Saturday, September 17, 2011
Update on Historical Volatility of SPH and STI ETF
With regards to my earlier post on volatility, yes the calculation was a bit off but it has no material impact on my comparision. But anyhow, for folks interested in the volatility of SPH and STI, I have taken monthly returns from 2008 Jan to 2011 Sept. Calculation was based on excel. The results are quite similar, SPH and STI has a correlation of 86.5%; Annualized volatility of SPH was 22.28%, STI (ETF) was 25.15%.
Unfortunately, volatility does not tell you whether it is upside volatility or downside volatility. It also assumes the same weightage of volatility throughout every month, which is not accurate. It also does not factor in dividends that affects price movement much more on certain days.
Compared to Schroders Singapore Trust, the average 3 year volatility was 23.7%, which is higher than benchmark. As for the returns, it returned 18% over 3 years.
Assuming one bought SPH at 2008 1st Sept at price of $3.98, dividend yield for 3 years would have been 19.85%.
Assuming one bought STI ETF at 2008 1st Sept at price of $2.45, dividend yield for 3 years would have been 5.78%.
At 1st Sept 2011 SPH price of $3.73, total return for the same investor would be 13.57%.
At 1st Sept 2011 STI ETF price of $2.92, total return for the same investor would be capital gain of 19.2% + dividend of 5.78% = 25%
It is likely that actively managed funds under performed ETFs due to higher management and brokerage costs.
This post will convince most people to diversify into ETFs and stop holding large single stock holdings, which includes me!!!!