Vested in 2008 at an average price of $3.1073 before the market plunged to below 1,600 due to the global financial crisis. I have an intention to purchase STI ETF due to the following reasons :-
1. It is practically a "no-brainer" stock as the price performance just tracks the performance of the STI index and in the longer-term, stock market will always move higher than lower.
2. The diversification it provides as it consists of the basket of STI index component stocks and in a way it diversifies away the downside risk of just holding a single stock.
3. It return an annual dividend.
While the intention to invest in STI ETF was there but unfortunately the price was not what I have in mind but rather was "forced" to buy into at that price. That was because in 2008 CPF Board implemented a new rule that was all CPF ordinary account must set aside a minimum of $20,000 before you can use the money in the CPF OA to invest. To prevent the lock up of that $20,000 I have to invest in something before the rule kicked in. STI ETF unlike other stocks is unable to use up the whole of CPF OA moneny (other stocks have a limit of 35%) so that was the natural choice. Without any doubt, this investment occupies almost 50% (to be exact 47%) of my portfolio in term of capital injected as it used up all of the CPF OA money then.
Soon after global stock markets nosedive and STI was of no exception and my investment practically dropped by more than 50% before global markets staged a rebound. Knowing the fact that global financial crisis will recover and global stock markets will rebound in the longer-term, I wasn't bother about the paper loss.
As of now, with reference to closing price of $3.43 on 13th Feb 2015, this investment provides me a total return of 27.21% (10.12% of capital return and 17.09% of dividend return) and that translates to an annualized return of 4.09% for the 6 years I have invested in. Not really fantastic return but nevertheless it still beat the mere 2.5% CPF OA can provide.
Though STI ETF gives the diversification advantage over single stock but there is still downside risk too. The downside risk will be when the sponsor of the STI ETF goes bankrupt and I would have suffered capital loss for it. It will not be 100% capital loss as so far I have managed to get back 17% of the capital through dividend. The probability of the sponsor goes bankrupt is relatively small but not to the extend of impossible. So that is some calculated risk I have to factor in when I invested in it.
Technically speaking, I do not have the intention to hold onto it forever. It is not like any other stock when you talk about fundamental and you divest once you sense that the fundamental is no longer worth the continuation. STI ETF basically is investing for the cycle of market tough and peak. Hence, after 6 years of bull market, what more upside can you expect ? I am monitoring for opportunity to divest it at the moment.
