*Official* BBCWatcher club

[BBCWatcher]

i'm only able to save like around $200 per mth sort of force savings
thinking to just get POSB Invest Saver G3B since the amount is small and can't do much
but unsure if this is the right track to start..

You could, or you could put $100/month into G3B via POSB Invest-Saver and $100/month via a zero sales charge/zero custody charge platform (POEMS or DollarDex probably) into Lion Global's Infinity Global stock index unit trust. The only "catch" with the latter is that you'll need an initial $1,000 purchase, which would take 10 months to muster at $100/month. Another possible approach would be to save up $200/month over the next 5 months, make your first purchase of that global stock index unit trust ($1,000), then proceed with the "regular" plan starting from the 6th month ($100/month into G3B, $100/month into the global stocks).

 

[pmstudent]

BBC, in your view, what's the optimal allocation of IWDA and EIMI to cover this planet proportionally?

ST suggested 90% IWDA and 10% EIMI, which I think is out of whack? Given the size of China and Asia as a whole?

 

[tangent314]

It's not the size of the population that matters, but the market capitalization. If the EM capitalization grows relative to DM, then yes you would adjust the ratio to match.

 

[pmstudent]

It's not the size of the population that matters, but the market capitalization. If the EM capitalization grows relative to DM, then yes you would adjust the ratio to match.

I was referring to economy rather than population, China is the 2nd biggest economy in the world behind US.

 

[BBCWatcher]

BBC, in your view, what's the optimal allocation of IWDA and EIMI to cover this planet proportionally?

ST suggested 90% IWDA and 10% EIMI, which I think is out of whack? Given the size of China and Asia as a whole?

I was referring to economy rather than population, China is the 2nd biggest economy in the world behind US.

Here's the thing, though: there are a lot of KFC restaurants in China, a lot of Apple iPhones, a lot of Buicks and Volkswagens, a lot of Rolex watches (yes, many genuine ones), a lot of Airbus and Boeing airliners, a lot of Scotch whiskey and Japanese sake and Heineken beer and French wine, a lot of Australian abalone and (unfortunately) coal, a lot of Canadian timber, etc., etc. Where a company's stock happens to be listed/traded is quite independent of where it produces and sells.

Market capitalization seems like a perfectly reasonable way to weight stocks in a stock portfolio. Some stock indices adopt certain tweaks. For example, an index might enforce arbitrary weighting caps on individual stocks and stock markets.

Investing in VWRD means you don't have to decide, because if the "EIMI part" of VWRD becomes a bigger factor over time, it'll become a bigger factor, automatically, right along with the market capitalization of those stock markets. Or vice versa. Thus, if deciding on an IWDA/EIMI ratio worries you, no problem, skip both and just go with VWRD, with dividend reinvestment of course.

 

[Hippocrates]

BBC, in your view, what's the optimal allocation of IWDA and EIMI to cover this planet proportionally?

ST suggested 90% IWDA and 10% EIMI, which I think is out of whack? Given the size of China and Asia as a whole?

I asked more of less the same question sometime ago in Shiny Things' thread and received many useful answers.

Going by GDP, the allocation IWDA: EIMI should be around 2:1. If you are concerned that GDP might be biased by huge international companies operating in EM countries, then the GNI ratio based on IWDA: EIMI constituent countries is roughly 3:2 if memory serves me right!!

I guess the only reason for IWDA: EIMI market capitalisation ratio to be 9:1 is due to inflated valuations in the developed world market (for its presumably lower risk). My own allocation ratio is somewhere in between that derived from GDP/GNI and total market capitalisation, because I believe that (i) market valuation will regress towards its mean in long run and (ii) I'm taking a calculated bet on Chinese domestic market.

 

[BBCWatcher]

Going by GDP, the allocation IWDA: EIMI should be around 2:1. If you are concerned that GDP might be biased by huge international companies operating in EM countries, then the GNI ratio based on IWDA: EIMI constituent countries is roughly 3:2 if memory serves me right!!

