portfolio question

[The Accountant]

Hi guys,

its been a nice four months exchanging ideas and sharing thoughts. You guys are really helpful and supportive. I have abit of question which i have been trying to sort out since 2014. I just wanna hear your thoughts before i make my decision. Sorry but its gonna be a long post.

First of all I am 31 this year with a full time job, a family to support with a young kid and so my risk tolerance would be rather low. I plan to retired in either Penang or Taiwan (its not confirm yet as we still have a long way to go)

my objective is to build a global portfolio with assets class that has relatively low to medium co-relation and at such, i have already decided a few:

Equity: 60%
local: STI 24%
Global : VWRD 28%
Emerging market: VDEM 8%

Bonds/cash 40%
10% ABF Singapore ETF
10% OCBC 360
20% United SGD bond fund (SGD hedged)

ok, here's the two assets class which i have not sorted out.

REIT
I've tried looking into a couple and tested by buying 1 share of etf on LSE. And they are are all USD base:
Ishare : IDWP which tracks the FTSE EPRA/NAREIT Developed Dividend+ index with an expense ratio of 0.60
SPDR: GLRE which tracks the Dow Jones Global Real Estate index with an expense ratio of 0.40
HSBC: HPRD which tracks the FTSE EPRA/NAREIT Developed Index with an expense ratio of 0.40

They all do not have withholding tax from UK. But here's the problem: for some reason, scb pay dividend from Ishare in GBP even tho the fund pays in USD. I tried calling SCB, but they told me its a monetary event, they can't do anything about it. I calculated that the divided is way lower than the declared dividend even when i tried to convert using yahoo USDGBP rate. So i suspect there is two swap in effect. Anyway, this means i can't be using Ishare on SCB. what a shame, if not i would have pick this.

So it would leave me with the two other etf with no issue but they have a smaller AUM.

Question:
1)what do you think of the dow jone Global reit benchmark? is it a good benchmark?
2) what do you think about an ETF with only less than a 50 mil AUM?

High Yield Bond
For this matter i have confirm there is no tax for US high yield bond if we were to buy the etf from LSE. Reason being the double tax agreement between UK and US for interest is zero withhold tax(WHT), and UK/Ireland funds do not have WHT from the fund's dividend. I have tested using STHY (pimco etf) and SJNK(SPDR etf), both listed on LSE. Their annual report also confirm no WHT in P&L.

Question:
would you go for a high yield bond for someone of my age? coz i am thinking there could be a diversification benefit for my bond allocation. Then again, i might already have too much credit risk in my mutual bond fund.

Thanks for your time reading into this.

 

[dkgamer]

theres no real answer... your risk tolerance and diversification tells me your a pretty risk-averse investor.

suggest you consider singapore REITS instead. fundamentals in Singapore makes land here an ever increasing valuable resource.

1. its a decent benchmark if you hold reits in US markets, not so if your comparing it with singapore markets.
2. doesnt matter about AUM, what matters more is the parent company who manages and own the fund
3. high yield bonds are pretty good to diversify into, provided you can find conservatively financed companies. i like convertibles better, best of both worlds.

 

[Perisher]

I think you have been very helpful yourself.
Can't help here but just a question.
If you are planning to move overseas permanently, are you gonna withdraw all your holdings here when you leave?

 

[Shiny Things]

H
Equity: 60%

Bonds/cash 40%

First thing: that's really conservative. You're investing like someone who's about to retire. Relax a little.

Question:
1)what do you think of the dow jone Global reit benchmark? is it a good benchmark?
2) what do you think about an ETF with only less than a 50 mil AUM?

1) Yep.
2) Nope. ETFs that are that small are at risk of being dissolved - which means they get liquidated and the cash gets handed back to investors.

Question:
would you go for a high yield bond for someone of my age? coz i am thinking there could be a diversification benefit for my bond allocation. Then again, i might already have too much credit risk in my mutual bond fund.

Normally yes, I'd recommend 3-5% in high yield, but I'm not sure what's in that bond fund. UOBAM's got a lot of confusingly named bond funds - there's the United Singapore Bond Fund, the United SGD Bond Fund, the... etc etc etc.

