Official Shiny Things thread—Part III

[limster]

I read there are some bond ETF that has a maturity date. Is there any of those ETF that can be purchase in Singapore?

Yes, by using Interactive brokers or Standard chartered online trading.

However, it hasn't caught on in UK so the only one available on LSE matured and iShares didn't replace it with a fresh one.

 

[crystalnox]

A question for those who manually DCA every month. Do you try to wait till the price has dropped to some amount or do you simply log in on a fixed date, purchase without hesitation, and log out? I would assume the latter but I might be wrong.

Fixed date within 1 hr of market opening. If you follow your feel and wait until it drops by a certain amount, you might end up never buying.

 

[newjersey]

hi ST,

I just chanced upon this.

US Banking System is churning out CLOs... it seems to be an evolution of CDOs from the last financial crisis, GRC @ 08.

Collateralized Loan Obligation
Collateralized Debt Obligation

www.youtube.com/watch?v=m8wcAXVhwpY

care to share your thoughts?

this would really be replanting a financial dynamite as US goes through QE... in the face of covid19, right?

 

[iceblendedchoc]

Hi shiny.. For those who bought private property in sg, they used up quite a big % or almost all their funds. Probably they would need to service their loan for 10 20 years. What advice can you give to this group? To them, having a substantial global diversified portfolio seems near impossible.

I can answer this. I stay in a freehold and have a supposedly diversified portfolio in IWDA + ES3 and A35 ( Thanks ST for this as before this I never touch ETF before).

But we never use up a big % or almost all our monies on our home and i think this is key on leverage. It is always very tempting to leverage high on debts thrown by the bank and alot of agents telling you "wah buy property the best, because bank will lend you money to buy property but not stocks".

We are in a very comfortable position with the ability to pay the entire loan as long as the loan interest rate is not over 2.5%. The moment the interest rate hit 2.5%, we will exercise the option to pay off the loan.

As long as the bank do not repossess your house and i personally think low interest rate is going to be here for the next 5 years again ( DBS housing loan now is 1.5% fixed for 5 years) but if you want to gamble on it getting lower , can take the floating rate.

 

[BBCWatcher]

Further adding:

1. Obviously it is possible to borrow on margin, at very low interest rates, to buy stocks. Real estate definitely isn’t special in this way. Interactive Brokers is currently charging only 1.59% interest per year on margined U.S. dollars. That’s not a recommendation, just an observation.

2. If there are benefits to leverage, it fundamentally doesn’t matter in terms of returns whether you’re getting the benefits directly (when you personally borrow) or indirectly (when the real businesses you invest in borrow). Either way, there’s leverage in the loop.

3. However, there’s a big difference between direct personal borrowing and indirect leverage in terms of liability for the debt.

 

[aYu82]

I might have recommended it to someone who specifically wanted to get exposed to China for some reason. “I think China is rising!” Is not a good reason; that was a theme in the eighties and nineties. China is done rising.

Why are you trying to get exposure to China, first? Then we can tell you how to do it.

Hi Shiny, thanks for the reply. I understand that China has less than ideal accounting and there are risks. But not all their companies are frauds and i think in the longer run, they still have much potential to grow. They will still be a major economic anchor in Asia, just my thoughts.

 

[razoreigns]

Hi Shiny, thanks for the reply. I understand that China has less than ideal accounting and there are risks. But not all their companies are frauds and i think in the longer run, they still have much potential to grow. They will still be a major economic anchor in Asia, just my thoughts.

You just watched the Adam khoo video?

 

[limster]

Hi Shiny, thanks for the reply. I understand that China has less than ideal accounting and there are risks. But not all their companies are frauds and i think in the longer run, they still have much potential to grow. They will still be a major economic anchor in Asia, just my thoughts.

this is the wrong thread to ask whether you should depart from Shiny's recommendation and overweight China

The stock answer for this thread is that if China grows, then its composition in VWRA will increase. there is no need for investors to do anything.

Myself, I have been loading up China-related ETFs from Mar-May as I'm buying into the economy reopening (monitor the demand for iron ore and BHP's share price too!) and China ecommerce story!

 

[Investnewbie82]

this is the wrong thread to ask whether you should depart from Shiny's recommendation and overweight China

The stock answer for this thread is that if China grows, then its composition in VWRA will increase. there is no need for investors to do anything.

Myself, I have been loading up China-related ETFs from Mar-May as I'm buying into the economy reopening (monitor the demand for iron ore and BHP's share price too!) and China ecommerce story!

