Official Shiny Things thread Episode V, The Empire Strikes Back

[highsulphur]

Mmm - I wouldn't. First thing to note is that NEAR owns USD bonds, so you've got USDSGD FX risk there.

More broadly, though: even if there were a SGD short-term bond ETF, MBH and A35 already own both long- and short-term bonds (just looking at MBH, for example, it owns everything from 2027s out to 2050s). I think they hold a pretty good mix of maturities already, so they're not particularly exposed to a curve flattening or steepening.

Both MBH and A35 suffered steep losses in 2022-2024 during interest rate hikes and I'm thinking if I can avoid repeating that when interest rates bottom eventually and can only go up. Alternatively is to sell and hold cash

 

[CaptainWu]

Both MBH and A35 suffered steep losses in 2022-2024 during interest rate hikes and I'm thinking if I can avoid repeating that when interest rates bottom eventually and can only go up. Alternatively is to sell and hold cash

Almost all bond ETFs, regardless of their duration (short or long-term), and even money market funds (MMFs), experienced mild to significant losses during the economic downturn of 2021-2022. It was a challenging situation, with some bond ETFs only recovering last year and this year. I share your concern and it made me question the strategic role of bond ETFs in a balanced portfolio, but I've also struggled to find a good alternative.

Someone suggested a 100% Downside Protected Defined Outcome ETF. These funds also suffered losses during the recent market "liberation," but they recovered quickly, similar to stocks. A drawback is that these products lack a long history of returns to use as evidence, and they carry a foreign exchange (FX) risk since they are only available in USD. While it would be great to find a solid alternative, if you prefer not to take this "rare" risk, I think cash equivalents like fixed deposits (FDs), Singapore Savings Bonds (SSBs), or Treasury Bills (T-Bills) are the best option.

 

[highsulphur]

Almost all bond ETFs, regardless of their duration (short or long-term), and even money market funds (MMFs), experienced mild to significant losses during the economic downturn of 2021-2022. It was a challenging situation, with some bond ETFs only recovering last year and this year. I share your concern and it made me question the strategic role of bond ETFs in a balanced portfolio, but I've also struggled to find a good alternative.

Someone suggested a 100% Downside Protected Defined Outcome ETF. These funds also suffered losses during the recent market "liberation," but they recovered quickly, similar to stocks. A drawback is that these products lack a long history of returns to use as evidence, and they carry a foreign exchange (FX) risk since they are only available in USD. While it would be great to find a solid alternative, if you prefer not to take this "rare" risk, I think cash equivalents like fixed deposits (FDs), Singapore Savings Bonds (SSBs), or Treasury Bills (T-Bills) are the best option.

Thanks for weighing in.

My current portfolio composition is as follows

Global Equities ETFs	46%
Singapore Equites	28%
Singapore Bond ETFs	16%
Reits	3%
Cash equivalent	3%
Others	4%

The interest rate sensitive component (bonds and reits) makes up only 19% at the moment while cash is 3%. I guess I can rebalance it to equal proportion when I deem interest rates to have hit bottom or last 10 year lows. I am still struggling to come up with a concrete plan to execute especially when I am retired with no income to rebalance the portfolio by DCA monthly but have to actively buy/sell to rebalance.

 

[CaptainWu]

The interest rate sensitive component (bonds and reits) makes up only 19% at the moment while cash is 3%. I guess I can rebalance it to equal proportion when I deem interest rates to have hit bottom or last 10 year lows. I am still struggling to come up with a concrete plan to execute especially when I am retired with no income to rebalance the portfolio by DCA monthly but have to actively buy/sell to rebalance.

I have a similar portfolio composition but different ratio and weight heavier than you toward bond etf and reits as I am near retirement age, around 50% in equities (Global/SG/HK). I am performing buy/sell to balance from time to time. Suggest you can set a percentage thresholds to alert yourself and to evaluate the market situation if balancing is needed.

