*Official* Shiny Things club - Part 2

[BBCWatcher]

Do you have some post number / date / keywords I can search for to get to your past posts on this? I tried searching but couldn’t find anything.

Search for keywords such as Schwab, Alliant, and my user ID.

As for US income, it is a possibility.

If you end up with some earned U.S. income (income from work for the university in this case) then you should be eligible to make a Roth IRA contribution, even as an international student in the U.S. Please double check that of course, but that's my understanding. A Roth IRA would be quite attractive.

 

[spadestick]

Oh darn - I went against the simple advice of just owning one US based ETF stock (as an experiment), and got both IWDA and VWRA. For some reason VWRA is taking a beating today, and IWDA is holding steady. I will be relinquishing one of them soon, though leaning towards IWDA - Any idea what's going on?

 

[C.JunioR]

Read through most of this thread from page 100+ up to date while skipping some of the pages with troll and stubborn posts.

Must say it is a serious wealth of wisdom as well as technical knowledge.
Thank you ST, BBC, and other regular contributors, this space really is insightful and relevant esp in Sg context and for retail/amateur investors.

Would like to ask the experts here some questions that have been brought up in several earlier posts but i could not understand fully, namely FX and currency aspects.

1) An ETF is not the currency and there is no FX risk.
While i understand that buying the ETF means owning the shares and the value/NAV should not be tied to the strength of the currency it is denominated in, I still do not understand how the strength of the denominating currency does not affect your risk when you trade.

For example, if IWDA is 60 USD today and USD/SGD is 1.3 today, what happens to IWDA and it's price when USD/SGD plummets to 1.0 the next day? Theoretically, the NAV should not change, but since its denominated in USD and it has dropped 23% overnight, shouldn't the NAV show 73.8 USD to reflect the drop in strength of USD? I would still get back the same value in SGD, but in my mind that would cause the NAV of IWDA to take huge swings that is independent on the underlying assets which seems completely crazy and wrong.
But if the NAV/trade price of IWDA still remains at 60 USD, then that also seems crazy because i will be able to buy a share at 60 SGD because of the new FX rates.
This is the portion that I am confused and do not fully understand.

2) USD denominated bond ETFs
Specifically QL2 on SGX for BlackRock's Asia credit bonds, which is denominated in USD but traded in SGD. I do not mind the low trading volume/high spread.
For now, I am using QL2 and MBH to make up my bonds allocation. MBH for the relatively low risk and high credit ratings and yield, QL2 as more of an active hedge component against equity volatility. Comparing QL2 and IWDA on BloomBerg, there is some negative correlation which is why I'm implementing it. In my amateur mind, my thought would be to buy MBH when USD is strong, and buy QL2 when USD is weak so that i make the FX work to my advantage instead of against me. Would this sound like a decent plan, or am i being too optimistic or missing out on something?

Any opinions would be appreciated! Thanks all

 

[Shiny Things]

Oh darn - I went against the simple advice of just owning one US based ETF stock (as an experiment), and got both IWDA and VWRA. For some reason VWRA is taking a beating today, and IWDA is holding steady. I will be relinquishing one of them soon, though leaning towards IWDA - Any idea what's going on?

I think you’ve got some dud data there? They’re both off about a quarter to a half of a percent over the last two days, though VWRA has traded a lot less than IWDA.

Separately, I’m noting that VWRA is trading about 0.1% wide, while IWDA’s trading 0.01% wide. That’s a pretty good reason to stick with IWDA, TBH.

1) An ETF is not the currency and there is no FX risk.
While i understand that buying the ETF means owning the shares and the value/NAV should not be tied to the strength of the currency it is denominated in, I still do not understand how the strength of the denominating currency does not affect your risk when you trade.

For example, if IWDA is 60 USD today and USD/SGD is 1.3 today, what happens to IWDA and it's price when USD/SGD plummets to 1.0 the next day?

Nothing. IWDA doesn’t give a damn about the level of USDSGD.

On day 1, your lump of IWDA is worth $78 SGD. On day 2, the lump of IWDA is worth $60 SGD.

