Official Shiny Things thread—Part III

[swan02]

Just to check: The annualized rate of return of MBH is 2% p.a. ?

So as an extension to your investment strategy if one could find a "safe" investment that could provide a higher or similar rate of return as MBH, one could invest 100% into that "safe" investment rather than into MBH (to become fully invested)?

1. YTM for July should be out soon. So for now can only estimate 2 percent given the price rise over July. Could be more..

2. my understanding of YTM assumes all bonds matures and it estimates it’s IRR.

But The actual annualized rate of return can actually be different as the future cannot be foreseen.

3. What is safe and what do u base on ? Standard deviation ? If so, I don’t know it’s standard deviation. Since it correlates 0.29 to local equities, and with a short duration and bundled nicely with equity and bond risk characteristics should give it pretty good risk adjusted rate of return.

I can only guess it has a standard deviation of approx 5 percent ? U can even mix it with pure cash to bring its risk down after all cash is still a fixed income with zero duration. A 10 year duration treasury has a std of about 5.6 percent.

4. I don’t think u can find any product in the market in the scope of lower risk that has a better risk adjusted return than MBH. That’s because it has equity risk bundled.

5. So not only must u find out competing products STD. But u also must calculate the risk adjusted returns. I for one do not have the resource to do so.

 

[Han Shot First]

3. What is safe and what do u base on ? Standard deviation ? If so, I don’t know it’s standard deviation. Since it correlates 0.29 to local equities, and with a short duration and bundled nicely with equity and bond risk characteristics should give it pretty good risk adjusted rate of return.

I can only guess it has a standard deviation of approx 5 percent ? U can even mix it with pure cash to bring its risk down after all cash is still a fixed income with zero duration. A 10 year duration treasury has a std of about 5.6 percent.

4. I don’t think u can find any product in the market in the scope of lower risk that has a better risk adjusted return than MBH. That’s because it has equity risk bundled.

5. So not only must u find out competing products STD. But u also must calculate the risk adjusted returns. I for one do not have the resource to do so.

I was thinking, instead of using the (100%) MBH in your investment strategy, could one substitute MBH (a Singapore bond ETF) with a Singapore bond unit trust?

Some advantages of a bond unit trust include:
1. Zero transaction costs (when buying and selling) unlike a bond ETF
2. The price is the NAV i.e. the bid-ask spread is zero unlike a non-zero spread for a bond ETF

 

[swan02]

1. I would assume if a bond unit trust has similar characteristics of risk and return, it would entail a higher mgmt fee. I could be wrong. Not an expert.

2. Transaction cost would be minimal especially if u r using fsmone silver and above privilege.

3. NAV ? It easy to buy and sell near NAV. It’s just a tick, don’t be a prick as shiny says to try to save that tick. Lol

4. Overall cost I would assume would still be over MBH. At least logic tells me

I was thinking, instead of using the (100%) MBH in your investment strategy, could one substitute MBH (a Singapore bond ETF) with a Singapore bond unit trust?

Some advantages of a bond unit trust include:
1. Zero transaction costs (when buying and selling) unlike a bond ETF
2. The price is the NAV i.e. the bid-ask spread is zero unlike a non-zero spread for a bond ETF

 

[Supplement Facts]

ST, BBCW -- any thoughts on ESGB and WCLD?

 

[cassowary18]

I was thinking, instead of using the (100%) MBH in your investment strategy, could one substitute MBH (a Singapore bond ETF) with a Singapore bond unit trust?

Some advantages of a bond unit trust include:
1. Zero transaction costs (when buying and selling) unlike a bond ETF
2. The price is the NAV i.e. the bid-ask spread is zero unlike a non-zero spread for a bond ETF

If someone comes up with a passively managed bond UT, why not? I'd buy it. If a passively managed STI UT came around I'd buy it too.

 

[swan02]

Anyone, IMEU or ISF etf for Europe ? Or any suggestions ?

Thanks

 

[Shiny Things]

Just to check: The annualized rate of return of MBH is 2% p.a. ?

The yield-to-maturity is about 2.4% right now, which includes dividends (coupons from the underlying bonds) and capital gains/losses as the bonds in the portfolio converge to their maturity value of 100 cents on the dollar.

