Official Shiny Things thread—Part III

[TL4GG18]

This is to those saying that accumulating ETG dividend are lost when crash happens and I'll try to explain why it's not true. As an accumulating ETF, when dividend are paid, it is automatically reinvested into the ETF through new assets acquisition like buying more of the stocks in the ETF basket stock. If you keep track of the growth (asset appreciation + dividend yield), you will notice that the appreciation rate of accumulating ETF is much higher compared to the appreciation rate of distributing ETF. I.e. compare the growth rate of another distributing ETF that tracks the same index as IWDA, the growth of distributing is definitely lower than IWDA. Compare it with SWDA, distributing equivalent(but its traded in GBP)

That is because accumulating asset automatically reinvest your dividend, you own more and more stock over time.
For distributing ETF to have the same effect, you will have to redirect your dividend payout into more holdings of the same ETF to have the same effect as accumulating ETF.

So, no your dividend are not gone per say, your total equity just experience a -27% just like any other other equities.


Tldr: you accumulating ETF assets appreciate faster compared to distributing ETF but when financial crisis comes, both class will still experience the same downturn.

Acc/dis
100/100
Acc etf experience 30% price appreciation due to acc effect.
Dis only experience 10% over the same period of time.

So it becomes
Acc/dis
130/110

Financial crisis comes and both experience a 27% plunge.
Acc/dis
94.5/80.3

I'm not a good explainer and I'm typing all these on phone so pardon the quality of post. But i hope you get a clearer picture of what's going.

Got it! Thank you for explaining

 

[jacky817]

I wonder if Berkshire is jumping in right now. I think they had around 122B in cash laying around. Buffet said there wasn't any real value out there to spend it on. There has to be some value now or coming up soon.

When people say he's keeping billions in cash, what form does it take exactly? Literally USD in some bank acc? Or gold or money market fund or what? Just curious, and I'd think it's quite foolish to keep such a big amount in actual cash bah?

 

[Okenba]

This is to those saying that accumulating ETG dividend are lost when crash happens and I'll try to explain why it's not true. As an accumulating ETF, when dividend are paid, it is automatically reinvested into the ETF through new assets acquisition like buying more of the stocks in the ETF basket stock. If you keep track of the growth (asset appreciation + dividend yield), you will notice that the appreciation rate of accumulating ETF is much higher compared to the appreciation rate of distributing ETF. I.e. compare the growth rate of another distributing ETF that tracks the same index as IWDA, the growth of distributing is definitely lower than IWDA. Compare it with SWDA, distributing equivalent(but its traded in GBP)

That is because accumulating asset automatically reinvest your dividend, you own more and more stock over time.
For distributing ETF to have the same effect, you will have to redirect your dividend payout into more holdings of the same ETF to have the same effect as accumulating ETF.

So, no your dividend are not gone per say, your total equity just experience a -27% just like any other other equities.


Tldr: you accumulating ETF assets appreciate faster compared to distributing ETF but when financial crisis comes, both class will still experience the same downturn.

Acc/dis
100/100
Acc etf experience 30% price appreciation due to acc effect.
Dis only experience 10% over the same period of time.

So it becomes
Acc/dis
130/110

Financial crisis comes and both experience a 27% plunge.
Acc/dis
94.5/80.3

I'm not a good explainer and I'm typing all these on phone so pardon the quality of post. But i hope you get a clearer picture of what's going.

You are right in so far both accumulative and distributive ETFs rise and fall at the same rate. In fact, I would say accumulative is more efficient at this.

However, for a distributive ETF to be back at 2017 prices and a accumulative ETF to be back at 2017 prices mean very different things. It would mean that the accumulative has dropped more than the distributive.

 

[cassowary18]

Hi ST,

What's the most cost-effective way to convert USD into SGD? Sorry for the noob question but I'm so confused with the different rates offered. Plus, is there any insurance for USD deposited in SG banks?

Thanks as always!

1. IBKR if you have. Otherwise, Transferwise?
2. Foreign currency deposits are not covered under SDIC

 

[ftpofmpo]

sgd is falling and our deposits have fallen by more than 3% since start of year against the usd!!

 

[shallow]

You are right in so far both accumulative and distributive ETFs rise and fall at the same rate. In fact, I would say accumulative is more efficient at this.

