Official Shiny Things thread—Part III

[Shiny Things]

MBH is corporate bond? I think there is another bond that is ABF right? Why recommend mbh over abf?

And also your 3 fund portfolio. How should the proportion of each be ?

Yep, great question. ABF owns Singapore government bonds; MBH owns the bonds of highly-rated GLCs and corporates (LTA, HDB, Temasek; and the banks, Capitaland, etc etc).

The difference is in long-term returns. Corporate bonds have a slightly higher risk of one of the companies in the portfolio deciding not to repay its debt; but this is vanishingly rare, and you get about an extra 1% p.a. interest in return for that. I think, and long-term performance has shown, that corporate bonds do better in the long run than ultra-conservative government bonds.

For the proportion of each fund in a 3-fund portfolio, my rule of thumb is :

* 110 minus your age in equities; split this 50-50 between a local-stocks fund (like ES3) and a global-stocks fund (like IWDA); and,
* The rest in local bonds (like MBH).

 

[flowerpalms]

Thanks Shiny, am still in the right direction. Rebalancing this month May

 

[13luetooth]

Hi ST,

I understand that you advocate passive investing instead of timing the market.

However, may I know what is your take in saving up for a war chest to be ready for averaging down the ETFs when market goes bearish?

 

[BBCWatcher]

If you want to get long oil "for the long term", with minimum exposure to rolldown, minimum tax, minimum expense ratios, buy the futures.

Dec22 CL is 4 cents wide right now, and you can trade it at IBKR to your heart's content for 85 cents per contract per side, with zero withholding tax, zero cap gains tax, zero roll cost, zero expense ratio.

I agree you shouldn't do this. However, if you insist, here are a couple more caveats:

1. Avoid holding a WTI futures contract in the closing month. Get out well before then, or better yet use Brent and still get out well before then.

2. Watch out for thin markets and trading against yourself.

Another play on oil for non-U.S. persons is IUES, the Irish domiciled ETF listed/traded on the London Stock Exchange. IUES invests in the oil and gas stocks within the U.S. S&P 500. It's a somewhat different, "softer" play since many of these companies are vertically integrated, and as Shiny Things points out there's a little bit of dividend tax that the fund pays. However, there is that little bit of tax because lots of these stocks pay dividends (that accumulate in the fund), which is not the case with oil futures.

 

[swan02]

Don’t listen to Shiny when he recommends MBH. HE does not have the evidence MBH or investment grade corporate bonds is superior over safe haven govt bonds when they are combined with equity as a portfolio with REBALANCING practiced. A35 is largely safe haven Singapore govt bonds.

1. MBH does provide better returns over A35 over LONG TERM only as a standalone BUT
2. when A35 is combined with equity and you practice REBALANCING, RESEARCH backs that long term returns of equity and A35 DOES NOT defer to a equity n MBH portfolio.
3. BUT with A35, you get the buffer you need which is much more SUPERIOR to MBH in a crash. The evidence is clear as crystal, u just need to look at their performance in the recent rout. The reason u need bonds is for this very reason of countering the emotional gloom you feel in a crash and hopefully counter the mistakes you will make.
4. And as someone pointed out, A35 is more liquid. I can vouch for this as I used to own both, a lot !
5. if you discount the dangers of emotions and only care of long term returns., then don’t bother about this 110-age for the amount of bonds to hold. Just keep your equity very high of at least 80 percent with a time frame of 20 years or more.
6. If u want better long term returns, simply increase your equity exposure not the bonds. Bonds are there as a diversifier and should have as low as correlation preferably negative to equity, it is there to manage your emotions. MBH or investment grade corporate bonds has a higher correlation to equity than A35. Just look at the recent rout.
7. Lastly, in huge crashes like recent and in 2008...bonds gold whatever are pretty useless In managing emotions as they crash with equity. I now appreciate why Warren Buffett keeps so much cash.

MBH is corporate bond? I think there is another bond that is ABF right? Why recommend mbh over abf?

And also your 3 fund portfolio. How should the proportion of each be ?