These weights wouldn't make much sense.

Consider Alphabet (Google), for example. The company happens to be headquartered in California, and its stock happens to be listed and traded on a stock exchange in New York. But it provides its services and earns revenues across the planet. A whopping 54% of its revenues are from outside the United States. Why on earth would you apply a national weight of any sort to this company? It doesn't make any sense. Its real business is thoroughly international.

If you're going to tinker with stock weights, do it based on some reasonable attributes associated with the real businesses of these companies.

 

[Hippocrates]

These weights wouldn't make much sense.

Consider Alphabet (Google), for example. The company happens to be headquartered in California, and its stock happens to be listed and traded on a stock exchange in New York. But it provides its services and earns revenues across the planet. A whopping 54% of its revenues are from outside the United States. Why on earth would you apply a national weight of any sort to this company? It doesn't make any sense. Its real business is thoroughly international.

If you're going to tinker with stock weights, do it based on some reasonable attributes associated with the real businesses of these companies.

Correct me if I'm wrong, by the definition of GNI/GNP, GNI of U.S should at least capture most of the economic output of Google across the world (even if it's not 100%) as a U.S. firm right?

While it is a herculean task to calculate the regional revenue breakdown of all the companies in IWDA/EIMI, I trust the GNI data published by the world bank as the simplest and most reliable source for the approximation of country-specific economic output.

The problem with market capitalisation method is that not all countries are in the same phase of market cycle. Unless there is some sort of correction to their valuation, I don't see market capitalisation reflects the real underlying businesses, but rather a mix of true business output and the maniac nature of human psyche lol. For example, IWDA has a PE and PB ratios that are around 1.5x higher than EIMI. Too bad I've no access to their historical data to tell where their valuations stand as of today... but that's sufficient to show that market capitalisation is not superior to national weight. It's not surprising that there might be spillover of EM output into IWDA with GNI data that's not corrected, but neither is market cap corrected for valuation.

 

[BBCWatcher]

Correct me if I'm wrong, by the definition of GNI/GNP, GNI of U.S should at least capture most of the economic output of Google across the world (even if it's not 100%) as a U.S. firm right?

No.

A GNP, GNI, or GDP weight would take the size of the U.S. economy relative to the rest of the world and apply it to the stock markets (and their listings) that happen to be located in the United States. Which...makes no sense. The companies listed in stock markets that happen to be located in the United States don’t conduct business only in the United States. Far from it.

While it is a herculean task to calculate the regional revenue breakdown of all the companies in IWDA/EIMI, I trust the GNI data published by the world bank as the simplest and most reliable source for the approximation of country-specific economic output.

Great. So what’s that got to do with Alphabet? McDonald’s? Samsung?

It is a Herculean task to tweak the weights of each individual stock — hundreds or thousands of them — using some measure of national incomes or products (maybe even purchasing power adjusted — all sorts of choices available here) — but that’s exactly what you’d have to do in order for any such tweak to make economic and financial sense. Weighting onto the stock market location makes no sense....

....Or you can just go with a global stock index that already exists, because it’s at least pretty good. And pretty good is plenty good enough in this business.

The problem with market capitalisation method is that not all countries are in the same phase of market cycle. Unless there is some sort of correction to their valuation, I don't see market capitalisation reflects the real underlying businesses, but rather a mix of true business output and the maniac nature of human psyche lol. For example, IWDA has a PE and PB ratios that are around 1.5x higher than EIMI. Too bad I've no access to their historical data to tell where their valuations stand as of today... but that's sufficient to show that market capitalisation is not superior to national weight. It's not surprising that there might be spillover of EM output into IWDA with GNI data that's not corrected, but neither is market cap corrected for valuation.

Why?