The issue is that I may not want to buy anymore tech if I continue to buy IWDA. Although IWDA is already pretty decent with only 20 percent in tech. I aim for the old economy stocks.

1. I would prefer an s&P 500 NON TECH value stocks etf where I can buy up financials, macdonalds, caterpillar INC etc
2. However, I wouldn't mind also global since europe has nice cheap financials and many more too
3. Prefer Large cap only but a mixture is still find with me.

Ahh. So you're specifically looking for ex-tech, rather than "value" (believe it or not, there are value tech stocks! The top-ten-holdings list for Schwab's US large-cap value ETF includes INTC and CSCO, and 12% of the fund is in tech).

Anyway, IWVL exists, and seems like it fits what you need. It's an MSCI World value-factor ETF. It owns a chunk of MU, which, hoooo boy that's been a value trap for noob investors for years, but it seems pretty sane.

Hi guys, I know you guys advocate Ireland-domciled funds, just wanted to ask if you guys knew about this 8 year deemed disposal tax? apparently it taxes 41% of your profits? Would like to ask any of the masters here to please enlighten me on this haha.

The "deemed disposal rule" only applies to Irish tax residents. It doesn't apply to any of us on here (I'm assuming none of us live in Ireland's fair green fields).

1. I would assume if a bond unit trust has similar characteristics of risk and return, it would entail a higher mgmt fee. I could be wrong. Not an expert.

The rule is generally that ETFs run cheaper than unit trusts, yeah.

ST, BBCW -- any thoughts on ESGB and WCLD?

You've missed the boat on both of these themes; the time to buy stay-at-home-focused and cloud-computing-focused stocks was before everyone started staying at home and playing Animal Crossing all day, not four months later.

(On a totally unrelated note, does anyone have the DIY recipe for a cutting board? I'm trying to finish my ironwood kitchen, but none of my villagers will give me the cutting-board recipe!)

Anyone, IMEU or ISF etf for Europe ? Or any suggestions ?

Thanks

Both of them are perfectly good if that's the exposure you're after (EU equities for IMEU, and UK equities for ISF).

Possibly controversial suggestion if you're feeling ambitious... since you have a fairly precise set of requirements and you're jumping through a lot of hoops to put them together, if your account is big enough for portfolio margin, it might be more cost-effective for you to buy an MSCI World ETF and then short some XLK to strip out the tech exposure. That might be a bit easier than assembling a whole world of individual ETFs.

 

[swan02]

@Shiny. shorting is an excellent idea. Will look into it.

@anyone.
Likely to go and live in Aus to live for 5 years N then return , two years from now. Also will buy a property in Aus.

Pertaining to needing currency AUD in a few years and many more years due to refreshing my PR. Would u in a space of a month
1. buy aussie bonds since buying bonds is also a bet on its currency
2. Buy gold since it approx 80 percent correlated to AUD.
3. Buy AUD dollars.
4. Buy IGLO or CORP
5. increase weightage to equities Buffered with more iglo, mbh, gold etc.. since AUD has characteristics of risk on and gold like except recently aud seem to play like a safe haven toppling the USD hence weakening my largely sgd stockpile . Although weak usd will boost their stocks unless the run becomes an exodus affecting iwda etc .. time to boost eimi and Europe ?

6. Add more exposure to Aus equities ?

IMO. Since I see all the above as currencies. I’m leaning towards point 5. Allowing me some diversification to SGD as my life will revolve between sg and aus for a long time.

Thanks

 

[BBCWatcher]

Allowing me some diversification to SGD as my life will revolve between sg and aus for a long time.

How long? For example, do you expect you'll essentially have a bi-national retirement?

 

[swan02]

Yes till I die.

How long? For example, do you expect you'll essentially have a bi-national retirement?

 

[BBCWatcher]

Yes till I die.

OK, so let's assume a typical/classic age 65 retirement age ("target" age), that you're 10+ years away from that age, and you've decided to split your long-term investments along two dimensions: stocks at 80% versus bonds at 20%, and global at 60% versus "local" at 40%. OK then, no problem. Then you'd end up with a "5 fund portfolio" with these desired allocations:

10% MBH
10% investment grade Australian dollar bond index fund
10% ES3 or G3B
10% ASX100 or ASX200 stock index fund
60% VWRA or IWDA or LCWD

That's one variation, anyway. I'm not sure whether the non-Australian funds (MBH, ES3/G3B, VWRA/IWDA/LCWD) are problematic from an Australian tax point of view, but obviously that's something to check.