However, for a distributive ETF to be back at 2017 prices and a accumulative ETF to be back at 2017 prices mean very different things. It would mean that the accumulative has dropped more than the distributive.

You forgot to account for their rate of price appreciation.
Take IWDA and URTH for example. Both tracks the same exact indices so it's an apple to apple co.parision

IWDA 5yr net return on price appreciation is +17% while URTH 5yr net return on appreciation is mere +0.88%.

Why is that the case? Because IWDA is a cumulative while URTH is distributive

 

[highsulphur]

sgd is falling and our deposits have fallen by more than 3% since start of year against the usd!!
any idea why a35 falls in a time of panic? there should be flight to safety instead

People could be liquidating their profitable positions like bonds and gold to fund equity purchases or margin calls

 

[888888888888]

mata MAS did some money market operations. kiasu first, then later is Fed again.

 

[Okenba]

You forgot to account for their rate of price appreciation.
Take IWDA and URTH for example. Both tracks the same exact indices so it's an apple to apple co.parision

IWDA 5yr net return on price appreciation is +17% while URTH 5yr net return on appreciation is mere +0.88%.

Why is that the case? Because IWDA is a cumulative while URTH is distributive

I don't think we are in disagreement actually. Perhaps I'm just not communicating very well. Shrug.

 

[comwhizcjscjs]

This is to those saying that accumulating ETG dividend are lost when crash happens and I'll try to explain why it's not true. As an accumulating ETF, when dividend are paid, it is automatically reinvested into the ETF through new assets acquisition like buying more of the stocks in the ETF basket stock. If you keep track of the growth (asset appreciation + dividend yield), you will notice that the appreciation rate of accumulating ETF is much higher compared to the appreciation rate of distributing ETF. I.e. compare the growth rate of another distributing ETF that tracks the same index as IWDA, the growth of distributing is definitely lower than IWDA. Compare it with SWDA, distributing equivalent(but its traded in GBP)

That is because accumulating asset automatically reinvest your dividend, you own more and more stock over time.
For distributing ETF to have the same effect, you will have to redirect your dividend payout into more holdings of the same ETF to have the same effect as accumulating ETF.

So, no your dividend are not gone per say, your total equity just experience a -27% just like any other other equities.


Tldr: you accumulating ETF assets appreciate faster compared to distributing ETF but when financial crisis comes, both class will still experience the same downturn.

Acc/dis
100/100
Acc etf experience 30% price appreciation due to acc effect.
Dis only experience 10% over the same period of time.

So it becomes
Acc/dis
130/110

Financial crisis comes and both experience a 27% plunge.
Acc/dis
94.5/80.3

I'm not a good explainer and I'm typing all these on phone so pardon the quality of post. But i hope you get a clearer picture of what's going.

But for a distributing ETF, you still have 20% of Dividends? Though need to account for inflation. 80.3 + 20 > 94.5

 

[Shine.gdj]

But for a distributing ETF, you still have 20% of Dividends? Though need to account for inflation. 80.3 + 20 > 94.5

Would it help if we rebalance the portfolio by selling off the Accumulating ETF when it rose to 130% such that the total value of our AC ETF holdings goes back to the equity/cash(or bond) ratio? The proceeds go into our war chest.
Then when the crisis happens, we would have more cash to buy the falling AC ETF.

 

[culepico]

Would it help if we rebalance the portfolio by selling off the Accumulating ETF when it rose to 130% such that the total value of our AC ETF holdings goes back to the equity/cash(or bond) ratio? The proceeds go into our war chest.
Then when the crisis happens, we would have more cash to buy the falling AC ETF.

This is considered sell high buy low and timing the market liao. It works for any kind of portfolio but based on the sentiments of the people here they will discourage that and continue to DCA, even though it's quite manageable to spot the highs and lows (take these few days as an example).

 

[crystalnox]

But for a distributing ETF, you still have 20% of Dividends? Though need to account for inflation. 80.3 + 20 > 94.5

Assuming the dividends were just kept in a zero interest bank account, whereas the accumulating "dividends" were growing at the same rate as the index, it might be more like +10-15 instead of +20.

