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Saturday, 17 February 2018

STI ETF. Passive??? Really??? No Free Lunch and Not Risk Free!!! (2)


Read? STI ETF. Passive??? Really??? No Free Lunch and Not Risk Free!!!

You can call it index investing or passive or outsourcing. When you outsource the task; you don't feel the heat, dirt or the heavy lifting; but you got to pay some fee. Worth paying this fee to managers or pay ourselves when we get our own hand dirty in the market?

Can we DIY mini subset of STI ETF as blue chips uncles or aunties?





























Updated in response to 

Singapore Man of Leisure17 February 2018 at 13:45:00 GMT+8

CW,

You sneaky, sneaky ;)


Your example is a good test on whether one can read "numbers"; especially if readers call themselves "fundamental investors".

1) Right off the bat, someone who invested in unit trusts or ETFs (and know what they are buying into) 
would know your percentages were off. Where got management fees 8.9% one!!!???

Management fees are usually charged as a % of AUM (asset under management) - usually in the 1-2% range ;)

Most people who "invest" in unit trusts and ETFs are in it for the capital gains.


2) On the other hand, your example is great for those who "invests" in unit trusts and ETFs for income. Yup, its like buying a rental property but you too lazy to deal with the tenants. So you hired a property firm to handle the tenants for you - no free lunch - at 8.9% commission of your rentals ;)

Ar ber then? 

Passive what?


LOL!


From the number below; how many retail investors are trading their STI ETF shares for capital gains?






9 comments:

  1. Do your own Maths; as retail investors we can DIY mini subset of STI ETF and over long term the higher transaction costs are easily offset from that few years of management fee from STI ETF.

    ReplyDelete
  2. Buying STI ETF at AR date mean buying STI ETF with 3.3% dividend yield and cost 0.3% invested amount in management fee.

    Management fee is fixed but not dividend. Neither is dividend yield the only return.

    This is a more complete picture.

    Whether to invest or not is always depend on the person. For those who are able but lazy to find out on the above is another story. Uncles, aunties or not.

    ReplyDelete
  3. CW,

    You sneaky, sneaky ;)


    Your example is a good test on whether one can read "numbers"; especially if readers call themselves "fundamental investors".

    1) Right off the bat, someone who invested in unit trusts or ETFs (and know what they are buying into)
    would know your percentages were off. Where got management fees 8.9% one!!!???

    Management fees are usually charged as a % of AUM (asset under management) - usually in the 1-2% range ;)

    Most people who "invest" in unit trusts and ETFs are in it for the capital gains.


    2) On the other hand, your example is great for those who "invests" in unit trusts and ETFs for income. Yup, its like buying a rental property but you too lazy to deal with the tenants. So you hired a property firm to handle the tenants for you - no free lunch - at 8.9% commission of your rentals ;)

    Ar ber then?

    Passive what?

    LOL!


    ReplyDelete
  4. Kekeke!!!

    Comparing management fees of REITs against their dividends will also paint a poor picture.

    Same as comparing COGS / operating expenses (e.g. salaries & bonuses) against dividends for companies.

    No matter what, we're usually having to pay somebody. Even if we run our own business we pay for staff, suppliers, raw materials, utilities, transport, 3rd-party services & contractors.

    Hence bottom line is to minimize costs as much as possible --- relative to our own expertise, abilities, resources, time & inclination. ;)

    As long can make money can liao! LOL!

    ReplyDelete
    Replies
    1. Not same as REITs as retail cannot DIY mini subset of REITs like mini subset STI ETF

      Delete
  5. Is it quite difficult to duplicate STI ETF?

    If not, why not?

    ReplyDelete
    Replies
    1. Can ... just need to be aware of 2 things:-

      1. Higher transaction costs e.g. if you decide to buy the 10 largest STI stocks, you gotta pay for 10 transactions, versus just 1 for STI ETF.

      Transaction costs will also be a headache for rebalancing & dividend reinvestment decisions.

      2. Individual company risks ... where selected companies may suffer cyclical or structural damage. In market-cap weighted STI ETF, there is automatic large cap survivorship bias, where companies that don't do well & price drops become a smaller & smaller part of the ETF ... if become too small, the company will then be dropped & replaced by another better performing company.

      DIY means you need to keep close eye on individual company & industry sector performance & potential turning points.

      So you need to decide if the above is worth to pay 0.3% tax for other people to administer. :)

      For my wife (and my advice to friends/relatives) is that if you are willing to invest / rebalance / DCA for long-term (at least 10 years ... ideally 20+ years) then better to use other global indexes where companies are more robust, performance over decades is better, and "tax" to pay is lesser.

      Delete
  6. Ya.

    Let me reproduce this again(i had shared this on other blog)for which one of the Global Indexes is best for U?

    https://www.bloomberg.com/view/articles/2017-11-10/why-south-korea-s-stock-market-is-doing-just-fine

    U pick your own poison as SMOL likes to say.


    There was a story of someone who only bought S&P 500 and never sold for close to 20 to 25 years.

    And was successful.

    Is SOR applicable to him after 25 years?

    ReplyDelete

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