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Max Allocation to a Single Sector

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Old 09-02-2020, 06:27 PM   #1
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Max Allocation to a Single Sector

There is a rule of thumb not to allocate more than 4-5% to a single stock so as not to create concentration risks. But, some people overweight certain sectors (eg. tech, bank, REIT) with a few stocks or an ETF. While respecting the 4-5% limit per single stock, is there any guideline on the limit per sector?

I am talking about long-term/retirement portfolio, not side trading kind of portfolio.

Personally, I have 15% allocated to REITs. What's yours? And, what sector limit do you adhere to?
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Old 10-02-2020, 07:41 AM   #2
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SGX will classify REITs as "Real Estate" sector instead "REIT" as a sector on its own. That said, I have around 70% in Real Estate (they are all REITs + business trusts) and around 30% in "gas and infrastructure" and "network installation and mainteance" combined. The former being keppel infra trust and later being netlink trust. I snapped up keppel infra trust back then when their Australian subsidiary was in trouble and people started selling. Netlink trust I went in too late after it hits $0.92.

I am trying to diversify but I only started investing in 2018 so I will need some time to build up portfolio.

But given the current circumstances, I would likely be putting even more into REITs due to the wuhan virus trashing the prices. Those REITs that are fundamentally sound but has high price to book ratio had became cheaper and I feel like now is a good time to go in.

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Old 10-02-2020, 07:47 AM   #3
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Also, I think industry is not the only thing you need to diversify. You need to diversify the business model too. SGX classify REITs as a business model instead of industry (and rightfully so!). My portfolio is now 50% REIT and 50% business trust structure.
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Old 10-02-2020, 08:16 AM   #4
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If you want to limit yourself to 4-5% for a single stock, you might as well just buy the ETF or index.

No point holding 20-30 individual stocks. You won't be getting much alpha.

The portfolio returns will most likely follow the returns of the index.
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Old 10-02-2020, 12:09 PM   #5
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@hound297, thanks for sharing.

If you want to limit yourself to 4-5% for a single stock, you might as well just buy the ETF or index.

No point holding 20-30 individual stocks. You won't be getting much alpha.
Majority of my portfolio are in stocks and bond ETFs. I also like properties, but instead of investing in private properties, I use REITs instead (15% allocation).

I am not seeking to beat the market. The SREIT ETF would have been good, but I don't like the management fee and the manager (their website is seriously lacking compared to the NikkoAM or SPDR). So, I end up using 5 major REITs (across sub-sectors) as a pseudo-ETF. I have no other direct stock holdings other than these 5 REITs.
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Old 10-02-2020, 12:19 PM   #6
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I started my REIT portfolio way back in 2009 when there wasn't any REIT ETF.

So I'm sort of managing my own REIT ETF with 10 counters (down from 12 due to mergers).

There has been one local study (reported in businesstimes) done that indicates that adding REITs to a portfolio improved return and that has been my own experience with REITS (and many local bloggers).

Some say the study used a time period that favoured REITs, but my response is that I have been searching for data using a different time period that shows the opposite, that adding SG REITs has been bad for your portfolio but I haven't found such data yet!

Malkiel, in my edition of Random Walk Down Wall Street , advocates adding REITs to an index-linked portfolio too!
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Old 10-02-2020, 02:13 PM   #7
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买什么都可以, 就是不要进O&G 就行了。
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Old 10-02-2020, 02:19 PM   #8
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买什么都可以, 就是不要进O&G 就行了。
What's O&G?
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Old 10-02-2020, 07:28 PM   #9
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What's O&G?
oil and gas
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Old 10-02-2020, 07:34 PM   #10
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buffet said diversification is for people who dont know what they are doing
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Old 10-02-2020, 08:25 PM   #11
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So, I end up using 5 major REITs (across sub-sectors) as a pseudo-ETF. I have no other direct stock holdings other than these 5 REITs.
The combined performance of your 5 individual reits will likely track the returns of the reit etf in the long term.
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Old 10-02-2020, 08:29 PM   #12
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buffet said diversification is for people who dont know what they are doing
I agree. Diversification protects against ignorance but reduces return. Pros and cons. It depends on what type of investor you are or want to be. (I'm a novice.)

The combined performance of your 5 individual reits will likely track the returns of the reit etf in the long term.
Yes, I think so. Indeed, that's what I want - broad-based REIT exposure.
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Old 10-02-2020, 08:38 PM   #13
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@hound297, thanks for sharing.



Majority of my portfolio are in stocks and bond ETFs. I also like properties, but instead of investing in private properties, I use REITs instead (15% allocation).

I am not seeking to beat the market. The SREIT ETF would have been good, but I don't like the management fee and the manager (their website is seriously lacking compared to the NikkoAM or SPDR). So, I end up using 5 major REITs (across sub-sectors) as a pseudo-ETF. I have no other direct stock holdings other than these 5 REITs.
You can wait and see whether syfe offers a 100% reits portfolio without ARI. I have feedback to them asking for this.

You can feedback too so that they see demand. For other info on syfe reit+ see its thread in Money Mind

With regards to your qn. I think forget about overweighing a sector. Either go big or go passive global market cap
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Old 10-02-2020, 09:11 PM   #14
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You can wait and see whether syfe offers a 100% reits portfolio without ARI. I have feedback to them asking for this.
Thanks for that. But, I'll probably stick to my current method. I am a bit wary of robo-advisors as they are somewhat untested. For now, I find the REITs corporate actions (acquisitions, rights issues etc) interesting as learning experiences and I like getting my hands dirty. Perhaps, if I get tired of these hassle, I can switch to an ETF in later years.
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Old 10-02-2020, 09:24 PM   #15
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Thanks for that. But, I'll probably stick to my current method. I am a bit wary of robo-advisors as they are somewhat untested. For now, I find the REITs corporate actions (acquisitions, rights issues etc) interesting as learning experiences and I like getting my hands dirty. Perhaps, if I get tired of these hassle, I can switch to an ETF in later years.
See the syfe reit+ thread. They are working on tracking the iedge s-reit 20 index. And if they offer 100% reits its as good as a etf
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