Would it help if we rebalance the portfolio by selling off the Accumulating ETF when it rose to 130% such that the total value of our AC ETF holdings goes back to the equity/cash(or bond) ratio? The proceeds go into our war chest.
Then when the crisis happens, we would have more cash to buy the falling AC ETF.

In that case, just buy a distributing ETF like VWRD, no need pay the brokerage cost of selling stock.

Although usually over here we encourage people to reinvest their dividends since money spent on stocks are already supposed to be allocated for investing and you would want to maximise returns on that. If you want to keep a cash buffer/warchest, keep it in SSB/bonds as a separate allocation.

 

[shallow]

But for a distributing ETF, you still have 20% of Dividends? Though need to account for inflation. 80.3 + 20 > 94.5

No, my post was directed at people who said they have lost their gain and dividend due to the ongoing crash. That's why my numbers only reflect price appreciation to show that they did not lose their dividend due to this crash.

 

[ftpofmpo]

anyone knows why es3 is cheaper per share than g3b?

 

[shallow]

anyone knows why es3 is cheaper per share than g3b?

Just total Assets under management/total units
Eg es3 fund size is 300mil, outstanding units is 100mil, so price is 3
Both composition are pretty much the same less the 0.2% tracking error

 

[Shiny Things]

Firstly, stop responding to Swan02 and Purplestars. Swan is not interested in actually asking “which is better for a portfolio, A35 or MBH”; they’re just interested in starting a fight and throwing around inflammatory language.

And Purplestars used to be quite considerate and genuine, but they started a fight with me a few years back about high-yield bank accounts vs bonds, lost their temper and stormed off, and they’re still salty about it. Don’t give either of them any oxygen.

(Tangent, thanks for stepping in)

So let’s talk through a few things that have happened over the last few days.

Stocks are certainly down a hell of a lot. I put my money where my mouth is, in a mix of local and global ETFs, and my portfolio's taken a hit over the last week. That said:
1) I don't need the money right now. I'm not about to quit my job or retire, and I don't have any big purchases coming up;
2) I can still regularly invest, so I'm buying at much lower levels than I was three weeks ago.

And both of those things together mean that I'm kind of annoyed (losing money always hurts! anyone who says this doesn't hurt is either lying, or a robot); but I'm not worried.

---

And the US Fed announced a GARGANTUAN package of repos for banks. Now, let's be clear, this is not a bailout for the banks. What it is is the Fed making very short-term loans to banks (between one day and three months); and those loans are 100% secured by government bonds. Banks want more cash, so that they can keep making payments and offering loans and such. There's not enough cash going around the system, so the Fed is lending the banks some cash on very safe terms.

This is a big intervention, but it's not unusual. The US banking system is fine. (And Singapore's banking system is even stronger.)

I think investors have priced in democratic candidate winning in us and a possible capital gains tax rise, or a financial transaction tax

Err, mate, this is not right. The moves in the market over the last few days are being driven by forced selling and not a lot of buying (or vice-versa, sometimes it’s “forced buying and not a lot of selling”).

A good example is what’s going on in US government bond markets (“Treasuries”, colloquially). In Treasury and other bond markets, big asset managers and hedge funds do a lot of “relative value” trades - buying one bond and hedging it by selling another, much more liquid and actively-traded, bond. These positions are not very profitable by themselves, but when the hedge fund borrows on margin and levers them up a zillion times, they’re quite profitable.

The problem is, when markets are like they are now, people want to do the opposite: they want to sell the illiquid things and buy the liquid, “safe” things. That makes these trades increasingly unprofitable - and when you’re levered up a zillion times on margin, a very small unfavorable move in the price of the spread means that you get a tap on the shoulder from a very dour risk manager who tells you to close your position, NOW.

Multiply that across every hedge fund, and every asset class, and you get a lot of people being ordered to sell illiquid things, all at once.

Regarding the IBKR stock yield enhancement program, can't see a good reason not to enroll;
- stocks loaned are covered 102% by cash by IBKR so seems like no exposure to borrower?
- tax implications seem to be negligible for retail investors like me?
- all other risks seem to be between broker and IBKR?

Correct, correct, and correct.

