*Official* Shiny Things club - Part 2

[Shiny Things]

In light of the we work saga, can investors who take part in their late stage funding have any credibility? It's concerning that one of Singapore's swf invested with Softbank in 2018...

So, let's get down to specifics here, Temasek didn't "invest with Softbank", they invested as part of WeWork China's 2018 funding round alongside Softbank.

That said, WeWork's valuation was always loopy and anyone who invested money in it needs to take a long hard look at themselves. There was a publicly traded comp the whole time! Why on earth would you invest in We at >10x the valuation of IWG?!

I simply want to understand more on this currency effect on ETF value and investor's risk to currency.
Hope u don't mind if i keep asking on this as i thought people would want to know what are they investing in.

Sure. I'll keep answering: the currency the ETF is denominated in does not matter. Given that, you should buy the USD listing (IWDA); you should NOT buy the GBP listing [SWDA].

Think about it this way. Imagine you've got IWDA (listed in USD), and SWDA (listed in GBP). They're both completely identical other than the currency they're quoted in; they both own a pile of stocks worth about fifty-eight bucks USD, or forty-seven pounds.

Now, let's say GBP doubles against the USD, and everything else stays equal (stocks don't move, no other currencies move, etc etc etc).

If that happens, the price of IWDA will stay unchanged, but the price of SWDA will halve.

Why? Because it's still the same pile of stocks - but the currency that they're being valued in is much stronger, so the stocks are worth less in terms of the currency they're being valued in.

So the pounds that SWDA is valued in are worth twice as much, but the price of SWDA has halved. Net net, nothing's happened.

---

The reason to buy the USD listing is that at Stanchart, the FX spread on purchases of USD is a lot tighter (cheaper for you) than the spread on purchases of GBP.

Hi Shiny, you mentioned there is a better way than Infinity Global funds to get US exposure in SRS? Could you kindly share that? Based on what I know we cannot buy IWDA in SRS.

I'm not sure if I hit "post" on these questions beforehand, but I need to know two things to be able to answer you.
1) Why do you want US equity exposure?
2) Why do you want it in your SRS account?

I assume that a portfolio of equities and bonds with an appropriate glide path will outperform a high interest savings account or endowment plan over the roughly 18 year period until we boot them out the door, but I'm keen to hear if there is happy medium that blends the growth potential of an investment portfolio with the simplicity of a savings account.

I wish! Unfortunately the best bet for a blend account is to do it yourself at the moment.

 

[happylcw]

I'm not sure if I hit "post" on these questions beforehand, but I need to know two things to be able to answer you.
1) Why do you want US equity exposure?
2) Why do you want it in your SRS account?

Hi Shiny,

1) I want US equity exposure (or rather global equity exposure) after reading your book.

2) I am looking at what I can invest using SRS funds. The approved equity investment products are local stocks (including ETF listed on sgx) and unit trusts. I suppose you are saying that I should focus on local stocks or ETF for my SRS account and use cash to buy IWDA?

Thank you.

 

[Geeezz]

so the currency risk we are getting will be sgd-usd or sgd-gbp?

 

[BBCWatcher]

so the currency risk we are getting will be sgd-usd or sgd-gbp?

You are not holding any currencies -- not Singapore dollars, not U.S. dollars, not British pounds, not Mexican pesos -- when you exchange money for shares of stock (or for a stock fund, which holds lots of stocks). You have traded your money for stocks. Just like you can exchange money for oil, iPhones, houses, cars, cotton, or haircuts (as examples). After you exchange your money, you're not holding the money any more.

Got it? Make sense? This is basic to your understanding of money.

Oil, iPhones, houses, cotton, cars, stocks, and many other things you can buy with money can then be quoted in any currencies you wish. For example, a used iPhone 7 in good condition has some sort of value, right now, in Japanese yen. There are some markets for used iPhones, such as eBay and Carousel. Likewise, there are public markets for company stocks and stock funds. Buyers and sellers meet in those markets. They exchange money (in various currencies) for shares, and shares for money. Just like they do when buying and selling iPhones on eBay.

You're not taking currency risk per se when you buy stocks or a stock fund, just as you're not taking currency risk when you buy a genuine 1963 Topps Pete Rose rookie baseball card (another random example of something you can buy from a willing seller for a mutually agreed price in a mutually agreed currency). You're not holding any currency any more after you exchange money for something else that isn't money.