(Conversely, if SGD tanked, and USDSGD went from 1.30 to 1.60, the IWDA would go up in price in SGD terms.)

But if the NAV/trade price of IWDA still remains at 60 USD, then that also seems crazy because i will be able to buy a share at 60 SGD because of the new FX rates.

No, that’s exactly right. Your SGD is suddenly worth a whole lot more in USD terms, so you need to spend less of it to buy a share of IWDA.

2) USD denominated bond ETFs
Specifically QL2 on SGX for BlackRock's Asia credit bonds, which is denominated in USD but traded in SGD. I do not mind the low trading volume/high spread.

Well, you should. Low trading volume isn’t a problem, but a huge spread means you’re effectively paying a bunch of extra brokerage every time you trade.

risk and high credit ratings and yield, QL2 as more of an active hedge component against equity volatility.

What? I’m sorry mate, you’re just making up words here.

Firstly, the hedge for equity vol is a vol swap. Bonds are a hedge for equities - but that only applies to high-quality debt like government bonds and investment-grade corporate bonds, like the sort you get in A35 and MBH.

But hard-currency debt from EM issuers isn’t a “hedge” for anything, it’s a risk asset. If risk gets sold off and equities tank, QL2 is going to get torpedoed. If the Philippines or Mongolia have a currency crisis, QL2 is going to get torpedoed because it owns a bunch of Philippine and Mongolian govvies (and they’re going to have to pay up big to get the USD to repay those bonds). And it owns a huge slug of 1MDB bonds! My god!

QL2 in particular, and EM hard currency bonds in general, are not a hedge.

 

[Wayneasaurus]

Separately, I’m noting that VWRA is trading about 0.1% wide, while IWDA’s trading 0.01% wide. That’s a pretty good reason to stick with IWDA, TBH.

Is that significant enough a reason to sell VWRA and switch to IWDA? How much of an impact could that have in the long run for VWRA?

 

[Shiny Things]

Is that significant enough a reason to sell VWRA and switch to IWDA? How much of an impact could that have in the long run for VWRA?

It's not a reason to sell VWRA if you already own it; it's just a reason to buy IWDA instead of VWRA.

 

[C.JunioR]

Nothing. IWDA doesn’t give a damn about the level of USDSGD.

On day 1, your lump of IWDA is worth $78 SGD. On day 2, the lump of IWDA is worth $60 SGD.

(Conversely, if SGD tanked, and USDSGD went from 1.30 to 1.60, the IWDA would go up in price in SGD terms.)


No, that’s exactly right. Your SGD is suddenly worth a whole lot more in USD terms, so you need to spend less of it to buy a share of IWDA.

Thanks for answering and clarify, Shiny. So with this understanding, would it be right to agree that we ARE exposed to FX risk by buying IWDA even tho the underlying stocks itself is solid. And that we are actively making a bet of USD or EUR when we choose either IWDA or IWLE(euro ver. Distributing but doesn't matter) for example.

What? I’m sorry mate, you’re just making up words here.

Firstly, the hedge for equity vol is a vol swap. Bonds are a hedge for equities - but that only applies to high-quality debt like government bonds and investment-grade corporate bonds, like the sort you get in A35 and MBH.

But hard-currency debt from EM issuers isn’t a “hedge” for anything, it’s a risk asset. If risk gets sold off and equities tank, QL2 is going to get torpedoed. If the Philippines or Mongolia have a currency crisis, QL2 is going to get torpedoed because it owns a bunch of Philippine and Mongolian govvies (and they’re going to have to pay up big to get the USD to repay those bonds). And it owns a huge slug of 1MDB bonds! My god!

QL2 in particular, and EM hard currency bonds in general, are not a hedge.

I might have used the term hedge wrongly, sorry for that.
From my amateur opinion, the average YTM of 3.64% of QL2 vs 2.71% of MBH seems to be a risk worth taking considering only around 25% of the bonds are below investment grade of BBB. Of course, i could be completely wrong and underestimating the risks.