Hi friends, can anyone help me out here? Am trying to buy CSPX from SCB. How did the Total fees accumulate to 81.62USD ah? Sorry, first time using SCB

SCB calculates the fees wrongly on UK-listed ETFs. The UK has a 0.5% stamp duty on stock purchases, but that doesn’t apply to ETFs; nevertheless, Stanchart shows stamp duty on ETF purchases after you complete the trade.

You’ll get the right number when the trade settles, though; there will be no stamp duty deducted.

I should really put this in the FAQs.

why does buffett split his s and p etf purchases between spdr and vanguard's?

Where’d you read this?

Ok so this is where I am getting confused. I suppose you have to change USD to GBP in order to buy CSPX or other ETFS listed in LSE.

Nope. CSPX, VWRA, VWRD, IWDA; these are all traded in dollars even though they’re listed in London.

mbh etf is a mistake, cuz fans of shiny made a35 liquidity even worse resulting in both etfs being sub par.

You made this up.

A35 owns nearly a billion dollars worth of assets, and the SGS bond market is many times bigger again. I’m flattered that you think I’ve been able to reach enough people to move a multi-billion-dollar market.

Iglo, idtl, ibtm, vdty are just some alternatives to counter these inefficiencies.

This is nonsense. At first you were saying that the point of bonds is to reduce volatility, so people should buy Singapore govvies; and then you point people to foreign-currency bond ETFs which:

• Have FX risk (all of them);
• Have very high volatility because of their long duration (IDTL)

And you say that A35 and MBH are “inefficient” because so many people are trying to buy them, but then you point to ETFs that are (with one exception, IGLO) smaller than A35!

I’m sorry to have to scold you like this, but you really do not know what you’re talking about, and you’re turning this thread into a cesspit. Go back to EDMW.

Is there a good Europe UCITS to consider buying ?

Firstly, you’re not buying a UCITS; “UCITS” is a term of art for European-domiciled funds that are under a particular regulatory regime. You want an ETF or a unit-trust.

Anyway, ISEU, listed in London, but I’m not sure why you’d want this instead of a more diversified fund.

But just thinking out loud, would it be better if one is to go full cash in situations like this? Take profit and wait it out instead.

I know people will say it's hindsight and all that but it is not hard to see the market dropping at some point with this virus thing going on, even before the actual drop.

The problem is that most people start having these conversations with themselves after the market’s already dropped. Look at now: three weeks ago everyone was bulled up and ready to get rich, but you posted this after the market had dropped 15%.

The question you need to ask yourself is “when am I going to get back in?”. Most people who run and hide don’t end up buying until after the market’s rebounded, and they’d end up having done better if they just stayed in the market, dollar-cost-averaged, and bought more on the lows.

(The other thing is that you don’t know whether any particular scare is going to turn into a huge scare like this. Remember the MERS scare in 2011? That was a huge scare and everyone ran and hid, and the market proceeded to make new high after new high.)

I was reading using this URL below that if I buy IWDA using SCB, it is 1% commission for every trade? i.e. a $2k usd buy will incur an additional fees of $20 usd?

I’m not sure where you see that? I’m seeing Stanchart’s usual commission rates: 0.2% with a $10 USD minimum, in the document you linked to.

i'm a bit confused with the preference on whether to use SCB or IB for buying IWDA (or foreign ETFs). background is i'm thinking of DCA with SGD1,500 monthly, rotating between the three ETFs in the 3-ETF portfolio each month.

At that size, you’re getting close to the line where it’s worth using IB instead of Stanchart.

The math is, VERY roughly (handwaving away a lot of things), that IB charges ten USD a month account maintenance fee on small accounts, but Stanchart charges an extra 0.5% whenever you trade (because of FX conversion costs) and has much higher brokerage costs.

If you’re buying $1500 of IWDA every three months, that’s $30 USD a quarter in minimum spend at IBKR, vs about $15 SGD a quarter in FX spread and $10 SGD in brokerage fees. (For anyone playing along at home: I’m using 1% for Stanchart’s FX spread, because you will eventually have to pay both sides of that spread.)

So at $1500 per month, and buying IWDA once every three months, it’s fractionally more expensive to use IBKR than Stanchart. But as soon as your monthly nut grows much bigger, IBKR will take the lead.