 

[FrostWurm]

Don’t listen to Shiny when he recommends MBH. HE does not have the evidence MBH or investment grade corporate bonds is superior over safe haven govt bonds when they are combined with equity as a portfolio with REBALANCING practiced. A35 is largely safe haven Singapore govt bonds.

Please la, the fixed income portfolio is a spectrum. It is up to the individual investor to decide what his risk appetite for the bond portfolio is.

Is A35 "safer" than MBH? Yes.

Does MBH generally have "higher returns" than A35? Yes.

The question is obviously then one of magnitude. How much incremental risk are we taking for the incremental return? ST's conclusion is that it is reasonable for the average investor to take that extra bit of risk.

Of course, you are free to disagree with him, as you clearly have done so here, but that does not mean his approach is wrong or unsound. He is certainly not recommending high-yield bonds for the bond portfolio. He is also not recommending exotic catastrophe bonds either (which incidentally have zero correlation with the equity markets).

If you would like to know the components of MBH, here is the link:

https://www.nikkoam.com.sg/files/documents/funds/fact_sheet/sgd_ig_corp_bd_etf_fs.pdf

More than a quarter of the holdings are sovereigns. More than a quarter happen to be our local banks. Perhaps some components here you highly disagree with, such as airlines and REITs. If that is the case, it is simply for you to make your own judgment and invest in A35 or even just SSBs and cash.

MBH, while of higher risk, is not a wild or unreasonable choice for the bond portfolio.

 

[swan02]

It’s not about disagree or not. It’s about misinformation he spouts.

Investment grade bonds combined with equity and REBALANCED, DOES NOT provide better risk adjusted returns neither absolute returns to a equity and safe haven bond portfolio rebalanced and it is BACKED UP by research

Do note again it’s misleading because his strategy uses REBALANCING with equity and also 110-age along advocating with bonds being a BALAST for crashes.

Do I have to keep repeating REBALANCING And as part of PORTFOLIO !!

Research exists to debunk such foolish attempts

U say to take a little extra risk ? It’s not a little! I own **** loads of MBH.. it’s NOT little risk. I know how it went.

Please la, the fixed income portfolio is a spectrum. It is up to the individual investor to decide what his risk appetite for the bond portfolio is.

Is A35 "safer" than MBH? Yes.

Does MBH generally have "higher returns" than A35? Yes.

The question is obviously then one of magnitude. How much incremental risk are we taking for the incremental return? ST's conclusion is that it is reasonable for the average investor to take that extra bit of risk.

Of course, you are free to disagree with him, as you clearly have done so here, but that does not mean his approach is wrong or unsound. He is certainly not recommending high-yield bonds for the bond portfolio. He is also not recommending exotic catastrophe bonds either (which incidentally have zero correlation with the equity markets).

If you would like to know the components of MBH, here is the link:

https://www.nikkoam.com.sg/files/documents/funds/fact_sheet/sgd_ig_corp_bd_etf_fs.pdf

More than a quarter of the holdings are sovereigns. More than a quarter happen to be our local banks. Perhaps some components here you highly disagree with, such as airlines and RE

 

[FrostWurm]

It’s not about disagree or not. It’s about misinformation he spouts.

Investment grade bonds combined with equity and REBALANCED, DOES NOT provide better risk adjusted returns neither absolute returns to a equity and safe haven bond portfolio rebalanced and it is BACKED UP by research

Do note again it’s misleading because his strategy uses REBALANCING with equity and also 110-age along advocating with bonds being a BALAST for crashes.

Do I have to keep repeating REBALANCING And as part of PORTFOLIO !!

Research exists to debunk such foolish attempts

U say to take a little extra risk ? It’s not a little! I own **** loads of MBH.. it’s NOT little risk. I know how it went.

Sounds like you lost a lot of money and you are going crazy. Perhaps you need to see a doctor.

If you want to argue, argue coherently and with statistics and evidence

 

[kennycancan]

hi do you have the link for that spreadsheet? or rough month of post? so i can refine the search.

There you go. https://docs.google.com/spreadsheets/d/1BqIhbYNJF7VJbtj6PS08Csbyx1s4vs_03Kvh0pPRUCI/edit#gid=0

 

[Shiny Things]

U say to take a little extra risk ? It’s not a little! I own **** loads of MBH.. it’s NOT little risk. I know how it went.