Anyway, the Singapore bond fund looks like it's mostly stuffed full of govvies and Singaporean banks; it's boring enough that you can add some extra high yield ETFs. But the SGD bond fund is stuffed full of excitingly sketchy names like Petrobras and Chinese steelmakers, and on the latest info I can find, fully a third of the portfolio isn't even rated. It's already basically a high-yield fund by itself.

 

[wahkao3]

suggest you consider singapore REITS instead. fundamentals in Singapore makes land here an ever increasing valuable resource.

i disagree
i dun think REITs are good buy now
------------------------------------------------------------
2015 Jan-Some SGX property stocks present good value now

There are some good cheap SGX property stocks right now and they are good value. This is because of the cooling measure, prices came down and you have a golden opportunity to pick them up on the cheap


but REITs are not good value. They are fairly priced. in investment, we dont buy assets at fair price, we buy assets are undervalue. So REITs dont present good value

as usual, i can be wrong, so do your own homework! Dont follow my tips blindly

Source:2015 Jan-Some SGX property stocks present good value now

 

[The Accountant]

suggest you consider singapore REITS instead. fundamentals in Singapore makes land here an ever increasing valuable resource.

Thanks mate. But I don't have the time to read into their FS every quater. this is why I pick global REIT etf. Think the holdings is currently 50% or so in US.

 

[The Accountant]

If you are planning to move overseas permanently, are you gonna withdraw all your holdings here when you leave?

No real thoughts about this at the moment. proberbly a 4% withdrawal rate per year with all holding in bonds transfered to the currency I would retire in.

 

[The Accountant]

First thing: that's really conservative. You're investing like someone who's about to retire. Relax a little.

Ya.. you have a point. I am just thinking that the market is too expensive. I guess I will remain this allocation for a while.

1) Yep.
2) Nope. ETFs that are that small are at risk of being dissolved - which means they get liquidated and the cash gets handed back to investors.

Great! That's what I wanna know.

SGD bond fund is stuffed full of excitingly sketchy names like Petrobras and Chinese steelmakers, and on the latest info I can find, fully a third of the portfolio isn't even rated. It's already basically a high-yield fund by itself.

Yup that's the one. Its a short duration bond fund so it adds stability. I went through the credit rating. Its bad I know. Mutual fund takes on more risk over the years to cover for their expenses.

Guess I won't be touching the high yield etf.

Thanks for your advice!

 

[The Accountant]

i disagree
i dun think REITs are good buy now[/URL]

You might be right given their spectacular performance in 2014. They r the best sector to be in last year!

 

[dkgamer]

i disagree
i dun think REITs are good buy now
------------------------------------------------------------
2015 Jan-Some SGX property stocks present good value now

There are some good cheap SGX property stocks right now and they are good value. This is because of the cooling measure, prices came down and you have a golden opportunity to pick them up on the cheap


but REITs are not good value. They are fairly priced. in investment, we dont buy assets at fair price, we buy assets are undervalue. So REITs dont present good value

as usual, i can be wrong, so do your own homework! Dont follow my tips blindly

Source:2015 Jan-Some SGX property stocks present good value now

i suggested to consider. obviously it isnt a good time to buy now

 

[wahkao3]

i suggested to consider. obviously it isnt a good time to buy now

eh u mean reconsider property stocks?
Too late to reconsider, i already buy liao!

 

[w1rbelw1nd]

If you are looking for asset classes with low or medium correlation, I would suggest that you buy some

1) Gold ETF
2) Junk bonds/high yield bonds ETF.

These asset classes should give u the lower overall portfolio volatility that you seek IMO.

 

[dkgamer]

eh u mean reconsider property stocks?
Too late to reconsider, i already buy liao!

actually if you bought it before the run up, you should have gotten a pretty decent return and a good return on dividends. much better than holding the actual property imo... i wouldnt worry much about the slump... land is limited here, even if it falls over by 30%, in the long run, it should do fine

 

[The Accountant]

If you are looking for asset classes with low or medium correlation, I would suggest that you buy some

1) Gold ETF
2) Junk bonds/high yield bonds ETF.

These asset classes should give u the lower overall portfolio volatility that you seek IMO.

Thanks for the advice. I will look into it..

 

[reinphd]

If you are looking for asset classes with low or medium correlation, I would suggest that you buy some

1) Gold ETF
2) Junk bonds/high yield bonds ETF.

These asset classes should give u the lower overall portfolio volatility that you seek IMO.

