Nikko AM STI ETF V.S. SPDR STI ETF

It's been awhile since I did my last post. Woohoo, exams are finally over. Yay, FREEDOM :)

I will be doing a summary on the difference between Nikko AM STI ETF and SPDR STI ETF. Some people are still confused over these two ETF. I hope my post can bring some enlightenment.

Basically, these two different ETF are managed by two separate fund companies. The inception dates for SPDR and Nikko AM are 17th April 2002 and 24 January 2009 respectively. Both track the STI ETF as close as possible by replicating the same 30 components. Both are Cash ETF whereby they are bought with underlying cash and not with derivatives.

Difference Between SPDR VS Nikko AM

It works a little similar like a mutual fund but their expense ratio (commission fee) are much lower. Nikko AM STI ETF has a higher expense of 0.39% as compared to SPDR STI ETF of 0.30%. This may seems a little negligible in terms of numerical value, but the power of compounding really can do wonders. Usually the larger the fund size, the lower the expense ratio due to economies of scale. In this case, in terms of lower expense ratio, SPDR is preferred. Moreover, dividend yield for SPDR offers 2.66%.

Both SPDR and Nikko Am works in a way where there is a buy/sell price. SPDR usually trades one cent wide while Nikko AM usually trades a few cents wide in spread. SPDR has a board size lot of 1000 while Nikko AM is 100. This means that small time investors are able to afford Nikko AM.

Tracking error is the discrepancy between ETF performance and Index performance. It measures the annualized standard deviation of daily return differences or to simply put the volatility in difference of performance. For this case it means comparing NIKKO AM STI ETF and SPDR STI ETF against STI ETF. It is quite impossible to perfectly mimic the index and thus tracking error arises. So, we can roughly say that tracking error is a measure of the effectiveness of a manager to replicate the performance of an index.


Below is the breakdown of the sector allocation of the two different asset management company.

 Sector Allocation of SPDR STI ETF

Sector Allocation of Nikko AM STI ETF

Why invest in ETF? 

1. A diversified fund.

2. Lower transaction cost as compared to buying 30 components by yourself

3. Investors who are lazy or don't have time to research

4. Investors who don't have time to monitor

5. Investors need not cherry pick stocks

6. It tracks the performance of the ETF and generally it is an uptrend. 

(Note: Point 3-6, it is still best to do your own due diligence) 

Sources:

Nikko AM STI ETF Fact Sheet

SPDR STI ETF Fact Sheet

Cheers!

Little Boy