May I know which specific etfs are you buying? I do buy some via hkex but there are various around.

 

[respectablemagician]

Hi

Lurker here. Been following the ST strategy religiously for 3 plus years now.

I was wondering what the impact of the dollar declining going to be (to us)?

https://www.marketwatch.com/story/t...ply-warns-prominent-yale-economist-2020-06-16

 

[Investnewbie82]

Hi

Lurker here. Been following the ST strategy religiously for 3 plus years now.

I was wondering what the impact of the dollar declining going to be (to us)?

https://www.marketwatch.com/story/t...ply-warns-prominent-yale-economist-2020-06-16

I’ve read that On margin account on IB, if we think dollar may fall, we can sell a corresponding amount of USD.SGD , to hedge against?

Never tried it though.

 

[chrisloh65]

VWRA has so little of China exposure that you will never really benefits from China growth.

Which specific China-related ETFs you buying?

this is the wrong thread to ask whether you should depart from Shiny's recommendation and overweight China

The stock answer for this thread is that if China grows, then its composition in VWRA will increase. there is no need for investors to do anything.

Myself, I have been loading up China-related ETFs from Mar-May as I'm buying into the economy reopening (monitor the demand for iron ore and BHP's share price too!) and China ecommerce story!

 

[chrisloh65]

You ask the wrong person because Shiny here is anti-China, claiming that China banks and China are full of bad debts that their collapse is a matter of time.

However, the truth is any bank that faces bank-run, even those biggest banks in USA like JP Morgan, Citibank, BOA, etc., all of them would collapse if most of their customers go to the banks to withdraw their cash deposits! Also USA has printed so much paper money USD and so much in debt issuing so much T-Bills that USA collapse is a matter of time! (but this fact Shiny never tell us here!)

From above you can see the biasedness?

Hi Shiny, thanks for the reply. I understand that China has less than ideal accounting and there are risks. But not all their companies are frauds and i think in the longer run, they still have much potential to grow. They will still be a major economic anchor in Asia, just my thoughts.

 

[swan02]

From observation, this is a coordinated QE by several big guns in the world, the so called dramatic crash of USD if it happens is likely not because of QE but simply due to risk on mode.

so when risk on mode is turn on, you’ll still see decent gains with safe haven currency denominated stocks which likely offset the loss of FX to sgd. It won’t be so dramatic say vs aud which sits at the extreme end of emerging like currencies n u domicile there.

that’s the reason why 50 percent as advocated by Shiny is allocated to STI although I speculate you can mix a combo of es3, vas, and eimi to make up that 50 percent asian stocks aka emerging. They will shine in risk on mode offsetting USD crash.

People need to realise that those developed country stocks are not as volatile and has the additional safe haven characteristics of the currency of origin.
The combo provides a decent diversification benefit and is unwise to think u can time the market and lean towards one side. timing is discouraged in passive investment.

As someone pointed out, know the difference between Fx risk in an etf is denominated in is zero risk vs FX risk inherent in the stock. Inherent risk affects the stocks for eg jpy stocks in jpy tend to trend higher with greater devaluation of jpy, Japan being export focussed. In other words, fx risk affects stock volatility but does not dominate it as opposed to FX dominating bonds volatility hence discouraged to hold unless hedged.

Thus entire hedging Of foreign stocks is not needed if u have 50 percent in asian stocks or sti. But I reckon some hedging is warranted if u r a 80/20 international lean.

Anyways this is based on the last two years of daily observation. I might totally Be clueless in my assertion and open to anyone to correct me.

I’ve read that On margin account on IB, if we think dollar may fall, we can sell a corresponding amount of USD.SGD , to hedge against?

Never tried it though.

 

[xinheli]

Just finish read that book, about EFT may have some questions.

Hi,
I'm new here, just finish reading that shiny things master book. Quite helpful. After several days of self researching, I still have some questions want to ask here:

1, Why NO S&P 500?. I checked for 10 years record. S&P 500 is always better than MSCI (IWDA). So how about we still use the global one, but add more ratio for US. Like a combination IWDA + CSPX. Yes, people will say,
"history does not mean that the future". But the high chance is that US will be better than other countries in IWDA. Or if we say "future", then we should buy some EIMI(that including China)? So my plan is IWDA:EIMI:CSPX 5:1:1. Consider that IWDA contain 60% of US. So the real ratio is US: other developed countries: developing countries
= 5*0.6+1 : 5*0.4 : 1 = 4:2:1

2, Why need STI? The only reason is FX risk? I find the STI performance is quite bad. (My case is a little special, due to most to money I need invest is USD, btw I'm the singapore taxpayer)

3, SWRD Vs IWDA. I check Alpha, tracking error SWRD is better. So is it ok we should choose the SWRD?