You’re implicitly thinking that EIMI represents the economic potential of the national economies of “emerging” countries. No, it doesn’t — not well at all, anyway. It represents the market consensus of the prospects (valuations) of the stocks that happen to be listed and traded in minor stock markets located in “emerging” countries. Those are two very different concepts and constructions. The economies — some of them, anyway — could have fabulous prospects (only that; they’re not realized yet) for growth. The stock markets that happen to be located in those economies? Probably not at all — they’re probably shrinking, actually. Unless you’re predicting that whatever stock market exists in (random example) Manila is suddenly going to start attracting the best and most promising new companies that want to raise capital, and investors from around the world interested in supplying that new capital? No, that’s very, very unlikely. The best and most promising companies doing substantial business in the Philippines are raising capital by listing where the investors are: typically in New York, London, or Hong Kong.

 

[pmstudent]

You’re implicitly thinking that EIMI represents the economic potential of the national economies of “emerging” countries. No, it doesn’t — not well at all, anyway. It represents the market consensus of the prospects (valuations) of the stocks that happen to be listed and traded in minor stock markets located in “emerging” countries. Those are two very different concepts and constructions. The economies — some of them, anyway — could have fabulous prospects (only that; they’re not realized yet) for growth. The stock markets that happen to be located in those economies? Probably not at all — they’re probably shrinking, actually. Unless you’re predicting that whatever stock market exists in (random example) Manila is suddenly going to start attracting the best and most promising new companies that want to raise capital, and investors from around the world interested in supplying that new capital? No, that’s very, very unlikely. The best and most promising companies doing substantial business in the Philippines are raising capital by listing where the investors are: typically in New York, London, or Hong Kong.

Ok, I understand.
Are you OK with just S&P 500 instead of IWDA, since most giant global companies are US listed anyway, and no point having stagnated Japan and European markets as significant part of it.

 

[BBCWatcher]

Are you OK with just S&P 500 instead of IWDA, since most giant global companies are US listed anyway, and no point having stagnated Japan and European markets as significant part of it.

The late Jack Bogle made this particular argument, at least for U.S. investors in the U.S. context.

I think there are a couple viable, sustainable stock markets outside the United States, so no, I wouldn't go that far, and the S&P 500 index isn't quite the right one for these purposes anyway. The Dow Jones U.S. Total Stock Market Index, formerly known as the Wilshire 5000, is better. Bogle had this index in mind since that's the one Vanguard tracks in VTI. But it's an interesting, provocative point of view, especially if you add the ADRs.

I'm certainly not concerned that anybody is "missing" anything if they don't have 0.12% of their portfolio invested in the top 10 stocks listed in the Ukrainian stock market, for example. Don't worry about it. If there's a great new business born in the Ukraine, it'll work its way into IWDA or VWRD at some point, and you'll enjoy the ride, too.

Consider our own backyard for a moment: Singapore. Singapore is a developed country, and it's prosperous and doing rather well in national economic terms. Is the SGX doing well? No. The real Singaporean economy is outperforming the SGX, and the new, born-in-Singapore companies that are growth prospects (may or may not be realized) aren't listing on the SGX. There are plenty of companies doing plenty of business in Singapore that aren't listed on the SGX (but are listed elsewhere), and that divergence is increasing, not decreasing. For all intents and purposes you should ignore the location of the stock markets and just focus on the real businesses you're investing in. If you want to invest in businesses that do most of their business in Singapore, then a STI fund (ES3, G3B) is pretty good in that particular role. Not absolutely perfect; nothing is. However, ES3 and G3B aren't capturing "new Singapore" in business terms because the SGX isn't.

 

[Zink00]

Can i redeem fully (odd lots) of lion global on poems? I understand its 0 sales charge but is there redemption charge?
I feel posb and maybank charge of 1% is quite high actually, although monthly its a few dollars but it adds up.
Also in ST thread, it was said to buy lion global until $4000 and redeem to buy iwda. Why is it not recommended to stick with lion?

 

[tangent314]

Can i redeem fully (odd lots) of lion global on poems? I understand its 0 sales charge but is there redemption charge?
I feel posb and maybank charge of 1% is quite high actually, although monthly its a few dollars but it adds up.
Also in ST thread, it was said to buy lion global until $4000 and redeem to buy iwda. Why is it not recommended to stick with lion?