Take a look at this YouTube video of an auction at Sotheby's of a painting by Monet. The auction is conducted in U.S. dollars, but next to the auctioneer you can see a currency board where prices are instantly listed in various alternative currencies. Sotheby's accepts all major convertible currencies. Let's suppose the winning bidder used Hong Kong dollars to buy her Monet. As soon as she exchanged Hong Kong dollars for the Monet painting, she no longer has those Hong Kong dollars. She has a Monet. She can then go back to Sotheby's (or another auction house) later on and sell her painting, and somebody else can buy it using Swiss francs, for example (while the auction is again conducted in U.S. dollars as a base currency).

Bonds are different. Bonds are denominated in a particular currency, so you can take currency exchange risk if you buy a bond denominated in some other currency from the one you usually use.

 

[linuskltan]

The reason to buy the USD listing is that at Stanchart, the FX spread on purchases of USD is a lot tighter (cheaper for you) than the spread on purchases of GBP.

I do not think it's true that the StanChart FX spread on USD is tighter than GBP. See below as compared to Oanda buy rates. In fact I have been taking samples rates for the past 3 years. GBP spreads are around the same or slightly tighter than USD.

Wed 2 Oct 2019 1720 hrs (GMT+8)
USD/SGD
StanChart 1.392006 (0.396%)
Oanda 1.38651
IBKR 1.38645

GBP/SGD
StanChart 1.703334 (0.388%)
Oanda 1.69675
IBKR 1.69660

I think a reason to consider buying IWDA (USD) instead of SWDA (GBP) would be cuz StanChart min commission is USD 10 / GBP 10 (which is more than USD 10)

 

[fulat1]

hi all. I have some clarification questions on iwda.
since the dividend are accumulating.i have some doubts hope all the expert can clarify me.

1.how do I know how much have i accumulated/unit/year ?

2.let say if i need to sell off all my 10 units urgently, but my unit cost is much higher let say,$60 than current offer price $55. does my units(including the accumulated) will be sold off at the price of $55?

3.does that means that, I will need to sell off my units at higher price all the time but not lower ?

apologies as I just sold off a unit trust that the dividends are *accumulating*, however, the price sold is lower than the price I bought.

 

[BBCWatcher]

1.how do I know how much have i accumulated/unit/year ?

You can check the fund’s reports if you like, but honestly it’s not worth the bother.

2.let say if i need to sell off all my 10 units urgently, but my unit cost is much higher let say,$60 than current offer price $55. does my units(including the accumulated) will be sold off at the price of $55?

Accumulation is internal to the fund. Other potential investors willing to buy your fund shares will certainly appreciate the accumulation and its impact on the value of each share, but that’s only one valuation factor at any given moment.

3.does that means that, I will need to sell off my units at higher price all the time but not lower ?

You can sell your shares whenever you want when the London Stock Exchange is open. You may or may not be happy with the price your shares can fetch at any given moment. It’s of course possible for stocks to fall in value even more than the accumulation of shares within the fund adds value, especially over relatively short time intervals.

 

[Geeezz]

bonds are straight forward fr currency risk. but fr equity it isn’t really that straightforward.

for example I buy a 200myr flat when sgd:myr is 1:2

that flat is worth 200myr, but when sgd:myr becomes 1:3, will the value of the flat then become 300myr?

likewise if we see that iwda is worth 200m usd, what if sgd strengthen against usd? won’t it worth lesser to us who spend in sgd?

what shiny mentioned saying that buying in either usd or gbp denomination is the same because of arbitrage opportunities as regardless of how gpb swing, the value of iwda remains the same in usd fr eg. we however hv to covert that usd to sgd, so won’t we get lesser if sgd strengthen?

 

[Geeezz]

hi all. I have some clarification questions on iwda.
since the dividend are accumulating.i have some doubts hope all the expert can clarify me.

1.how do I know how much have i accumulated/unit/year ?

2.let say if i need to sell off all my 10 units urgently, but my unit cost is much higher let say,$60 than current offer price $55. does my units(including the accumulated) will be sold off at the price of $55?

3.does that means that, I will need to sell off my units at higher price all the time but not lower ?

apologies as I just sold off a unit trust that the dividends are *accumulating*, however, the price sold is lower than the price I bought.

etf hv a collection of companies. let’s say in total all they are worth 10m. so the etf is worth 10m. nao this etf will then hv 10 shares which means one share is worth 1m. what accumulation means ish this, let’s say some companies in the etf declare dividends for example 1m in total.

the 1m will then be used to bai more stakes into those companies, making the etf worth 11m nao and means each share is worth 1.1m

so yea, just see iwda as per the mkt price as everything will be factored in. no need care much on the dividends each company gives. sho to make money, sell it at a higher price than what u gt it fr

 

[pylpoh]

i made my first iwda purchase last month. Im new to ib and im not so sure if i did things the correct way. i have some screenshots in this link https://imgur.com/ELQGgDA

1) transfered $1400sgd from local bank to IB.
2) convert sgd to usd. i placed a trade for USD.SGD via ideapro forex
3) buy iwda. i placed another trade for 17shares of iwda


today i have transfered another $1400sgd to my ib account for this month iwda purchase. However when i tried to use the mobile ib currency convertor to convert 1380.78USD to 996USD, i see this msg saying that 1451.48sgd is needed. why is this happening ? and what is the additional $70sgd for ?

