https://www.businesstimes.com.sg/companies-markets/sti-generates-92-annualised-total-return-in-2009-2018-period-sgx
This is a pseudo analysis generated by an inexperienced person with limited financial knowledge.
STI components had been changing over the last decade and the weaker stocks had been kicked out of the STI constituents. STI is downsized to 30 stocks now compared to the original 50 stocks. The STI was downsized to 45 and 30 respectively. Even the 30 stocks had been changed a few times as the weaker stocks were removed from the STI.
Therefore, it is irrelevant to do the annualised total return on STI because the current 30 stocks are not the original 30 stocks. We are not comparing apples to apples now.
Do not get deceived by this pseudo analysis!
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2 comments:
In a way you are correct, as STI by itself not tradeable & the analysis ignores an important cost --- trading commissions & other friction (e.g. time lag) when re-investing the dividends.
The correct way should be measuring the total returns of comparable ETFs .... either ES3 or G3B.
I looked up iShares ES3 performance as it's more easily available compared to Nikko AM's G3B.
Over the last 10 years, with dividends re-invested the CAGR is 8.7%.
If just capital gains without dividends, then it's only 4.8% per annum.
Hence 45% of the total returns is from reinvested dividends, which most people won't do.
The MAIN PROBLEM with the news article is that it uses 2009 as the base year, which just happens to be the lowest valuation of S'pore stocks in many years. Better to include 30 years' worth so as to incorporate multiple business cycles, bear markets & recessions for a more realistic returns figure.
I think you have missed my point totally.
The STI was revamped in 2008 to comprise of 30 stocks. I think SGX is right to use 2009 as the base because the STI has 30 stocks instead of 45. We need to compare apples with apples.
However, the current 30 stocks in the STI are no longer the same 30 stocks in the 2008 STI. This is because the weaker stocks are removed and replaced. If the original 30 stocks are reinstated, I believe the STI would have performed badly on an annualised basis instead.
Therefore, this comparison is irrelevant as we're not comparing apples to apples.
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