 

[swan02]

ic. Actually If u recall I’m already retired. You have picked the equity bond strategy.
The allocation sums up nicely for my long term retirement however..

I forgot to underline that I’ll be needing the funds to purchase a property in two years in aud, hence I need to buy assets since I’m in sgd, to ensure I do not screw up when by bad luck aud/sgd runs up 30 percent and I’ll be in trouble when I can’t buy my desired house of abode.

No prob with aussie taxes. I know how to deal with it.

So again which option would u pick for money needed in 2 years ?

I personally think knowing that aud/sgd can be volatile, a 25 percent min equity is needed to a max 50 percent even though the time frame is short. wouldn’t u pick a global bond for simplicity since I read u seem to support Corp or iglo for an international person ?

OK, so let's assume a typical/classic age 65 retirement age ("target" age), that you're 10+ years away from that age, and you've decided to split your long-term investments along two dimensions: stocks at 80% versus bonds at 20%, and global at 60% versus "local" at 40%. OK then, no problem. Then you'd end up with a "5 fund portfolio" with these desired allocations:

10% MBH
10% investment grade Australian dollar bond index fund
10% ES3 or G3B
10% ASX100 or ASX200 stock index fund
60% VWRA or IWDA or LCWD

That's one variation, anyway. I'm not sure whether the non-Australian funds (MBH, ES3/G3B, VWRA/IWDA/LCWD) are problematic from an Australian tax point of view, but obviously that's something to check.

 

[BBCWatcher]

I forgot to underline that I’ll be needing the funds to purchase a property in two years in aud, hence I need to buy assets since I’m in sgd, to ensure I do not screw up when by bad luck aud/sgd runs up 30 percent and I’ll be in trouble when I can’t buy my desired house of abode.

OK, so let's suppose you have A$50,000 already and want to end up with A$200,000 more in 2 years. It currently takes roughly S$0.99 to buy A$1, i.e. they're roughly at par. Let's pad that exchange rate by about 10% for safety, i.e. let's assume it takes S$1.10 to buy A$1. So, starting now, convert S$9,167 per month into Australian dollars if I did my math correctly. (I'm assuming you have a low cost way to do that, such as via Interactive Brokers.) When you get to A$200,000, stop, but the basic principle is that you'll be Singapore dollar cost averaging your currency repositioning over the 24 months. The Australian dollar is just as likely to weaken as it is to strengthen relative to the Singapore dollar -- you just don't know -- so this seems like a reasonable way to converge on your desired target. Adjust the numbers to suit your target, of course. And (of course) you'll want the Australian dollar cash that streams in to earn whatever interest rate it can earn over the next couple years in some relatively safe or safer vehicle.

If you want to get fancier about it you could hedge currency risk using the foreign exchange options market. But that's probably getting too fancy.

 

[swan02]

I actually have the funds already. I just don’t like holding on to Aud.

I think U r driving towards actually buying aud and then invest in the bonds since I’ll be needing the funds in 2 years, rather than perhaps a low equity global portfolio ?

OK, so let's suppose you have A$50,000 already and want to end up with A$200,000 more in 2 years. It currently takes roughly S$0.99 to buy A$1, i.e. they're roughly at par. Let's pad that exchange rate by about 10% for safety, i.e. let's assume it takes S$1.10 to buy A$1. So, starting now, convert S$9,167 per month into Australian dollars if I did my math correctly. (I'm assuming you have a low cost way to do that, such as via Interactive Brokers.) When you get to A$200,000, stop, but the basic principle is that you'll be Singapore dollar cost averaging your currency repositioning over the 24 months. The Australian dollar is just as likely to weaken as it is to strengthen relative to the Singapore dollar -- you just don't know -- so this seems like a reasonable way to converge on your desired target. Adjust the numbers to suit your target, of course. And (of course) you'll want the Australian dollar cash that streams in to earn whatever interest rate it can earn over the next couple years in some relatively safe or safer vehicle.