There's no redemption charge for UTs on POEMS.

IWDA TER = 0.20%
LGI GEF TER = 0.82%

 

[Hippocrates]

No.

A GNP, GNI, or GDP weight would take the size of the U.S. economy relative to the rest of the world and apply it to the stock markets (and their listings) that happen to be located in the United States. Which...makes no sense. The companies listed in stock markets that happen to be located in the United States don’t conduct business only in the United States. Far from it.

Thanks for discussion. As I'm not trained in economy, this is the knowledge gap that I want to verify with you and all the experts here. According to what I've read about GNP/GNI, it's different from GDP:

Economics help: "GNP and GDP both reflect the national output and income of an economy. The main difference is that GNP (Gross National Product) takes into account net income receipts from abroad."

Kimberly Amadeo (the balance) on U.S. GNP: "U.S. GNP says a lot about the financial well being of Americans and U.S.-based multi-national corporations. It says less about the health of the U.S. economy. For that, you should use gross domestic product (whether real or nominal). GDP measures production inside of a country, no matter who makes it."

If the above definition and explanations are correct, U.S. GNP captures all the businesses Google, Alphabet, McDonald's around the globe by virtue of them being U.S. firms. By the same token, their revenues will not be included in the GNP of say China. I believe that your concern only applies to GDP but not to GNP/GNI.

You’re implicitly thinking that EIMI represents the economic potential of the national economies of “emerging” countries. No, it doesn’t — not well at all, anyway. It represents the market consensus of the prospects (valuations) of the stocks that happen to be listed and traded in minor stock markets located in “emerging” countries. Those are two very different concepts and constructions. The economies — some of them, anyway — could have fabulous prospects (only that; they’re not realized yet) for growth. The stock markets that happen to be located in those economies? Probably not at all — they’re probably shrinking, actually. Unless you’re predicting that whatever stock market exists in (random example) Manila is suddenly going to start attracting the best and most promising new companies that want to raise capital, and investors from around the world interested in supplying that new capital? No, that’s very, very unlikely. The best and most promising companies doing substantial business in the Philippines are raising capital by listing where the investors are: typically in New York, London, or Hong Kong.

There are two separate questions here: (i) whether the stock listing in a particular market can be mirrored by an easily measurable economic indicator specific to that market, and (ii) whether we should allocate investment based on consensus of prospect (market valuation) or actual economic output represented by the basket of companies in the ETFs?

For (i), I understand that GDP isn’t a suitable indicator for the reasons mentioned earlier by you. However, taking U.S. stock market as an example, if GNI takes into account the total output of U.S. incorporated companies regardless of the geographical locations from which their revenues are derived, then a U.S. centric index (after normalizing for its valuation) should reflect U.S. GNI.

But how about the best and most promising companies from Philippines that happened to be listed in U.S. stock market? While I have no knowledge about Filipino companies, the top 3 tech companies of China: Baidu, Alibaba and Tencent happen to be listed in Nasdaq, NYSE and HKSE, respectively. You would think that the economic potential of these companies is captured by IWDA? No, they are included in EIMI by means of ADR shares. Similarly, the mega oil company PJSC Lukoil is listed in LSE, but it's also included in EIMI and not IWDA! So, it seems quite apparent that in building IWDA/EIMI ETFs, the fund managers are not following the listing market blindly.

As for (ii), I couldn't really see the logic of encouraging investment allocation based on market capitalisation but denying the allocation based on GNP. I think they are both viable methods but each has its own flaws. They can complement each other though! The market consensus of prospect are wrong many times in the history (or we won't have market crash). Would you want to allocated your global investment proportionately when the market capitalisation of Bitcoins went up to $300 billions? or adhere to the market cap ratio of tech companies during dot.com bubble? or have huge allocation to Nikkei market in the 1980s when it accounts for >40% of global market cap?

Since the purpose of index investment is for long term, we should also realise that the principle that always holds in long term is regression to the norm. The norm would be the true economic output of the market, net of euphoria and depression... that is exactly what market capitalisation isn't telling us.