Today most of MBH trades have been "sell" trades at the market maker's low ball bid price of 1.038/9. The NAV of the ETF is quite high at 1.047. I wonder why so many people are selling, is it risk off or is it to buy stocks on the cheap?

That’s a good question. I don’t have any insight into MBH in particular, but the most likely reason is that people are panicking and indiscriminately selling anything they can get their hands on. This, incidentally, is a terrible idea.

MBH is kind of weird for a corporate bond etf cos it's full of govt agencies? HDB, LTA, PUB, Temasek. It seems closer to an aggregate bond like VAGU/AGGU.

Fair question. The definition of “what’s a government bond” varies a little by country. In general though, anything that’s not explicitly backed by the government counts as a “non-sovereign” bond, and Temasek/HDB/LTA etc etc are not explicitly government-backed.

10 year bull cycle is a self fulfilling prophecy.

I wanted to call this out because it seems like Peipei is scared and needs some reassurance. So let’s talk about some memes that pop up a lot among new investors, and why they’re wrong.

Firstly, back in 2018 we saw the myth of a “10 year bull cycle”. People remembered the 1998 Asia crisis, the 2008 GFC, and they saw a pattern. Turned out 2018 was a volatile but flattish year. But that was two years ago. There’s no “10 year bull cycle”.

Funds managers shorting to flush out weak hands and make a restart?

This is simply a conspiracy theory. Fund managers do not “short to flush out weak hands”. Most fund managers are banned from going short at all.

The last sentence I am curious! Why is it so? Sorry for the question ******************

The question was “why do some people keep huge war-chests”, and it’s a fair question. I'm going to deal with it specifically from the point of view of keeping a lot of cash; keeping a lot of bonds is different.

Some people keep a lot of cash because they're scared of being fully invested. This is understandable; the way to get used to it is to start small, and invest the war-chest over time.

Some people keep large war-chests because they think they're smarter than the market; they think they'll be able to buy lower than the price is now. This very rarely works. Most people are terrible traders, for one; and for two, it's a bet that the market will go down to the level where you've decided to buy. I know people who've been bearish since 2013. Those people are, how would you say, "wrong".

This fall is getting quite dramatic, the limit orders I’ve arbitrarily set at regular intervals till $48 IWDA to invest a certain lump sum have all been cleared.

Thumbs-up emoji! That’s a good strategy in a falling market when you have a war-chest to invest: set limit buy orders at prices where you’d be happy to buy, and then if you get filled… jackpot!

Question: Should I include SSB in my bond portfolio now and rebalance over the next few months? Or anyone in a similar situation? Any advice? Thanks!

I would. You’ve got a LOT of SSBs, and while they’re nice and safe, that’s not going to give you very much growth over the long term. What we’re seeing now is very much not the norm.

Shiny and Experts, is the NAV and hence the share price of IWDA real time reflective of the market value of its components…

Yes it is, though it’s worth noting that the NAV published on (say) iShares’ website is not what determines the price on the exchange.

The firms that market-make IWDA (or any other ETF) don’t go off the published NAV, because it’s too slow. Those firms have their own estimates of where the price of the component stocks are, and where the price of the ETF should be based on those estimates.

Let's say USD go up to 1.8 or 2.4 and keeps on increasing. Will it still be worthwhile to invest in USD denominated tickers when the rate falls back to say 1.3 in future? You might get in at lower price but suffer from FX ?

Fair question. As we’ve pointed out a lot of times before, FX doesn’t really matter for equities; you’re buying “things that happen to be denominated in USD”, not actual-USDs.

For fixed-income products (bonds, bond ETFs), this matters more. Owning a foreign-currency bond is effectively a bet on the FX rate, because the value of the repayment is fixed in the foreign currency. (And a bond ETF is just a pile of individual bonds, so it adds up to a pile of individual bets on the FX rate.)

To the gurus out there,

Anyone had performed cointegation test for iwda [snippety snip snip]
Wanted to take this opportunity to identify hedging strategies for iwda.

Thank you very much.

You’re thinking about this WAY too hard.

The easiest way to hedge something is to sell it.

Just wondering:

- Is NAV of IWDA deviating much more from current bid-ask price?

- Is current bid-ask price spread getting bigger because market maker not willing to buy/sell at tight bid-ask price?

