cautionary tales of our rich and poor uncles, so much so that we scramble for our spreadsheets when we hear of a new fable.

I'm actually quite happy with the weightings, once visualised. The narrative that worked for him has been replaced by another story, which just happens to be a picture.

And that picture says, "Calm down." The eggs are in different baskets, though some are bigger than others, and some are in REITS.

The other concentration risk lies in that the STI's constituents make up about 60% of Singapore market capitalisation. There's a whole other 40% of listings you could buy. That doesn't mean you should. Although many are diamonds in the rough - the FTSE ST All-Share index outperformed the STI in the 5 years to 2015, demonstrating the power in the smaller-caps - many are, well, just rough.

The index - and funds - are not static either. 2015 saw the notable addition of Yanzijiang Shipbuilding. The STI will soon drop Noble for CapitaLand Commercial. That's more than enough dynamism for your humble buy-and-holder.

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