 

[BBCWatcher]

Both MBH and A35 suffered steep losses in 2022-2024 during interest rate hikes and I'm thinking if I can avoid repeating that when interest rates bottom eventually and can only go up.

First of all, "steep losses"? Let me take a quick look at MBH.... MBH fell about 17% peak to trough. That's a correction, not a crash. And that happened from late December 2020 to late October 2022. MBH has been basically straight up since October, 2022.

If you can time bond markets, why don't you become a bond trader and make at least a few billion?

Stocks (as measured by VWRA, in U.S. dollar terms) fell about 26%, but they did that in a tighter window: essentially December, 2021, to September, 2022. That's 10 months, and that's very brief (see below).

Alternatively is to sell and hold cash

Which is predictably low yielding, of course.

If you can afford the typical S$250,000 face value minimum clip level, you could buy individual investment grade Singapore dollar denominated corporate bonds and hold them to maturity if you wish.

I am still struggling to come up with a concrete plan to execute especially when I am retired with no income to rebalance the portfolio by DCA monthly but have to actively buy/sell to rebalance.

During drawdown at least the first portion of your once or twice yearly rebalancing exercise will be simply to draw income (for day-to-day living expenses) from the "high" part(s) of your investment portfolio. That's quite simple.

Retirement is a 40+ year period, for financial planning purposes anyway. A 22 month dip in the bond market need not be a material event within a 40+ year window.

 

[highsulphur]

I have a similar portfolio composition but different ratio and weight heavier than you toward bond etf and reits as I am near retirement age, around 50% in equities (Global/SG/HK). I am performing buy/sell to balance from time to time. Suggest you can set a percentage thresholds to alert yourself and to evaluate the market situation if balancing is needed.

i am within 5 years of my targeted retirement age as well. Currently I am still comfortable with my equity allocation of 75%. Did feel slight stress with the drawdown in Apr/May but I felt i was managing it better than the 2022 drawdown. Perhaps physiologically i am getting better in managing it.

I don't watch my allocation precisely but i take your point I should do it better as I approach my targeted retirement age.

 

[highsulphur]

First of all, "steep losses"? Let me take a quick look at MBH.... MBH fell about 17% peak to trough. That's a correction, not a crash. And that happened from late December 2020 to late October 2022. MBH has been basically straight up since October, 2022.

If you can time bond markets, why don't you become a bond trader and make at least a few billion?

Stocks (as measured by VWRA, in U.S. dollar terms) fell about 26%, but they did that in a tighter window: essentially December, 2021, to September, 2022. That's 10 months, and that's very brief (see below).

Which is predictably low yielding, of course.

If you can afford the typical S$250,000 face value minimum clip level, you could buy individual investment grade Singapore dollar denominated corporate bonds and hold them to maturity if you wish.

During drawdown at least the first portion of your once or twice yearly rebalancing exercise will be simply to draw income (for day-to-day living expenses) from the "high" part(s) of your investment portfolio. That's quite simple.

Retirement is a 40+ year period, for financial planning purposes anyway. A 22 month dip in the bond market need not be a material event within a 40+ year window.

if the yield of a bond etf and fixed deposit is narrow (eg less than 1%), I don't see why not giving up that yield at the risk of a >10% drawdown that could last for months.

good point on the individual investment grade corporate bonds to hold to maturity.

 

[BBCWatcher]

if the yield of a bond etf and fixed deposit is narrow (eg less than 1%), I don't see why not giving up that yield at the risk of a >10% drawdown that could last for months.

You could try to build a 40+ year retirement financial plan atop a collection of fixed deposits. It'll be expensive. Fixed deposits will probably pace inflation, on average.

Of course there's also the slight risk the Singapore dollar will lose its purchasing power in a more dramatic way at some point. And at least if you're exceeding SDIC coverage limits there's some risk there, too. (Nothing is risk free.)

good point on the individual investment grade corporate bonds to hold to maturity.

Only an observation.

