Despite the strong
year-to-date performance of the Singapore equity market (+18.3%
year-to-date as of 7 August 2012, in SGD terms including dividends), the
market still sports attractive valuations: the STI currently trades at
estimated PE ratios of 13.9X, 12.8X and 11.5X based on 2012, 2013 and
2014 earnings respectively, a hefty discount from the 16X longer-term
average.
Investors seeking exposure to the
Singapore equity market have a huge array of products to choose from,
with 15 funds invested in Singapore equities available on the platform
at the time of writing. In this week’s Idea of the Week segment, we
highlight a few interesting product ideas amongst the Singapore equity
fund offerings on the platform which may appeal to different investors.
Investors seeking a Singapore equity fund
with a strong track record may wish to consider our recommended
Singapore equity fund, the Aberdeen Singapore Equity.
The fund has outperformed the STI in 2012, delivering a 23.7%
year-to-date return, outperforming the STI’s 18.3% gain (on a total
return basis). Longer-term, the fund has delivered strong alpha over
its benchmark, the STI, and was also the best-performing Singapore
equity fund over five years (as of end March 2012) in our recent
recommended funds assessment exercise.
Chart 1: Outperforming the STI over 5 years
The managers adopt a high conviction
approach to stock selection, with the fund’s latest factsheet (as of 30
June 2012) indicating that the fund’s top 10 holdings made up a hefty
65.2% of the portfolio. Fortunately, such concentration has not hurt
the fund’s resilience in the past, and investors will note that the
fund’s holdings tend to deviate significantly from the benchmark,
endearing it to fans of active management. As an example of the
manager’s willingness to be benchmark-agnostic, the fund managers have
not held shares of DBS Group (in spite of the stock having one of the
largest weightings within the STI) since 2001, when the bank made a
costly acquisition of Dao Heng Bank, prompting the managers to pare
down exposure to the bank. The managers only initiated a small position
in DBS Group more recently in 2010, and currently, the fund’s latest
factsheet indicates a 4.5% allocation, lower than the benchmark’s 9.5%
weight.
Amongst the many Singapore equity funds on the platform, the Nikko AM Shenton Thrift Fund
stands out by having the lowest expense ratio. For the financial year
ended 31 December 2011, the fund had an expense ratio of just 0.83%, a
function of the low 0.75% ongoing annual management fee charged, the
lowest amongst its peers. Benchmarked against the STI, the fund also
has one of the longest track records (the fund was incepted in August
1987) for funds on the platform. Cost-conscious investors may thus find
the Nikko AM Shenton Thrift Fund
suitable for their investment needs, while the fund’s $500 minimum
initial investment amount should also endear it to younger investors
who are just starting out.
The Singapore equity market’s 2012 dividend
yield is estimated at 3.2% (as of 10 August 2012), fairly high in the
context of historically-low 10-year government bond yields (1.40%), and
is also higher than dividend yields on markets like the US (estimated
at 2.2% for 2012) as well as the Asia ex-Japan region (2.74% for 2012).
Our research has also indicated that dividends have made up a
significant proportion of total returns from the Singapore equity market
over the long term (see “The Importance of Reinvesting Dividends”),
while the presence of a fairly large REIT market has increased the
availability of higher-dividend equity securities on the Singapore
exchange.
Investors who are
interested in a fund which focuses on higher dividend-paying equities
within the Singapore equity space may thus be interested in the Nikko AM
Singapore Dividend Equity Fund,
which recently (in February 2012) changed its investment focus to
invest primarily in Singapore-listed equities which offer “attractive
and sustainable dividends”. As a result of the fund’s new focus, the
fund recently held 31.6% of its assets in Singapore-listed REITs (as of
30 June 2012), while the fund has also delivered strong outperformance
over the STI in 2012, with a strong 27.5% year-to-date return (as of 7
August 2012, including dividends). Source: Fundsupermart
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