If you want to get fancier about it you could hedge currency risk using the foreign exchange options market. But that's probably getting too fancy.

 

[BBCWatcher]

I actually have the funds already. I just don’t like holding on to Aud.

But does it really matter if you're going to spend the Australian dollars, in more or less a fixed quantity, 2 years from now? The other choice is, fundamentally, playing with currency futures.

I suppose, sure, if you're firmly convinced that the Australian dollar will depreciate then why not grab that lottery ticket, so to speak, but I don't know why you would have that sort of confident and particular insight.

I think U r driving towards actually buying aud and then invest in the bonds since I’ll be needing the funds in 2 years, rather than perhaps a low equity global portfolio ?

Well, you'd certainly allow those Australian dollars you're going to spend relatively soon to earn at least bank interest in the meantime. A 2 year time horizon isn't particularly long, so just pick something reasonable. It could even be a 24 month fixed deposit if it's decent enough. Where are the Australian dollars parked today?

 

[swan02]

No AUD at the moment. Therefore thinking what to do which has to be done soon. Worst also what if i end up not buying a house In 2 years but in 5 years or longer ?.

I’m most afraid of AUD strengthening a lot against SGD like it did a while back after the GFC.

Hence I was thinking what would be the best course since In 2 years time, a large expense Aus house might not ensue and can drag to 5 years exposing to opportunity cost.

Aud currency embodies high volatility. I tot keeping a global equity and bonds as safe as asset allocation would be a smarter thing to do due to the uncertain nature in 2 years. looks like not everyone share this thought hence I’m back to rethink.. might actually lump sum let say 50 percent and rest avg
Buy the currency over two years. Fixed deposit are literally zero int unless kept in Australia or buy a short duration etf such as AAA etf.

But does it really matter if you're going to spend the Australian dollars, in more or less a fixed quantity, 2 years from now? The other choice is, fundamentally, playing with currency futures.

I suppose, sure, if you're firmly convinced that the Australian dollar will depreciate then why not grab that lottery ticket, so to speak, but I don't know why you would have that sort of confident and particular insight.


Well, you'd certainly allow those Australian dollars you're going to spend relatively soon to earn at least bank interest in the meantime. A 2 year time horizon isn't particularly long, so just pick something reasonable. It could even be a 24 month fixed deposit if it's decent enough. Where are the Australian dollars parked today?

 

[BBCWatcher]

I actually have the funds already. I just don’t like holding on to Aud....

No AUD at the moment. Therefore thinking what to do which has to be done soon. Worst also what if i end up not buying a house In 2 years but in 5 years or longer ?.

OK, now I understand (I think). If you're reasonably highly confident that you're going to buy a home in 2 to 5 years, that's fine. You could start a ~3 year Singapore dollar cost averaged currency switch. It really doesn't matter that the price of Swiss watches in Basel, in Swiss francs, wobbles in Australian dollar terms. If you're planning to buy something with Australian dollars that's reasonably stable in Australian dollar terms, no problem. Singapore dollar cost averaging (if that's the currency you're starting with) means you're getting at least a decent exchange rate, and that'll do.

I’m most afraid of AUD strengthening a lot against SGD like it did a while back after the GFC.

OK. So the other major possibility is to engage in some currency hedging using the currency futures market. That's not free, but it's easy to do.

 

[widishi]

GIC 2019/2020 report:

Read GIC report 2019/2020, and thought there were some interesting points to share. In fact, a few points that made me worried, so I felt compelled to ask the wisdom of the forum, (or well... BBCwatcher and ShinyThings really).

gic.com.sg/news-and-resources/a-changing-global-investment-environment

Their point:
Post-covid, governments worldwide lose the ability to raise interest rate as a lever to control inflation (as governments and companies load up on debt right now to ride out COVID). This might lead to governments turning to bonds purchases as a mechanism to reduce money supply to control inflation.

The report sees the risk of:
1) Bonds and equity to positively corelate. (I don't fully understand why though, can anyone enlighten)
2) Devaluation of currencies, as there is a flight from currencies to bonds.

So the question is : IF this plays out, what is the impact on this on Singapore government bonds, or the ABF bond fund?

Bearing in mind that Singapore managed to pay its COVID relief with reserves, not debt. Plus we don't use interest rates to control inflation.