 

[fulat1]

etf hv a collection of companies. let’s say in total all they are worth 10m. so the etf is worth 10m. nao this etf will then hv 10 shares which means one share is worth 1m. what accumulation means ish this, let’s say some companies in the etf declare dividends for example 1m in total.

the 1m will then be used to bai more stakes into those companies, making the etf worth 11m nao and means each share is worth 1.1m

so yea, just see iwda as per the mkt price as everything will be factored in. no need care much on the dividends each company gives. sho to make money, sell it at a higher price than what u gt it fr

thank you v geeez & BBC very much. I think I got the clearer pic now.although no dividends but the price of the shares will increase bit by bit and also down during downturn.

 

[little pupsky]

Write properly. This is MM, not EDMW. No need to try act cute here; all grown-ups.

etf hv a collection of companies. let’s say in total all they are worth 10m. so the etf is worth 10m. nao this etf will then hv 10 shares which means one share is worth 1m. what accumulation means ish this, let’s say some companies in the etf declare dividends for example 1m in total.

the 1m will then be used to bai more stakes into those companies, making the etf worth 11m nao and means each share is worth 1.1m

so yea, just see iwda as per the mkt price as everything will be factored in. no need care much on the dividends each company gives. sho to make money, sell it at a higher price than what u gt it fr

 

[FrostWurm]

for example I buy a 200myr flat when sgd:myr is 1:2

that flat is worth 200myr, but when sgd:myr becomes 1:3, will the value of the flat then become 300myr?

Forex is a complicated topic because it involves many many different factors that economists have been studying for years.

So using your example, when you bought the flat, you could have paid either 100SGD or 200MYR (1:2).

a few years later, the exchange rate has become (1:3). Let's assume the value of the flat remain unchanged at 200MYR. Did you suffer any loss?

If you primary operating currency is in MYR, then clearly you didn't. Because you paid 200MYR and now it is still 200MYR.

But what if your primary operating currency is in SGD? Remember, you paid 100SGD at the beginning. But now, using (1:3), your flat is worth 66.7 SGD. Clearly you have made a loss.

So if you were an accountant doing up the financial statements, and you had to mark-to-market your flat, assuming your operating currency is in SGD, you would actually record it as an unrealized foreign exchange loss (hope it's correct).

A few points to recap:
1) Your flat in Malaysia is still your flat in Malaysia, no change. It still has bedrooms, toilets, etc.
2) Your flat is still worth 200MYR, no change in MYR terms.
3) But it is now only worth 66.7SGD, a loss in SGD terms. If you were to sell it now, you would receive only 66.7SGD (compared to the 100SGD you paid earlier).

The key question is, what specifically, causes the value of your flat to change? And how does foreign exchange play a role in that?

Let's say the government starts giving interest-free loans to Malaysians to buy flats. This causes demand for flats to rise and thus pushes up its price. The value of your flat increases. However, there is unlikely to be any immediate impact on the SGD/MYR rate. You have made money because the property has appreciated.

On the other hand, let's say the Malaysian government defaults on its bonds(very unlikely though), causing the MYR to depreciate rapidly. Just by virtue of this, the value of your flat will have decreased in SGD terms (due to the exchange rate), but it may not necessarily have decreased in MYR terms.

Of course, there is an infinite amount of scenarios that can occur when you invest overseas. But remember that any forex gain or loss is always relative to a currency (an extremely obvious, but important concept). If you were a Malaysian living in Malaysia, then you would not have "lost" if the value of your flat remained unchanged as you use MYR as your main operating currency. If you were a Singaporean who decided to retire in Malaysia, maybe you won't have felt too bad about it either.

With regards to the factors that affect foreign exchange rates...best ask your prof . But as long as you are investing in foreign markets, you will be subject to certain risks and uncertainties, though some of these risks and uncertainties may already be present in the domestic markets as well.

(on a side note, if you have read the entire thread, a common theme that recurs is having an expectation of where you are intending to work/retire.)

