5 Myths About ETFs - Part 2

5 Myths About ETFs

Beware of Tracking Error Risk when investing in the STI ETF?


Changes in the NAV of the Fund are unlikely to replicate exactly changes in the STI due to factors such as fees and expenses of the Fund, liquidity of the market and changes to the Index.

FTSE Group (FTSE) will conduct half-yearly review of the constituents of the Straits Times Index (STI) so there is always a possibility that new components may be added and some old ones  may be removed. It is also known as survival bias.

For example in the recent review:

Singapore Exchange (SGX), the FTSE Group (FTSE) and Singapore Press Holdings (SPH) announced today that CapitaMalls Asia will replace Cosco Corp Singapore as a constituent of the Straits Times Index (STI) following the conclusion of the half-yearly review.


The STI reserve list, comprising the five highest ranking non-constituents of the STI by market capitalization, will be (in order of size) Keppel Land, Yangzijiang Shipbuilding Holdings, Ascendas Real Estate Investment Trust, Yanlord Land Group and Parkway Holdings. Companies in the reserve list will replace any constituents that become ineligible as a result of corporate actions before the next review.

STI ETF will have no choice but to sell off Cosco and most likely to be losses and buy in CapMall and most likely at higher price.

In this case, STI ETF may be buying high and selling low at every half-yearly review. So beware of tracking error risk when investing in STI ETF.