For 2), are you referring to QL2 or QL3 for example?

 

[guowei]

Gold is very high risk investment product, even singapore bank is cutting down on its leverage.

 

[w1rbelw1nd]

For 2), are you referring to QL2 or QL3 for example?

Well, QL3 looks junk enough, but it is highly asia centric... Depending on personal preference that may be a good/bad thing.

I am looking more at SHYU (iShares $ High Yield Corporate Bond UCITS ETF listed on UK ) for more US exposure. Perhaps a mix of SHYU and QL3 will do better?

 

[w1rbelw1nd]

Anyway TS, just to share with you my own plans...

Currently I am having VWRD, STI ETF, GLD, and shares that I will sell off eventually.

In the short term, I will add SYBL(UK LT govt bonds), VDEM.

In the long run i will be adding another 2 or 3 more ETFs into the mix (high yield corp bonds, emerging market bonds, European equities, SG gov LT bonds)

I believe that maximising returns and lowering volatility is very different when you have $100k vs having $2mil. With less wealth, there is only so many different asset classes that you can rebalance around with cost effectively. But once you hit the 7-digit figures, it may be better to add in a few more asset classes.

Unfortunately, with more exotic asset classes, you cannot do much backtesting since data is not available....

 

[The Accountant]

Anyway TS, just to share with you my own plans...

Currently I am having VWRD, STI ETF, GLD, and shares that I will sell off eventually.

In the short term, I will add SYBL(UK LT govt bonds), VDEM.

In the long run i will be adding another 2 or 3 more ETFs into the mix (high yield corp bonds, emerging market bonds, European equities, SG gov LT bonds)

Thanks for sharing! VDEM looks pretty decent (PE 14.8), considering US's valuation is so high (PE 19). The interesting thing about the index that vanguard is tracking, which is the FTSE EM index is that the index does not include S.Korea whereas Ishare's MSCI EM index includes it. i realise this when i was comparing the two last year. And where does FTSE place S.Korea? Developed Market.

What i don't really understand are the long dated bonds. It seems to me that interest rates are going up (at least i really think that's the case for SG bonds). It gets really volatile for a 30 yr bond. i believe the sweet spot is between a 7yr to a 10 yr bond. Won't you think so?

I believe that maximising returns and lowering volatility is very different when you have $100k vs having $2mil. With less wealth, there is only so many different asset classes that you can rebalance around with cost effectively. But once you hit the 7-digit figures, it may be better to add in a few more asset classes.

Unfortunately, with more exotic asset classes, you cannot do much backtesting since data is not available....

I think i get what you mean. In terms of absolute return, volatility seems more scary than just looking at percentage as a measurement.

*sigh.. and i still can't find a suitable REIT etf.*

 

[w1rbelw1nd]

Thanks for sharing! VDEM looks pretty decent (PE 14.8), considering US's valuation is so high (PE 19). The interesting thing about the index that vanguard is tracking, which is the FTSE EM index is that the index does not include S.Korea whereas Ishare's MSCI EM index includes it. i realise this when i was comparing the two last year. And where does FTSE place S.Korea? Developed Market.

Well I think we were considering the same thing at some point of time! I was contemplating between the UK listed Vanguard vs Ishares for Emerging market(EMIM). I dont like how EMIM holds 7% in cash...

Site Map - BlackRock

I think whether South Korea is EM or DM doesnt really matter since it is only a very small percent of the ETF value right?

What i don't really understand are the long dated bonds. It seems to me that interest rates are going up (at least i really think that's the case for SG bonds). It gets really volatile for a 30 yr bond. i believe the sweet spot is between a 7yr to a 10 yr bond. Won't you think so?

I get what you mean, around a year ago, I was thinking, well interest rate should be rising soon, lets just wait for bond price to drop.... Then SYBL rose 33% over the past year(in GBP terms). Should we really "time" our purchases if we believe in passive investing?

Anyway, since you want the bond ETFs to help diversify, I feel you should make it as volatile against interest rate as possible. That's also the reason why LT bonds are used in the Permanent Portfolio.

*sigh.. and i still can't find a suitable REIT etf.*

Any particular source that recommends REIT etf? Would like to learn how REITs help diversify a portfolio as well... If there aint a suitable choice, maybe we can wait for one....