 

[Shiny Things]

today i have transfered another $1400sgd to my ib account for this month iwda purchase. However when i tried to use the mobile ib currency convertor to convert 1380.78USD to 996USD, i see this msg saying that 1451.48sgd is needed. why is this happening ? and what is the additional $70sgd for ?

This had me baffled for a bit, but I think it’s a weirdness in the way IBKR sends those currency-conversion orders.

It sends them as a “market order”, which means “fill my order at ANY PRICE, now now now”. This is fine, in practice you’ll get filled at exactly the current market price, but because IBKR is a cautious organization, they assume that the order will get filled at a much worse price than the current market price. That means you have to have a bit more SGD than you’d expect, given the market price; or you have to buy a bit less USD than you’d expect, given the market price.

Try submitting the order for a smaller amount. It’s not the end of the world if you’ve got an extra seventy bucks sitting around in your account.

 

[Shiny Things]

for example I buy a 200myr flat when sgd:myr is 1:2

that flat is worth 200myr, but when sgd:myr becomes 1:3, will the value of the flat then become 300myr?

I’m not sure if this was a rhetorical question, but the answer is no. It’s a flat in Malaysia, it’s valued in ringgit. So the value of the flat hasn’t changed in MYR, but in SGD it’s gone from being worth $100k SGD to being worth $67k SGD.

what shiny mentioned saying that buying in either usd or gbp denomination is the same because of arbitrage opportunities as regardless of how gpb swing, the value of iwda remains the same in usd fr eg. we however hv to covert that usd to sgd, so won’t we get lesser if sgd strengthen?

The question wasn’t about SGD, though - the question was about different listing currencies for the ETF, and the listing currency of the ETF doesn’t matter once you convert it back to your accounting currency (SGD, in your case).

You’re right that if SGD strengthens against other currencies, your IWDA will be worth less in SGD terms. But if SGD weakens, like it’s done a lot since 2012 (I remember it being $1.25 per USD!), your IWDA will be worth more.

 

[kram62]

This had me baffled for a bit, but I think it’s a weirdness in the way IBKR sends those currency-conversion orders.

It sends them as a “market order”, which means “fill my order at ANY PRICE, now now now”. This is fine, in practice you’ll get filled at exactly the current market price, but because IBKR is a cautious organization, they assume that the order will get filled at a much worse price than the current market price. That means you have to have a bit more SGD than you’d expect, given the market price; or you have to buy a bit less USD than you’d expect, given the market price.

Try submitting the order for a smaller amount. It’s not the end of the world if you’ve got an extra seventy bucks sitting around in your account.

Or use a limit order set at or slightly above the ask price. Then you can convert almost everything (did that yesterday and converted 3100 sgd and was left with 0.88 sgd afterwards.)

 

[pylpoh]

hi kram, shiny. thank you for replies.

 

[SuperFund88]

Qns on FX

Hi guys, i have a qns on FX impact on % returns..

Say i spend SGD5000 to get USD3596 (1.390SGD for 1USD) to get 72 shares of IWDA bought at price of $50 and it goes to $53 and i sell all of it giving a 6% return (53* 72 = USD3816)

I then convert USD3816 back to SGD5257 (1.377SGD for 1USD) and my return becomes 5%.

I just simulate these from SC trade a/c. Am i wrong in any of this calculation?

Because this is what i'm experiencing now except that i didn't sell. But the FX eat 1% of the return??

So if IWDA long term avg return is 5-7%, after FX our return potentially will becomes 4-6%?? or worse if the FX spread gets wider in the future..

And seems like SC rate now is 0.25% instead 0.2%..

 

[Geeezz]

Hi guys, i have a qns on FX impact on % returns..

Say i spend SGD5000 to get USD3596 (1.390SGD for 1USD) to get 72 shares of IWDA bought at price of $50 and it goes to $53 and i sell all of it giving a 6% return (53* 72 = USD3816)

I then convert USD3816 back to SGD5257 (1.377SGD for 1USD) and my return becomes 5%.

I just simulate these from SC trade a/c. Am i wrong in any of this calculation?

Because this is what i'm experiencing now except that i didn't sell. But the FX eat 1% of the return??

So if IWDA long term avg return is 5-7%, after FX our return potentially will becomes 4-6%?? or worse if the FX spread gets wider in the future..

And seems like SC rate now is 0.25% instead 0.2%..

yep. that's the fx risk u hv to take that's why I usually record the rates I am getting fr each trade to know the ytd returns I am getting

 

[Han Shot First]

Also mentioned before is LCWD by Lyxor, 0.12% and accumulating, whereas SWRD is distributing

Where does it show/indicate that SWRD is a distributing ETF?