 

[Shiny Things]

Both MBH and A35 suffered steep losses in 2022-2024 during interest rate hikes and I'm thinking if I can avoid repeating that when interest rates bottom eventually and can only go up. Alternatively is to sell and hold cash

Hold on, I want to make sure I'm not getting confused here. You're saying you want to flip to owning the short-end (less interest-rate-sensitive) when rates are low; and you want to own the long end (more interest-rate-sensitive) when rates are high, right?

[...]

Someone suggested a 100% Downside Protected Defined Outcome ETF. These funds also suffered losses during the recent market "liberation," but they recovered quickly, similar to stocks. A drawback is that these products lack a long history of returns to use as evidence, [...]

Yeah - the biggest drawback of these ETFs, even bigger than "they don't have a long return history", is that they do way worse than just buying the underlying stocks. (Also, they get marketed like fixed-income, which really grinds my gears! These aren't fixed-income investments! They're stocks, and they move like stocks!)

Nothing comes for free when it comes to downside protection. In the case of these buffered ETFs, you give up the dividends, and you give up A LOT of the upside returns. To pick an example, the most recent batch of Calamos 100%-downside-protected S&P 500 ETFs cap your returns at 6.5% - that's a pretty terrible trade when the S&P 500 itself has returned 15% plus dividends over the last year. (and on top of all that, you pay close to 0.8% a year in fees for the Calamos ETFs).

And edited to add: I want to stress the point that you don't get dividends. When people talk about bonds having "downside protection" if you hold them to maturity, they don't need to mention that bonds throw off dividends while you wait. These downside-protected ETFs don't give you the dividends that the underlying index would otherwise pay out - so your downside is capped at zero-zero, not just "zero but you get dividends too.

If folks want fixed-income, they should just buy bonds. If folks want stocks but with less risk, they should just buy less stocks!

 

[highsulphur]

Hold on, I want to make sure I'm not getting confused here. You're saying you want to flip to owning the short-end (less interest-rate-sensitive) when rates are low; and you want to own the long end (more interest-rate-sensitive) when rates are high, right?

Yes

 

[BBCWatcher]

If folks want fixed-income, they should just buy bonds. If folks want stocks but with less risk, they should just buy less stocks!

And if they want highly assured return of at least (nominal) Singapore dollar principal then choose Singapore Savings Bonds, bank fixed deposits (and higher interest ordinary accounts if they’re convenient) within SDIC limits, T-bills, and/or CPF savings. None of these (except CPF Special, Retirement, and MediSave Accounts) are long-term vehicles.

I think a lot of people try to chase higher yields but don’t understand (or don’t want to accept) that principal assurances aren’t free — the assurances worth anything. They’ve got to risk principal if they want to try for higher yields.

 

[bobobob]

Has anyone had any experience with buying a large amount (a few hundred thousand) of MBH? I'm wondering if it is as simple as queuing an order for the big amount and waiting for the money maker to see the big queue and offer the units. Will they put up the units? Will they jack up the price?

 

[highsulphur]

Has anyone had any experience with buying a large amount (a few hundred thousand) of MBH? I'm wondering if it is as simple as queuing an order for the big amount and waiting for the money maker to see the big queue and offer the units. Will they put up the units? Will they jack up the price?

The bid offer spread is very tight. Usually 0.002 with ~300k each side. You should be able to clear up to 500k with less than 0.004 slippage

 

[DevilPlate]

Mmm - I wouldn't. First thing to note is that NEAR owns USD bonds, so you've got USDSGD FX risk there.

More broadly, though: even if there were a SGD short-term bond ETF, MBH and A35 already own both long- and short-term bonds (just looking at MBH, for example, it owns everything from 2027s out to 2050s). I think they hold a pretty good mix of maturities already, so they're not particularly exposed to a curve flattening or steepening.