In the end, Im not too concerned with this as even they see this a medium-term risk, while my investment horizon is long.




But speaking on long-term..... I then stumbled on GIC's 2015/2016 report, that they predict low returns over the next 10-20 years. In fact, they state a 65%-35% stock/bond global portfolio to have a long term 10-20 year nominal return of 3-4% and a real return of 1-2% (!!!!!), when interest rates recover.

Generally they say it's because of CAPE overvaluations, weak business fundamentals, compounded by a pull back from globalisation.


GIC believes a bright spot is in Asia (even sustainability investing) where regonalisation/globalisation is still strong....


So on this point, might a global portfolio expose us to a risk of sustained poor future growth prospects? Obviously, I am concerned because 20 years is within my investment horizon.

Somehow, COVID has given us some respite (?!?) from interest rate increases and a crazy market almost returning to post-crash highs.

So.. I know this might sound stupid, but would it be a good idea to liquidate some DM and overweight EM more, like 20-30%?

Or a less controversial move is : perhaps invest in VWRA and if EM increases, trust FTSE to weight EM heavier (IF it gets bigger in global share of market cap, and continue to periodically invest to ride it up?)

This is because personally I dislike the idea of manually weighting 12% into EIMI, as it means I need to keep tracking how MSCI weights the world index.






Sorry for so many questions! And it's a bit rambly.

 

[moolala]

better yet, ST, could you advise how to invest in light of this GIC report which makes alot of sense, especially with the fed in BRRR mode?

I think a rise in interest rates would be announced in advance to manage market expectations and to do so gradually

 

[swan02]

Well let my meager knowledge answer the question. I might get it wrong,

1. Well you should know by now interest rate decrease will result in basically all major assets to rise. The effect is also the same when you increase money supply. Some of this money needs to go somewhere and it goes into whatever assets such as stocks, bonds, real estate, gold etc etc. Hence the positive correlation. Vice versa as well

2. Holding on to bonds is basically a currency play. Hence if USD depreciates, likely SGD also depreciates as its a basket of currency with lots of USD. Naturally the govt can control its strength using bands. So if SGD is expected to depreciate you should instantly find bond prices to drop, as money moves to buy up equities or run away to another currency as the holder is scared.

However, if currency depreciation is due to deflationary, hence it is akin to interest rate dropping, hence bond value will recover until inflation is expected hence expected yield will rise causing bonds to fall in value.

3.higher valuations lead to poor long term returns, this where cape is good at predicting. It is just not good at telling u when to enter or exit.

4. However, do remember we still need to invest during high valuations because you still need to beat the returns of cash. With a longer time frame and DCA, you substantially reduce the probability of screwing up vs cash, hence netting you a higher ending portfolio value.

5. Remember its only TECH stocks that are crazily high !! there are a ton of non tech stocks that are still cheap. IWDA isnt too bad with tech, but i can argue it to be quite high in tech as tech crash can really magnify its downward spiral. The old economy stocks are still reasonable and there might be a rotation from tech to cyclical or value assuming tech does not crash. I personally wouldnt want to expose myself too much to tech hence looking into other regions.

6. Emerging markets ?....I'm always wary over it as their risk return reward is just terrible. However, having some isn't too bad as it provides diversification. Why emerging markets sucks ?, one of the reasons I hate is that when it screws up, it hits both the stock and its country of origin currency as well as I believe every stock still have inherent FX risk embodied. Thus you can a double whammy if currency depreciation does not support the stock price but lead to a lose of confidence and all hell breaks lose. However I do agree that emerging markets tend to do well in an environment where USD is expected to depreciate and the USA market is no more good to buy. Thus you get the benefit of risk on price rise as well as the currency boost of these emerging markets.

7. Lastly, in a high cape environment, portfolios that thrive on high cape such as "permanent portfolio" or All weather portfolio. Of cuz they suck when the inverse happens. So instead of trying to buy europe or emerging markets , you can perhaps do an all weather ?

Read GIC report 2019/2020, and thought there were some interesting points to share. In fact, a few points that made me worried, so I felt compelled to ask the wisdom of the forum, (or well... BBCwatcher and ShinyThings really).

gic.com.sg/news-and-resources/a-changing-global-investment-environment