STI ETF vs Nikko AM STI ETF

[quantcall]

I don't think what you said applies to index tracking ETF such as the above 2 ETFs. As the 2 ETFs units can be created by depositing the underlying shares. If ETF's NAV is higher than the underlying shares, other investors might deposit their underlying shares and receive ETF units then sell the ETF units at NAV in the open market, which will receive higher price.

Thus, there is no point for ETF fund managers（at least the above 2) to retain dividends to increase NAV.

if i understand you correctly, you are talking about nav per unit vs trading price of etf. yes, these two have to match or stay close enough, to prevent arbitrage.

ETF can also have split and reverse split, imaging spdr etf now has a 10 for 1 split, its price will drop to 1-tenth of the current price, but this is perfectly ok, because it's nav per unit also dropped.

for 2nd line, whatever etf pays out will reduce the fund revenue, so sgx set a rule that the etf pay dividend at least once a year.

You don't understand what I am saying.

The NAV and the unit price should be very close, that's right. But, the unit price of the ETF should also track the price of its underlying shares. Otherwise, there is another kind of arbitrage. The ETF units can be created by depositing underlying shares and be redeemed by exchanging the ETF units into underling shares.

If the price of the units is too distant(higher) from the price of underlying shares, investors can create the ETF units by depositing the underlying shares and sell the ETF units in the open market. if the price of the units is lower than the price of underlying shares, investors will redeem ETF units and receive the underlying shares and sell the underlying shares in the open market.

Thus, the unit price = the NAV of the ETF = the price of underlying shares.

Retaining dividends/cash is quite irrational.

nav = net asset value, arbitrage arises from value gap, not price gap.
consider one simple case, one ETF tracks an index with only 1 constituent. the share is trading at $1 now. the etf total asset value is $100. if the etf has 100 units, its price should be at around $1.
but if the etf has 200 units? (this is determined by etf fund manager) the etf should be traded at about $0.5. here the value tracks not the price.

for dividend, same example here. if the stock pays $2c dividend, the etf fund manager may choose to pay out 0.02*100=$2 and ends up with $98 for the fund. if the management fee is 1% (for simplicity here), he is going to collect 0.98$ fee for the next year (assuming price don't move). if he chooses not to payout cash dividend, he can use the $2 cash to buy the share at market price, etf is still $100, the fund manager will get $1 fee.

---

that seriously make the nikko one look inferior, plus both have tracking errors.

really wish Vanguard brings their Total World Stock Market ETF over here.

nikko has smaller lot size of 100, its kinda advantage for small player.
tracking error should be ok as this is a full replication etf, no gimmicks inside.

personally i hope some local fund houses could set up an sti etf, sg as a financial center, its ridiculous to have its major market index tracked by foreign houses. but this probably will not happen given the existence of 2 sti etf in the market.

[freedom]

I don't think what you said applies to index tracking ETF such as the above 2 ETFs. As the 2 ETFs units can be created by depositing the underlying shares. If ETF's NAV is higher than the underlying shares, other investors might deposit their underlying shares and receive ETF units then sell the ETF units at NAV in the open market, which will receive higher price.

Thus, there is no point for ETF fund managers（at least the above 2) to retain dividends to increase NAV.

if i understand you correctly, you are talking about nav per unit vs trading price of etf. yes, these two have to match or stay close enough, to prevent arbitrage.

ETF can also have split and reverse split, imaging spdr etf now has a 10 for 1 split, its price will drop to 1-tenth of the current price, but this is perfectly ok, because it's nav per unit also dropped.

for 2nd line, whatever etf pays out will reduce the fund revenue, so sgx set a rule that the etf pay dividend at least once a year.

You don't understand what I am saying.

The NAV and the unit price should be very close, that's right. But, the unit price of the ETF should also track the price of its underlying shares. Otherwise, there is another kind of arbitrage. The ETF units can be created by depositing underlying shares and be redeemed by exchanging the ETF units into underling shares.

If the price of the units is too distant(higher) from the price of underlying shares, investors can create the ETF units by depositing the underlying shares and sell the ETF units in the open market. if the price of the units is lower than the price of underlying shares, investors will redeem ETF units and receive the underlying shares and sell the underlying shares in the open market.

Thus, the unit price = the NAV of the ETF = the price of underlying shares.