Hi how about Pimco income fund SGD hedged.
Their nett yield ~4% excluding capital

https://endowus.com/investment-funds-list/pimco-gis-income-fund-IE00BSTL7535#fundInformation
I already opened Endowus acct but haven’t acted upon it lol

 

[DevilPlate]

i am within 5 years of my targeted retirement age as well. Currently I am still comfortable with my equity allocation of 75%. Did feel slight stress with the drawdown in Apr/May but I felt i was managing it better than the 2022 drawdown. Perhaps physiologically i am getting better in managing it.

I don't watch my allocation precisely but i take your point I should do it better as I approach my targeted retirement age.

U guys can manage it mentality maybe because u still receive active income.

When rely totally on passive income/investments would be a different story liao imo.
Im gg through it currently lol.

 

[DevilPlate]

Has anyone had any experience with buying a large amount (a few hundred thousand) of MBH? I'm wondering if it is as simple as queuing an order for the big amount and waiting for the money maker to see the big queue and offer the units. Will they put up the units? Will they jack up the price?

I noticed it is easier to buy without queuing (tight bid spread) on ex-div date.
I added >100k+ with ease previously

 

[BBCWatcher]

Hi how about Pimco income fund SGD hedged.
Their nett yield ~4% excluding capital
I already opened Endowus acct but haven’t acted upon it lol

As far as I can tell it holds a lot of junk bonds (is that OK with you?), and the expense ratio is rather high (which nobody should like except the fund managers).

 

[DevilPlate]

As far as I can tell it holds a lot of junk bonds (is that OK with you?), and the expense ratio is rather high (which nobody should like except the fund managers).

https://endowus.com/investment-funds-list/pimco-gis-income-fund-IE00BSTL7535#fundInformation

Oh junk bonds?
Then endowus stated level 2 low risk

*After nett rebate is 0.55% fees + 0.3% endowus platform fee

 

[BBCWatcher]

https://endowus.com/investment-funds-list/pimco-gis-income-fund-IE00BSTL7535#fundInformation
Oh junk bonds?

It's hard to tell because you have to dig through the prospectus, and even then they don't give ratings or ISINs for each of their bond holdings. I notice the fund holds a lot of mortgage-based securities (mostly in the U.S.) which look like they help pull up the overall credit profile of the fund. However, I think it's fair to say that, if there's another GFC-style crisis, this fund would get hit pretty hard due to what looks like a heavy real estate skew. I would expect a bond index to be more balanced across sectors even if it's a junk bond index (or a whole bond market index).

I can't understand the section of the prospectus with the cumulative percentages per category. Those percentages add up to way more than 100%.

These are just my quick impressions glancing at the fund's disclosures.

Note a bond fund like this — and like some others — can experience losses in excess of 10% in one year. 2022, for example, was a bad year for bonds.

Then endowus stated level 2 low risk

That's a 6 point scale, though. But I think I might pick 3 even so.

*After nett rebate is 0.55% fees + 0.3% endowus platform fee

0.85% is fairly expensive.

 

[DevilPlate]

It's hard to tell because you have to dig through the prospectus, and even then they don't give ratings or ISINs for each of their bond holdings. I notice the fund holds a lot of mortgage-based securities (mostly in the U.S.) which look like they help pull up the overall credit profile of the fund. However, I think it's fair to say that, if there's another GFC-style crisis, this fund would get hit pretty hard due to what looks like a heavy real estate skew. I would expect a bond index to be more balanced across sectors even if it's a junk bond index (or a whole bond market index).

I can't understand the section of the prospectus with the cumulative percentages per category. Those percentages add up to way more than 100%.

These are just my quick impressions glancing at the fund's disclosures.

Note a bond fund like this — and like some others — can experience losses in excess of 10% in one year. 2022, for example, was a bad year for bonds.

That's a 6 point scale, though. But I think I might pick 3 even so.

0.85% is fairly expensive.

Any recommendations for HY bond fund (SGD hedged) >4%+
I don’t mind those that give higher payout like 6-7% which comprise of capital, as long overall nett yield >4%