And what about the (somewhat) negative correlation with IWDA? My thoughts were that in the case of rebalancing during a market crash, QL2 could profit more capital gains to put into the equities allocation as compared to selling MBH, which is just doing its thing, being linear
(I wish i could post the chart but i did not realise i couldn't upload straight from my computer. Bloomberg>comparison> AJACS:SP and IWDA:LN and NIKIGCB:SP)

Would appreciate it if you could dissect your thoughts for me.

 

[kram62]

Thanks for answering and clarify, Shiny. So with this understanding, would it be right to agree that we ARE exposed to FX risk by buying IWDA even tho the underlying stocks itself is solid. And that we are actively making a bet of USD or EUR when we choose either IWDA or IWLE(euro ver. Distributing but doesn't matter) for example.

Well no, you understood the exact opposite of what was intended.

When you hold an ETF like IWDA, the underlying is not currency, it is stocks. It is like if you buy a banana in USD or SGD, in the end it doesn't matter, that's a banana. If USDSGD moves but the value of the banana didn't change, the USD and SGD prices of the banana will move but mostly to reflect that change in USDSGD price. If the banana becomes more valuable itself (because of other factors than FX moves) its price will rise in all currencies.

In the end, a banana is neither USD nor SGD. You only use one or the other currency to buy or sell one, but that's just a transaction. You don't store any USD in a banana when you buy it in USD, nor would you have stored SGD if you would have bought it in SGD.

This is the fundamental difference with a bond. In a bond you do buy a promise to receive a specific amount of a specific currency in the future. This creates FX risk.

 

[cassowary18]

Shiny Things, how do you calculate your "f*** you money" amount, as you termed in your book?

 

[mousepad_88]

Hi all, anyone here vested on cannabis etf? any recommendation i can look at?
Also is it a crime to invest in cannabis stocks or etf in SG since ur technically owning part of these company by holding securities in them.

 

[C.JunioR]

When you hold an ETF like IWDA, the underlying is not currency, it is stocks. It is like if you buy a banana in USD or SGD, in the end it doesn't matter, that's a banana. If USDSGD moves but the value of the banana didn't change, the USD and SGD prices of the banana will move but mostly to reflect that change in USDSGD price. If the banana becomes more valuable itself (because of other factors than FX moves) its price will rise in all currencies.

I want to believe i understand this concept adequately, but there are contradictions i do not understand, which is why i initiated the question.

I know that the value of the banana does not change. But according to Shiny's reply, the price of the ETF does NOT change when the denominated currency weakens. And this would be contradictory to the fact that the value should not change, and the ETF should be reflected in a higher price instead.

if the price of IWDA is 60USD on day 1, then shouldn't it be 78USD on day 2 after the currency weakens 23%? This would be more consistent with the ETF holding the same value imo, but i do not have a good understanding of currency microeconomics, so I would like to pick the brains of the experienced ppl here

Nothing. IWDA doesn’t give a damn about the level of USDSGD.

On day 1, your lump of IWDA is worth $78 SGD. On day 2, the lump of IWDA is worth $60 SGD.

(Conversely, if SGD tanked, and USDSGD went from 1.30 to 1.60, the IWDA would go up in price in SGD terms.)

No, that’s exactly right. Your SGD is suddenly worth a whole lot more in USD terms, so you need to spend less of it to buy a share of IWDA.

 

[tesarise]

I want to believe i understand this concept adequately, but there are contradictions i do not understand, which is why i initiated the question.

I know that the value of the banana does not change. But according to Shiny's reply, the price of the ETF does NOT change when the denominated currency weakens. And this would be contradictory to the fact that the value should not change, and the ETF should be reflected in a higher price instead.

if the price of IWDA is 60USD on day 1, then shouldn't it be 78USD on day 2 after the currency weakens 23%? This would be more consistent with the ETF holding the same value imo, but i do not have a good understanding of currency microeconomics, so I would like to pick the brains of the experienced ppl here

you need to be clear if it is USD weakening against the rest of the world's currency, or just SGD strengthened against USD/the rest of the world's currency.

In the former case, yes the price of IWDA will be expected to rise a bit

In the latter case, why would SGD strength affect the value of multinational corporations? If iwda is available in SGD, we would also expect the SGD denominated iwda price to fall in this case.