MBH is flat year-to-date. It closed on Jan 2nd at 1.029; it closed yesterday at... wait for it... 1.029.

You said a few months ago you were just in this thread to start fights. You literally haven’t posted anywhere other than my threads in two years, which is bordering on creepy. You aren’t welcome here. Go away.

—-

Edit: I was going to be rude and say “switch to decaf”, because your post was exceptionally punchy and I’m two drinks deep right now. (White Claws, if you’re wondering, which I have decided are vodka-sodas for people whose masculinity would be threatened by ordering a vodka-soda.) Also, I’ve decided I have a policy of not engaging with people who come in here and call me names. What is it with some people that makes them completely lose their damn minds on the internet?

But if you do own a lump of MBH, and you’re comparing it to A35, you might well ask “why wouldn’t I want to own the thing that goes up in a crash?”.

The reason is that govvy bonds only work well in the crash, and to your point about rebalancing, that only helps if you rebalance right in the middle of the crash. So if you’re using a simple time-based rebalancing rule, you wouldn’t see much (if any) effect, and for the time between crashes you’re giving up all the credit risk premium.

This is the fallacy that leads people to invest in dumb sh*t like tail-risk funds... they outperform for two months out of every ten years, like now, but for the other 118 months they underperform and you’re left wondering “why did I buy this thing again?”.

I did a quick test of this to check my intuition. Let’s say you’ve got a 60/40 portfolio, and you’re wondering about the performance delta between IG bonds and govvies. And let’s say the IG risk premium is 70bps, which is about the median of the last couple decades. If you swap the 40%-bonds lump from govvies to IG corps, then if my hypothesis is right you should expect a pickup in returns of about 0.7% * 40%... call it 0.3%.

Anyway I bunged this into Portfolio Visualiser, and used US corps vs intermediate-term Treasuries for the bond legs. (You’ve gotta be careful here to duration-match the two bond portfolios, otherwise you’ll be measuring term premium instead of credit risk premium and it’ll screw up your results.)

Invest $10k/yr, rebalance annually, and... the corporate-bond 60/40 outperforms the govvy-bond 60/40 by about 0.25% a year. Which is pretty much bang on what you’d expect.

Anyway.

Switch to decaf.

 

[3sniper]

I agree you shouldn't do this. However, if you insist, here are a couple more caveats:

1. Avoid holding a WTI futures contract in the closing month. Get out well before then, or better yet use Brent and still get out well before then.

2. Watch out for thin markets and trading against yourself.

Another play on oil for non-U.S. persons is IUES, the Irish domiciled ETF listed/traded on the London Stock Exchange. IUES invests in the oil and gas stocks within the U.S. S&P 500. It's a somewhat different, "softer" play since many of these companies are vertically integrated, and as Shiny Things points out there's a little bit of dividend tax that the fund pays. However, there is that little bit of tax because lots of these stocks pay dividends (that accumulate in the fund), which is not the case with oil futures.

Noted. Which broker(s) cost wise would you recommend for the foreign stocks like LSE ETFs and for WTI or Brent futures? I understand IB has monthly inactivity fee so its not suitable for buy and hold, and what about platform fees? Besides SCB, TDAm, Saxo, any others?

 

[limster]

Noted. Which broker(s) cost wise would you recommend for the foreign stocks like LSE ETFs and for WTI or Brent futures? I understand IB has monthly inactivity fee so its not suitable for buy and hold, and what about platform fees? Besides SCB, TDAm, Saxo, any others?

if u are planning to trade oil futures, i assume you're looking at trading profits far in excess of the monthly activity fees... otherwise why bother?

 

[iamnotshawn]

Is there a need to link fsm account to cdp?

Sent from Samsung SM-G988B using GAGT

 

[swan02]

I plugged the numbers in and I don't get the 0.25% pa advantage. I only see 0.14% pa advantage when short term US investment grade vs short term treasury. This is the closest of duration I can find.