Yes to both. This will all pass, though; spreads and tracking will go back to normal soon. It’s a rough period of time for investors and market makers.

Hi Shiny things.

Would u still recommend mixture of STI ETF, IWDA and A35 portfolio mixtures?

I’d pick MBH over A35, but otherwise that looks sensible.

Whats the pros and cons between A35 and MBH for bond segment in the portfolio?

Great question.

https://www.cnbc.com/2020/03/12/el-...t-from-high-as-world-goes-into-recession.html

Reading the above, "those who had just started" may not be good, better wait some time then start better

I have to strenuously disagree with this. Markets are off 20% or more from their all-time highs. Now is a *great* time to start investing.

Even people who started a few months ago are still fine. They’re going to be investing for decades to come; a few months’ worth of buying high isn’t going to hurt their average price.

Is it a good time to secure/accumulate some gold as well now?

There is no good time to buy gold. Gold is dumb. It has a negative yield, no inherent capital gains or interest… it’s a rock.

Gold is a terrible product that had one good run in the 2000s and has been trading off the back of that for years.

Dca index etf passively may no longer be a thing after this pans out. Every crisis brings a new perspective. What then is the next big investing strategy for the average person?

People said the same thing after 2008, and look how that turned out for them.

Peipei, I’m curious. You only ever seem to post pessimistic posts. Do you actually own any stocks or bonds?

Hi ST,

What's the most cost-effective way to convert USD into SGD? Sorry for the noob question but I'm so confused with the different rates offered. Plus, is there any insurance for USD deposited in SG banks?

Thanks as always!

Sure.

1. The absolute cheapest way is to open an Interactive Brokers account. You can deposit USD through a wire transfer; convert it to SGD with basically zero spread and a $2-ish fee; and then withdraw it to any bank in Singapore.
2. No.

With all that in mind, I just want to clarify: is there anything inherently wrong with my strategy of looking to mobilise more of my warchest into VWRA today when it's cheaper? Thanks all!

Not if it’s money you were going to use to invest anyway. Stuff’s on sale; why not take advantage of it?

anyone knows why es3 is cheaper per share than g3b?

There’s no rule that says index ETFs all have to have the same price. They all own the same basket of stocks, just that ES3 divides its basket of stocks into smaller parts.

When people say [Uncle Wozza’s] keeping billions in cash, what form does it take exactly? Literally USD in some bank acc? Or gold or money market fund or what? Just curious, and I'd think it's quite foolish to keep such a big amount in actual cash bah?

“Cash” is a term of art in investment-land. It doesn’t mean the folding paper stuff (or plastic stuff); it means deposits in a bank, money-market funds, or short-term low-risk bonds (usually US treasuries).

For something the size of Wozza’s pile ($120 billion or so), you’d keep most of it in money-market funds or short-term Treasuries.

Would it help if we rebalance the portfolio by selling off the Accumulating ETF when it rose to 130% such that the total value of our AC ETF holdings goes back to the equity/cash(or bond) ratio? The proceeds go into our war chest.
Then when the crisis happens, we would have more cash to buy the falling AC ETF.

This should happen automatically as part of your once- or twice-yearly rebalancing, whether you own an accumulating ETF or a dividend-paying ETF. I'm not sure what you're getting at.

 

[highsulphur]

Do we have to covert sgd into usd first before buying usd denominated shares like iwda on IB? can we buy first then convert later? I'm asking to see if it makes sense to put limit orders along the way down but not sure what's the sgd equivalent.

Also if the account is a margin account, can we buy first and then fund the account within the same day? Will interest be charged?

Will interest be charged if my net cash position is positive but I have long sgd and short usd cash position?

 

[flowerpalms]

Convert first. You have to buy iwda using usd

Do we have to covert sgd into usd first before buying usd denominated shares like iwda on IB? can we buy first then convert later? I'm asking to see if it makes sense to put limit orders along the way down but not sure what's the sgd equivalent.

Also if the account is a margin account, can we buy first and then fund the account within the same day? Will interest be charged?

Will interest be charged if my net cash position is positive but I have long sgd and short usd cash position?

 

[highsulphur]

Convert first. You have to buy iwda using usd

I have a margin account.