 

[C.JunioR]

you need to be clear if it is USD weakening against the rest of the world's currency, or just SGD strengthened against USD/the rest of the world's currency.

In the former case, yes the price of IWDA will be expected to rise a bit

In the latter case, why would SGD strength affect the value of multinational corporations? If iwda is available in SGD, we would also expect the SGD denominated iwda price to fall in this case.

Okay that would make sense with the dual scenarios. Thanks for the explanation!

 

[PaulOng]

Hello Shiny Thing. Thank you for all your posts thus far. Have been reading up on them and trying to learn along the way.

I am currently a 26 year old male. It's a little bit messy but currently have these on hand:

75k cash in UOB one account. Getting 1.8% by fulfilling their requirements.

32k in StashAway 18% risk profile.
15K in StashAway SGD denominated profile.
6k in IWDA bought though IBKR. (Started one month ago and planning to continue buying approximately 2-3k a month).

I understand that many would advocate buying IWDA and I am wondering if there is a need for me to exit my StashAway positions and slowly put it into IWDA and EIMI monthly?

Many thanks

 

[Thoreldan]

Hello Shiny Thing. Thank you for all your posts thus far. Have been reading up on them and trying to learn along the way.

I am currently a 26 year old male. It's a little bit messy but currently have these on hand:

75k cash in UOB one account. Getting 1.8% by fulfilling their requirements.

32k in StashAway 18% risk profile.
15K in StashAway SGD denominated profile.
6k in IWDA bought though IBKR. (Started one month ago and planning to continue buying approximately 2-3k a month).

I understand that many would advocate buying IWDA and I am wondering if there is a need for me to exit my StashAway positions and slowly put it into IWDA and EIMI monthly?

Many thanks

Think you're doing very well to be able to accumulate 75k + 32k + 15k at such a young age. Perhaps you can share how you achieve it ?

 

[PaulOng]

Think you're doing very well to be able to accumulate 75k + 32k + 15k at such a young age. Perhaps you can share how you achieve it ?

My source of funds are mainly from income. Started from zero. Have been working for almost 5 years as a diploma holder. Tried saving as much as possible, eat cheap food, doesn't spend much on holidays.

 

[RMCWMR]

My source of funds are mainly from income. Started from zero. Have been working for almost 5 years as a diploma holder. Tried saving as much as possible, eat cheap food, doesn't spend much on holidays.

Congrats! You are one of the rare ones who was not influenced by the YOLO lifestyle of your generation.

What are you working as and how much is your yearly income (range is fine)

 

[bossjiaksai]

Think you're doing very well to be able to accumulate 75k + 32k + 15k at such a young age. Perhaps you can share how you achieve it ?

Yes impressive indeed. With CPF, say 120k, he already has $250k at 26, an age where many find it hard to squeeze out even $25k

 

[MichealScott]

Congrats! You are one of the rare ones who was not influenced by the YOLO lifestyle of your generation.

What are you working as and how much is your yearly income (range is fine)

Indeed admirable that he can resist the temptation. But YOLO is true...You really only live once..Simply eating cheap food, don't hang out with your friends and don't go travel to explore the world..is that really living? Or cherishing your youth? Haha..I not saying to splash your money but some money got to spend, just spend. But ofc each to his own, kudos to him for sticking to his plans

Sent from Stamford Bridge using GAGT

 

[s0crates]

Hello Shiny Thing. Thank you for all your posts thus far. Have been reading up on them and trying to learn along the way.

I am currently a 26 year old male. It's a little bit messy but currently have these on hand:

75k cash in UOB one account. Getting 1.8% by fulfilling their requirements.

32k in StashAway 18% risk profile.
15K in StashAway SGD denominated profile.
6k in IWDA bought though IBKR. (Started one month ago and planning to continue buying approximately 2-3k a month).

I understand that many would advocate buying IWDA and I am wondering if there is a need for me to exit my StashAway positions and slowly put it into IWDA and EIMI monthly?

Many thanks

Why are you drawn to stashaway anyway?