Then I plugged in your URL and you have used CORPORATE (includes non investment grade) bonds. You are trying to mislead us yet again. And not surprisingly it comes with much poorer sharpe ratios and greater draw downs (you didn't even mention this). And not surprisingly I assume you have tried to remove some of the risk premium coming up with arbitrary 0.25% it does not help in your argument.

So just to be certain. I plugged in long term corporate bonds vs long term treasury ..and turns out with long term treasury having a 0.33%pa advantage. I tried with other forms of comparison and the conclusion was just as consistent with the two research papers I read.

The return advantage of investment grade corp bonds is statistically INSIGNIFICANT. Look..its just 0.14% advantage, or your arbitrary 0.25%.or a negative 0.33% disadvantage. The research papers I've seen has also seen insignificance even with different time periods.

I DONT SEE your 1% ADVANTAGE you seem to say all the time. And certainly NOT when MBH duration is so short.

But what is clear instead as even portfoliovisualizer points out..you get greater draw downs and poorer sharpe ratios with investment grade corporate bonds or corporate bonds in general over holding to safe haven bonds.

and what about my "rebalancing". All the while I've been speaking about is fixed date rebalancing akin how portfolio visualiser does it. To be exact, the research papers i've seen do so, not me.

You have shot yourself in the foot. People can now see for themselves in portfoliovisualizer. Though is not perfect as I would like to see an investment grade corporate bond approx 5.5 years duration vs an approx 8 years duration intermediate treasury bond because we are comparing MBH vs A35.

But you and many others still can't accept the main reason to having a fixed income component. THAT is, it should be a good solid BALLAST consistent with modern portfolio theory.

And that's the very reason the research papers I've read concludes (not my words):

1. safe haven govt bonds are better because it provides much better ballast in crashes. It counters your negative emotions. Emotions in crashes is known in behavioural finance to be highly dangerous and you know it. In fact I say most people fail in investing is emotions. It should be priority.
2. It serves the purpose as a diversifier aka it should be negatively correlated or close to (shouldn't we at least apply modern portfolio theory)
3. With rebalancing, safe haven govt bonds does not statistically lose out to investment grade bonds in terms of absolute returns. Yet having safe havens gives you better sharpe ratios and smaller draw downs.
4. Lastly, risk should be borne into equity instead of fixed income. Adjust the asset allocation accordingly.


I stress the significance of draw downs...especially when you are retired, having large amount of retired money with an asset allocation of approx 20/80 like I do. Think of 6 or 7 figures, you'll choke with MBH as your ballast.

MBH is flat year-to-date. It closed on Jan 2nd at 1.029; it closed yesterday at... wait for it... 1.029.

You said a few months ago you were just in this thread to start fights. You literally haven’t posted anywhere other than my threads in two years, which is bordering on creepy. You aren’t welcome here. Go away.

—-

Edit: I was going to be rude and say “switch to decaf”, because your post was exceptionally punchy and I’m two drinks deep right now. (White Claws, if you’re wondering, which I have decided are vodka-sodas for people whose masculinity would be threatened by ordering a vodka-soda.) Also, I’ve decided I have a policy of not engaging with people who come in here and call me names. What is it with some people that makes them completely lose their damn minds on the internet?

But if you do own a lump of MBH, and you’re comparing it to A35, you might well ask “why wouldn’t I want to own the thing that goes up in a crash?”.

The reason is that govvy bonds only work well in the crash, and to your point about rebalancing, that only helps if you rebalance right in the middle of the crash. So if you’re using a simple time-based rebalancing rule, you wouldn’t see much (if any) effect, and for the time between crashes you’re giving up all the credit risk premium.

This is the fallacy that leads people to invest in dumb sh*t like tail-risk funds... they outperform for two months out of every ten years, like now, but for the other 118 months they underperform and you’re left wondering “why did I buy this thing again?”.

I did a quick test of this to check my intuition. Let’s say you’ve got a 60/40 portfolio, and you’re wondering about the performance delta between IG bonds and govvies. And let’s say the IG risk premium is 70bps, which is about the median of the last couple decades. If you swap the 40%-bonds lump from govvies to IG corps, then if my hypothesis is right you should expect a pickup in returns of about 0.7% * 40%... call it 0.3%.