If there's an indicator that is better than GNP/GNI, I would love to learn more about it, but it's certainly not market capitalisation.

 

[BBCWatcher]

I just don't understand how you can relate national income anything with a stock market that happens to be located in that nation. Maybe (triple underscore) you could cobble something together like that if every, or nearly every, nation has a stock market. But that's obviously not true.

So what's wrong with market capitalization weightings? Toss all the world's investable stock markets into the mix, and you've got a global, reasonably weighted index/fund. If it's "off," it's only off a little. With thousands of stocks, it's just not going to matter if the weightings are "off" deep into the decimal places.

There are some investors who want to overweight stocks below the "large cap" stocks for whatever reasons. There are two Blackrock iShares ETFs that do that: WSML and IEMS. Those ETFs invest exclusively in "Small Cap" stocks. WSML is basically the "small cap" version of IWDA, and IEMS is the "small cap" version of EIMI. The latter has a rather high expense ratio which ought to give you pause.

I'd also add that it's entirely possible, even common, to have a fast growing national economy that has both a moribund (or shrinking) stock market -- we've certainly seen that in many places -- AND locally headquartered businesses that aren't growing very much. It's very possible, even common, to have both global multi-nationals fully (or more than fully) participating in that national economy's growth and "horizontal" expansion in the locally headquartered businesses -- proliferation of more business entities, not necessarily growth in previously established businesses. An awful lot of developing economies experience what I've just described.

 

[FinalDestiny...]

Hi BBCW, what are your opinions on short-term DII such as TM Protect 1 offered by Tokio Marine ?

If I am not wrong, the other DII mentioned so far lasts till 65.

 

[BBCWatcher]

Hi BBCW, what are your opinions on short-term DII such as TM Protect 1 offered by Tokio Marine ?
If I am not wrong, the other DII mentioned so far lasts till 65.

Yes, you can buy DII in Singapore that insures up to age 65 or, in one case (Aviva's MINDEF and MHA Group Insurance DII Rider) up to age 70.

TM Protect 1 offers a maximum payout period of 6 years, so it's certainly not going to work well for young adults, at least not on its own. Also, its definition of disability is a little different, probably more restrictive. I can imagine if you're getting close to retirement and/or you're getting close to being able to self-insure that TM Protect 1 might play a supporting role. Generally speaking it's not great.

 

[lnrccn]

You could, or you could put $100/month into G3B via POSB Invest-Saver and $100/month via a zero sales charge/zero custody charge platform (POEMS or DollarDex probably) into Lion Global's Infinity Global stock index unit trust. The only "catch" with the latter is that you'll need an initial $1,000 purchase, which would take 10 months to muster at $100/month. Another possible approach would be to save up $200/month over the next 5 months, make your first purchase of that global stock index unit trust ($1,000), then proceed with the "regular" plan starting from the 6th month ($100/month into G3B, $100/month into the global stocks).

Hi BBCWatcher,

thanks for the reply.

Lion Global's Infinity Global stock index unit trust does not have dividend distribution.
Should we be looking into getting any dividend when looking for monthly saving plans?

 

[BBCWatcher]

Lion Global's Infinity Global stock index unit trust does not have dividend distribution.
Should we be looking into getting any dividend when looking for monthly saving plans?

No. Stock investing is for long-term investors, and for at least the bulk of that long-term period you don't need and shouldn't be dependent on dividend distributions. You'll want dividend reinvestment, and if the fund itself is doing that (at lower cost), fantastic.

 

[BBCWatcher]

The U.S. Securities and Exchange Commission has approved a new stock exchange in the U.S.: the "Long-Term Stock Exchange" (LTSE).

The IEX, another new U.S.-based exchange, has spent the past few years trying to grow. It still has only one listing (IBKR) so far. The stock market business is a very tough, competitive business with hugely strong network effects. I don't think this new exchange stands much of a chance, but we'll see.