4, Here is my plan IWDA:EIMI:CSPX:MBH = 5:1:1:3 (I'm 35)

 

[Shiny Things]

With the interest rates on bank accts and FD coming down, what do you think of buying putting the money into MBH or A35?

Yep, I think MBH is an excellent idea. It has a little bit of volatility - the price moves around a bit, unlike a bank deposit - but it also has a much better yield.

I read there are some bond ETF that has a maturity date. Is there any of those ETF that can be purchase in Singapore?

No.

A question for those who manually DCA every month. Do you try to wait till the price has dropped to some amount or do you simply log in on a fixed date, purchase without hesitation, and log out? I would assume the latter but I might be wrong.

Yeah, I just wire the cash over to IBKR from each paycheck, log in, and mash that big blue BUY button.

Looks like it’s pretty much concrete a floor is set by the FED.

How has this changed your way of investing ?

1. More USA stocks ?
2. More into tech such as Inuit or cndx ?
3. low interest rates and high prices how ?
4. Double down on stocks in general now ?
5. Double down on corporate debt now ?
6. Buy aud ?

1) Nope.
2) no, because Intuit are scum. (and personally, because I work for a Silicon Valley tech firm, I have enough exposure to the tech sector in my life already)
3) This isn't a question?
4) I think you might've missed the boat on this one? The Fed isn't guaranteeing a floor on stock prices; companies can still fail (Hertz, anyone?).
5) This one... this one I'm a little less "no" on. The Fed isn't gonna stop companies from failing, again (just ask anyone who owns Hertz debt that's gone from 100 to 40 in the space of three months), but they're definitely putting a bid under it... and yet corporate credit spreads are still eminently reasonable! The spread on USD BBBs is still more generous than it's been at any time since 2016. And though the US is not Singapore, you'd have to expect some spillover into SGD corps.
6) You also missed the boat on this one, it's already gone from 55 cents to 70.

Hi,
I'm new here, just finish reading that shiny things master book. Quite helpful. After several days of self researching, I still have some questions want to ask here:

1, Why NO S&P 500?. I checked for 10 years record. S&P 500 is always better than MSCI (IWDA).

You don't have "no S&P 500". The S&P 500 is literally half of IWDA! I'm saying you don't need to add more S&P 500.

2, Why need STI? The only reason is FX risk? I find the STI performance is quite bad. (My case is a little special, due to most to money I need invest is USD, btw I'm the singapore taxpayer)

Because if you're going to retire in Singapore, you want some exposure to the Singaporean economy and Singaporean cost of living. And this is the exact same trap that you fell into with the S&P 500 - you're assuming that because the STI has underperformed in the past, it'll continue to underperform in the future.

If it were that easy to predict the future, everyone would do it and everyone would be rich. But markets don't work that way.

3, SWRD Vs IWDA. I check Alpha, tracking error SWRD is better. So is it ok we should choose the SWRD?

SWRD is a lot smaller and a lot less liquid than IWDA, so it's more expensive to trade in and out of, and it's a little more prone to being closed down if State Street decides they don't want to put up with the expense of keeping the fund open.

hi ST,

I just chanced upon this.

US Banking System is churning out CLOs... it seems to be an evolution of CDOs from the last financial crisis, GRC @ 08.

Oh god, this is the Frank Partnoy article in the Atlantic, right? I already tweeted about this. Follow me on Twitter if you like inside jokes that literally only two people get, wine tweets, baby pigeons, and occasional unseemly thirst-tweets.

Let me introduce you to a little thing called Betteridge's Law of Headlines. If the headline of an article asks a question, the answer is always, always "no". And it's the same for this article.

Firstly, the CLO market is nowhere near as big, or as leveraged, as the CDO market ever was. There's no equivalent to CDO-squareds. There's no loan-derivatives market like the one that fueled the creation of synthetic CDOs. And there certainly isn't any rush to originate leveraged-loans purely to fuel investor demand, like there was in 2004-2006 in the housing markets around Sacramento, Phoenix, Tampa... You could blow up literally the entire CLO market and the only thing that would happen would be a couple of mid-tier US regional banks have to flog themselves to Chase or Citi.