Retaining dividends/cash is quite irrational.

nav = net asset value, arbitrage arises from value gap, not price gap.
consider one simple case, one ETF tracks an index with only 1 constituent. the share is trading at $1 now. the etf total asset value is $100. if the etf has 100 units, its price should be at around $1.
but if the etf has 200 units? (this is determined by etf fund manager) the etf should be traded at about $0.5. here the value tracks not the price.

for dividend, same example here. if the stock pays $2c dividend, the etf fund manager may choose to pay out 0.02*100=$2 and ends up with $98 for the fund. if the management fee is 1% (for simplicity here), he is going to collect 0.98$ fee for the next year (assuming price don't move). if he chooses not to payout cash dividend, he can use the $2 cash to buy the share at market price, etf is still $100, the fund manager will get $1 fee.

my NAV is NAV per unit, of course can't be the whole net asset value....

in your dividend example. So in the end, the NAV per unit of the ETF remains $1, the number of units continue to be 100 units. To simplify, let's assume the constituent price is $1 as well. Where does the $2 dividend come from? from the underlying constituent. The underlying constituent price will drop 2 cents after xd, 98cents. Assuming the ETF can continue to trade at $1, I will buy 100 shares of the constituent from the open market @98 cents and deposit to the ETF fund manager and create 100 units of the ETF and sell the 100 ETF units @$1 in the open market. After that being done enough, the price of the ETF will be 98cents no matter the fund manager pay or don't pay dividend. Though the NAV per unit of the fund actually continue to be $1, no investor will be interested in it any more, as it will always traded(98cents） below the NAV per unit（$1）.

[felixleong]

STI ETF is sooo much better
lower cost and higher liquidity
however its SIP

whereas Nikko one is non SIP

I wonder why?

[quantcall]

I don't think what you said applies to index tracking ETF such as the above 2 ETFs. As the 2 ETFs units can be created by depositing the underlying shares. If ETF's NAV is higher than the underlying shares, other investors might deposit their underlying shares and receive ETF units then sell the ETF units at NAV in the open market, which will receive higher price.

Thus, there is no point for ETF fund managers（at least the above 2) to retain dividends to increase NAV.

if i understand you correctly, you are talking about nav per unit vs trading price of etf. yes, these two have to match or stay close enough, to prevent arbitrage.

ETF can also have split and reverse split, imaging spdr etf now has a 10 for 1 split, its price will drop to 1-tenth of the current price, but this is perfectly ok, because it's nav per unit also dropped.

for 2nd line, whatever etf pays out will reduce the fund revenue, so sgx set a rule that the etf pay dividend at least once a year.

You don't understand what I am saying.

The NAV and the unit price should be very close, that's right. But, the unit price of the ETF should also track the price of its underlying shares. Otherwise, there is another kind of arbitrage. The ETF units can be created by depositing underlying shares and be redeemed by exchanging the ETF units into underling shares.

If the price of the units is too distant(higher) from the price of underlying shares, investors can create the ETF units by depositing the underlying shares and sell the ETF units in the open market. if the price of the units is lower than the price of underlying shares, investors will redeem ETF units and receive the underlying shares and sell the underlying shares in the open market.

Thus, the unit price = the NAV of the ETF = the price of underlying shares.

Retaining dividends/cash is quite irrational.

nav = net asset value, arbitrage arises from value gap, not price gap.
consider one simple case, one ETF tracks an index with only 1 constituent. the share is trading at $1 now. the etf total asset value is $100. if the etf has 100 units, its price should be at around $1.
but if the etf has 200 units? (this is determined by etf fund manager) the etf should be traded at about $0.5. here the value tracks not the price.

for dividend, same example here. if the stock pays $2c dividend, the etf fund manager may choose to pay out 0.02*100=$2 and ends up with $98 for the fund. if the management fee is 1% (for simplicity here), he is going to collect 0.98$ fee for the next year (assuming price don't move). if he chooses not to payout cash dividend, he can use the $2 cash to buy the share at market price, etf is still $100, the fund manager will get $1 fee.

my NAV is NAV per unit, of course can't be the whole net asset value....

