Tuesday, July 15, 2014

Blue Chips At Cheap(er) Prices?

Even though I have been investing for quite some time, I have been a more macro guy, going with asset allocation and global trends (using unit trusts with a medium term buy-and-hold mentality) rather than focus on individual stock securities. However, in the past few weeks, I have warmed up much more to stocks, so I've been having a look around.

Today I realized that there are 2 counters that were of particular interest to me. They were SIA 200 and Singtel 10. What do the numbers behind them mean?

Well, SIA 200 means that you can buy shares of SIA in batches of 200 shares, instead of a standard lot of 1,000 shares.

Same thing for Singtel 10, you can buy shares of Singtel in batches of 10 shares, instead of the usual 1,000.

Now, don't get me wrong, when I said cheaper, I meant less total capital outlay. SIA current traded at $10.52 at the end of today. A standard 1,000 share lot would cost an investor a massive $10,520 investment! Conversely, if an investor decided to buy the SIA 200 instead, his capital investment would only be $2,104!

Same thing for Singtel. Singtel currently traded at $3.91 at the end of today. That means a standard lot would cost $3,910 to an investor. Trading the Singtel 10 would only require a minimum investment of $39.10!

This is exactly almost the same thing as the SPDR STI ETF and the newer Nikko AM STI ETF 100. Capital outlay for the Nikko AM version is about 10 times less, so investors with $350 can start investing in a diversified portfolio already!

Pros
Lower capital investments
Less emotional committment
Easier to tweak investment amounts (less lumpy investments)

Cons
"Liquidity risk"

The reason why I said "liquidity risk" instead of just plain liquidity risk is because it is actually quite subjective. Singtel 10 usually trades with a minimum daily volume of about 20,000. That is equivalent to $60,000. Of course, that is just a tiny drop in the ocean which is Singtel itself, which moved $63 million today.

SIA 200 is not as rosy, but $20,000 did change hands today, which represents about 20 trades today. Usual volume seems to be around 10 trades a day. Definitely not as big of a pool as people might expect.

Nikko 100 is likely the worst in terms of volume. Today's volume was 6.6k, which represents just $20,000 as well. For an ETF with 37 million units running around, you might expect it to be more liquid. It's SPDR competitor with the standard 1 lot requirement is only 4 times bigger, but seems to command a lot more liquidity.

Summary
Personally, I think that these instruments are great. They allow the small investors to slowly participate in the stock market without having to fork out such a large sum of money. I think that the Nikko 100 is just an amazing tool which more people should consider and look at as an investment tool.

Although I cannot say about the fundamentals of both Singtel or SIA, I think just having a reasonable level of accessibility to them has made me more open to the idea of investing an amount with them. Most likely it would be with the Singtel 10, since the SIA 200 still seems too "lumpy" for my portfolio since it is still small. Perhaps when my portfolio grows to be $50k or bigger, I could consider some of SIA.

On a final note, these smaller lot trades are ONLY feasible if you have a Standard Chartered account, where there is no minimum commission. Don't even think of investing small amounts if you do not have a Standard Chartered account!

What do you guys think? Have you invested any of these counters I mentioned?

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