SGX: FTSE Singapore Index Generated 16% Total USD Return Over 12 Months To 29 Aug

• The FTSE Singapore Index generated the 4th highest return for associated risk over the past 12 months among a group of 20 of the most relevant FTSE Country Indices.
• This was based on the FTSE Singapore Index generating a 16.0% total return in USD terms over the 12 months ending August, with 9.1% in annualised volatility.
• The return-to-risk ratio of 1.8% of the FTSE Singapore Index compared to an average return-to-risk ratio of 1.4% for the other Asian indices.
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In the first eight months of 2014 the Straits Times Index (STI) generated a price gain of 5.0% with dividends boosting the total return to 7.9%. This compared with a Singapore-dollar denominated price return of 2.0% for the Dow Jones Industrial Average and a Singapore-dollar denominated 5.8% price decline for the Nikkei 225 Index.

The FTSE Singapore Index, different to the STI, can also be used to provide cross-country comparisons of not only country index performance but also cross country volatility.

One of the initial observations investors or students of investment are encouraged to make is an understanding of how much risk was undertaken to achieve a past return. At university this is generally discussed when discussing the differences between asset classes such as bonds and stocks. A stock return of 5% that was generated with a 25% swing in the stock price can be very different to a 5% return that was generated with a 5% price swing over the period. Hence price swings, alternatively referred to as volatility can provide an insight into how much risk was undertaken to generate a return.

The majority of global stock indices generated returns over the 12 months ending 29 August 2014. FTSE Group provide monthly updates on the comparative returns of country indices for developed and emerging economies. This includes a total of 11 Asian indices, which like the other FTSE country indices, have performances expressed in US Dollar (USD) terms which keeps returns and risk objectively comparative. These returns can be found in the FTSE Asia Monthly Index Report - listed in the Asia Pacific section here. Hence please note that these indices are not necessarily the benchmark stock market indices used by each of the countries.

The 12 month total returns through to 29 August 2014 of the 11 Asian indices in addition to another nine indices which cover other global financial centres are tabled below. The table also includes 12 month volatilities for the indices which are based on annualised daily log returns of the indices. The return to risk ratio indicates the 12 month total returns (in USD) as a function of the annualised volatility of the index over the period. Hence, in the case of the FTSE Singapore Index, the return to risk ratio of 1.75% was based on a 15.98% return divided by 12 month volatility of 9.12%. The 1.75% ratio compared to a 1.44% for all 11 of the Asia Indices as measured and compared by FTSE Group. The FTSE Singapore Index was effectively the third most efficient index of the 11 Asian indices for generating risk adjusted total returns over the past 12 months. The 20 Indices tabled below, sought by return to risk ratios represent some 2500 stocks listed across the world.

Source: FTSE Group

As noted above, the FTSE Singapore Index is different to the STI. While there are a number of mutual constituents, the FTSE Singapore Index is made up of 40 constituents. The FTSE Singapore Index is part of the FTSE Global Equity Index Series that covers securities in 47 different countries and is divided into Developed, Advanced Emerging and Secondary Emerging segments. The 20 indices tabled above come from a mix of FTSE country classifications: ten Developed, six Advance Emerging and four Secondary Emerging.

The FTSE Singapore Index is predominately used for cross country comparisons and is standardized to the extent that it is denominated in USD. The guide to the index methodology can be found here.  Constituents of the FTSE Global Equity Index Series are assigned to a single country index. If a company is incorporated in one country and has its sole listing in the same country, FTSE will allocate the company to that country. In all other circumstances, FTSE will refer the company to the FTSE Nationality Advisory Committee who will recommend the appropriate nationality for the company. The FTSE Nationality Advisory Committee will base its recommendation on assessment of various factors including, but not necessarily limited to, the following:

• The investor protection regulations present in the country of incorporation;
• The country in which the company is domiciled for tax purposes;
• The location of its factors of production;
• The location of its headquarters;
• The location of company meetings;
• The composition of its shareholder base;
• The membership of its board of directors;
• The currency denomination of the company’s shares;
• The perception of investors.

More information can be found in the FTSE Nationality Statement (found here)