in your dividend example. So in the end, the NAV per unit of the ETF remains $1, the number of units continue to be 100 units. To simplify, let's assume the constituent price is $1 as well. Where does the $2 dividend come from? from the underlying constituent. The underlying constituent price will drop 2 cents after xd, 98cents. Assuming the ETF can continue to trade at $1, I will buy 100 shares of the constituent from the open market @98 cents and deposit to the ETF fund manager and create 100 units of the ETF and sell the 100 ETF units @$1 in the open market. After that being done enough, the price of the ETF will be 98cents no matter the fund manager pay or don't pay dividend. Though the NAV per unit of the fund actually continue to be $1, no investor will be interested in it any more, as it will always traded(98cents） below the NAV per unit（$1）.

after fund manager uses $2 to buy the share, one unit of etf would have 1+0.02/0.98=1.0204 units of shares. now 100 shares can NOT be exchanged with 100 units of etf, so you need to buy 1.0204 shares in exchange for 1 etf unit. both cost u $1

[freedom]

my NAV is NAV per unit, of course can't be the whole net asset value....

in your dividend example. So in the end, the NAV per unit of the ETF remains $1, the number of units continue to be 100 units. To simplify, let's assume the constituent price is $1 as well. Where does the $2 dividend come from? from the underlying constituent. The underlying constituent price will drop 2 cents after xd, 98cents. Assuming the ETF can continue to trade at $1, I will buy 100 shares of the constituent from the open market @98 cents and deposit to the ETF fund manager and create 100 units of the ETF and sell the 100 ETF units @$1 in the open market. After that being done enough, the price of the ETF will be 98cents no matter the fund manager pay or don't pay dividend. Though the NAV per unit of the fund actually continue to be $1, no investor will be interested in it any more, as it will always traded(98cents） below the NAV per unit（$1）.

after fund manager uses $2 to buy the share, one unit of etf would have 1+0.02/0.98=1.0204 units of shares. now 100 shares can NOT be exchanged with 100 units of etf, so you need to buy 1.0204 shares in exchange for 1 etf unit. both cost u $1

Sorry. I was wrong. I simplify the process of creation and redemption. The creation basket can include even cash to prevent arbitrage before the dividend was paid out.

[quantcall]

my NAV is NAV per unit, of course can't be the whole net asset value....

in your dividend example. So in the end, the NAV per unit of the ETF remains $1, the number of units continue to be 100 units. To simplify, let's assume the constituent price is $1 as well. Where does the $2 dividend come from? from the underlying constituent. The underlying constituent price will drop 2 cents after xd, 98cents. Assuming the ETF can continue to trade at $1, I will buy 100 shares of the constituent from the open market @98 cents and deposit to the ETF fund manager and create 100 units of the ETF and sell the 100 ETF units @$1 in the open market. After that being done enough, the price of the ETF will be 98cents no matter the fund manager pay or don't pay dividend. Though the NAV per unit of the fund actually continue to be $1, no investor will be interested in it any more, as it will always traded(98cents） below the NAV per unit（$1）.

after fund manager uses $2 to buy the share, one unit of etf would have 1+0.02/0.98=1.0204 units of shares. now 100 shares can NOT be exchanged with 100 units of etf, so you need to buy 1.0204 shares in exchange for 1 etf unit. both cost u $1

Sorry. I was wrong. I simplify the process of creation and redemption. The creation basket can include even cash to prevent arbitrage before the dividend was paid out.

no problem, this is the place to exchange ideas

[Drizzt]

is that why it seems the nikkko sti etf NAV price is higher than that of the SPDR?

[CY09]

Their slight difference in NAV could also be due to the funds' holdings of each of the STI constituents. For example, Nikko holds 10.6% of its funds in Singtel while SPDR STI ETF holds 9.8% of its funds in Singtel

[kazukirai]

I'm not sure how many people heard the news but the SPDR STI ETF has been reclassified as an EIP. This was from 27 Sept.

Extracted from SIAS (full link here):

"MAS later allowed certain products, notably ETFs that met certain criteria, to be exempt from the SIP classification and be reclassified as Excluded Investment Products (EIPs). Thus, like ordinary stocks, EIPs can be bought and sold by retail investors without needing to complete a CAR. Both the Nikko AM Singapore STI ETF and SPDR® STI ETF are now categorised as EIPs."

[Vseeker]

I think it been reclassify as EIP much earlier than Sep2013
today you can still use 100% of investible CPF OA for these two ETFs, as compared to 35% for direct stocks investment.
NB: first $20k in CPF OA cannot be use...

STIETF can be considered as among the bluest of all SGX listed bluechips... esp. for retail investors lacking the knowledge+experience and with limited fundsize...
no disrespect intended...