Anyway I bunged this into Portfolio Visualiser, and used US corps vs intermediate-term Treasuries for the bond legs. (You’ve gotta be careful here to duration-match the two bond portfolios, otherwise you’ll be measuring term premium instead of credit risk premium and it’ll screw up your results.)

Invest $10k/yr, rebalance annually, and... the corporate-bond 60/40 outperforms the govvy-bond 60/40 by about 0.25% a year. Which is pretty much bang on what you’d expect.

Anyway.

Switch to decaf.

 

[swan02]

Sounds like you lost a lot of money and you are going crazy. Perhaps you need to see a doctor.

If you want to argue, argue coherently and with statistics and evidence

I did not lose much. Thankfully I did not listen to Shiny and stuck to my 20/80 and increasing equity 5 percent per year until a crash comes to buy when cape is 20. Yes I missed out on a great buy, but its ok as I still dollar cost average.

my 80 percent in bonds consists of iglo, idtll and A35 forming 70 percent of the 80 percent. Rest is in MBH. I watched all my bonds like a hawk and was deeply disappointed with MBH. I only bought MBH mainly because it was tough buying a lot of A35 whenever I buy my equity per month. I was hoping those so called banks or what you claim to be safe, can really help, and to my horror, it DID NOT even during the first 12 percent drop. A35, performed as expected, even when correlation turn to 1 with equity later on. It is still superior to MBH.

So when ya dealing with large sums of money on a 20/80 portfolio, you can see why I'm so worked up with disinformation. I don't even believe Shiny even went through year 2008 crash, I believe this is his first recently. I know this because it is the way he writes and focuses on in my opinion little focus on behavioural finance. Though he speaks about dollar cost avg and 110-age.....the very fact when he introduces MBH counters how little he understands emotions in large crashes.

Statistics ?. What I say are all researched backed. I don't have the time to go against researchers. Go find it yourself as it will take at least an hour as I did so.

BUT you will NEVER find one that supports equity with investment grade bonds over safe haven bonds. I've tried for hours and days and nothing. How I wish Shiny was right, then I'll be having more money wouldn't I ?

 

[BBCWatcher]

Which broker(s) cost wise would you recommend for the foreign stocks like LSE ETFs and for WTI or Brent futures? I understand IB has monthly inactivity fee so its not suitable for buy and hold, and what about platform fees?

If your total account value at Interactive Brokers is under US$100,000 then they'll charge either actual commissions or US$10 per month, whichever is higher. At a total account value of US$100,000 the US$10 minimum goes away.

I agree with others that if you're asking about punting on oil futures the US$10 minimum commission shouldn't be an impediment, and IB's low cost currency conversions, market data feeds, and trading commissions will predominate. In particular, it's hard for me to imagine you have any good (or even mediocre) reason to be punting on oil futures if US$100K is too big an account value figure to contemplate.

 

[makav31i]

Is there a need to link fsm account to cdp?

Sent from Samsung SM-G988B using GAGT

You only link your CDP account if you intend to sell your holdings in CDP with FSM...If you are buying, you don't even need to link your CDP with FSM...If you want to transfer from FSM to CDP, you need to write in to FSM to transfer...

 

[BBCWatcher]

If you want to transfer from FSM to CDP, you need to write in to FSM to transfer...

That seems like a very reasonable thing to do periodically (say, once a year) to keep the slight custodial risks in check. Currently there's no fee to transfer securities between FSMOne and CDP in either direction.

 

[makav31i]

That seems like a very reasonable thing to do periodically (say, once a year) to keep the slight custodial risks in check. Currently there's no fee to transfer securities between FSMOne and CDP in either direction.

You need to pay $10.70 per counter to transfer from FSM to CDP...The amount is not charged by FSM...

 

[BBCWatcher]

You need to pay $10.70 per counter to transfer from FSM to CDP...The amount is not charged by FSM...

Not according to FSMOne's posted information. They indicate that CDP's S$10.70 transfer fee is waived indefinitely.