Secondly, he's so clueless about the space that he missed the real story. There is one bank that's gotten massively out over its skis in CLOs, and its name never appears in the story, not even once: it's Norinchukin Bank, the farmers-and-fishers cooperative in Japan that's somehow become a seventy-billion-dollar holder of CLO top tranches (the least risky tranches). Here's a Wall Street Journal article from three weeks ago that describes Norinchukin's holdings, and the losses during the recent downturn that caused them to stop buying CLOs...

...

...five percentage points of price. That's less than half of one percent of Gnawin' Chuckin's total asset base.

And they've made most of it back as markets have recovered since the March 19th low.CLOs are simply not that big a deal, and conflating them with CDOs is scaremongering.

The disappointing thing is, Frank Partnoy is smarter than this! F.I.A.S.C.O. was a great book! But this is a terrible article and a terrible interview.

this would really be replanting a financial dynamite as US goes through QE... in the face of covid19, right?

Oh boy, CNBC got you good. They got you hooked with a scary headline. This is why CNBC, and most financial news in general, drives me up the wall. It's doom porn.

Hi

Lurker here. Been following the ST strategy religiously for 3 plus years now.

I was wondering what the impact of the dollar declining going to be (to us)?

https://www.marketwatch.com/story/t...ply-warns-prominent-yale-economist-2020-06-16

Hmm. IF the US dollar weakened by that much (which wouldn't be out of the ordinary) - SGD strengthens and SGD interest rates probably drop a bit, so your bonds are worth more; SGD stocks in particular and EM stocks in general catch a bid because USD-based investors want the currency effect; your IWDA would see some positive effect from European- and Japanese-listed stocks getting more expensive in USD terms... honestly I think it'd be a good thing on balance.

From observation, this is a coordinated QE by several big guns in the world, the so called dramatic crash of USD if it happens is likely not because of QE but simply due to risk on mode. [...]

Anyways this is based on the last two years of daily observation. I might totally Be clueless in my assertion and open to anyone to correct me.

Nah, you've basically nailed it. When people panic, they buy the USD. People sell USD when they're feeling good, not when they're feeling scared.

 

[razoreigns]

Hi ST, BBCW,

Assuming one is invested in IWDA and not VWRA, what do you think of using the ES3 allocation interchangeably with EIMI? I see the past performance of ES3 and EIMI being quite close. That being the case, EIMI would fundamentally provide more diversification compared to ES3 and also provide direct exposure to China. Appreciate your views.

 

[BBCWatcher]

Assuming one is invested in IWDA and not VWRA, what do you think of using the ES3 allocation interchangeably with EIMI? I see the past performance of ES3 and EIMI being quite close. That being the case, EIMI would fundamentally provide more diversification compared to ES3 and also provide direct exposure to China. Appreciate your views.

It's an interesting idea, but I don't think they're really interchangeable. The idea behind ES3 (or G3B) is something of a Singapore dollar currency-oriented play, and that's really not what EIMI is about.

 

[newjersey]

hi ST,

thanks for explaining in simple terms on CLO!

and yes, i am very aware the CNBC is in the realm of Fox news... hehe.

but since Bloomberg put up a paywall, CNBC is the best free source of financial news.

if you know any others that's without a paywall, let me know please.

 

[razoreigns]

It's an interesting idea, but I don't think they're really interchangeable. The idea behind ES3 (or G3B) is something of a Singapore dollar currency-oriented play, and that's really not what EIMI is about.

Thanks BBCW. The reason why I am thinking about allowing interchangeability between ES3 and EIMI is because I question the need to have more SGD oriented play. Most people have bulk of wealth already in SGD and Singapore country risk assets, like their homes, and SGD denominated bonds, CPF etc.
In your opinion would it make sense to split the ES3 allocation 50-50 with EIMI?
For example, if one has a 50-50 allocation between IWDA and ES3, it would now be 50% IWDA, 25% EIMI, 25% ES3.
If one has a 90-10 allocation, it will now be 90% IWDA, 5% EIMI, 5% ES3. Based on the above 2 examples, you have managed to diversify abit more but have somewhat retained the performance of STI in the original allocation percentages.

I recognize the need and purpose of ES3, but it does seem to me that there is over concentration in asset allocation to an index that has only 30 counters. Even at 5% of equity holdings, in a global context, it is an overweight on STI (not that we should't since we plan to retire in SG).