Why is IWDA ETF recommended?

[cheongmanz]

I've been reading threads after threads and keep seeing IWDA ETF.

I read that its dividend will be reinvested on the link below.

https://forums.hardwarezone.com.sg/116142932-post108.html

Questions

- How do you check how much are reinvested for that year? Is there a website available to check past dividends?
- Say if I've been holding this ETF for 10 years, if I sell do I get back all the accumulated dividends? A simple example will help
- People tend to rely on DCA when comes to ETF, question is what do they do when comes to selling? Isn't it back to selling at the "right" price?


Would appreciate any comments from sexperts here.

 

[assiak71]

I've been reading threads after threads and keep seeing IWDA ETF.

I read that its dividend will be reinvested on the link below.

https://forums.hardwarezone.com.sg/116142932-post108.html

Questions

- How do you check how much are reinvested for that year? Is there a website available to check past dividends?
- Say if I've been holding this ETF for 10 years, if I sell do I get back all the accumulated dividends? A simple example will help
- People tend to rely on DCA when comes to ETF, question is what do they do when comes to selling? Isn't it back to selling at the "right" price?


Would appreciate any comments from sexperts here.

1. The reinvestment is reflected in the nav. Dont need to think so much about the dividends. Just treat it as no dividends and look at total return relative to its total return net benchmark.

2. Again, just treat as no dividends but a fund that increases or decreases in price in tandem with the total return net benchmark (before fees).

3. Asset allocation. Say you have 1 equities etf such as IWDA and 1 bond etf. Say you are 60/40. When buying, buy the laggard to bring back towards 60/40. When selling, sell the winner, bring it back towards 60/40.

If you are 100% IWDA, then just sell periodically the amount you need.

 

[cheongmanz]

1. The reinvestment is reflected in the nav. Dont need to think so much about the dividends. Just treat it as no dividends and look at total return relative to its total return net benchmark.

Suppose if I buy 1 share at 53 USD today, 10 years down the road how do I know what is the NAV for this share?

2. Again, just treat as no dividends but a fund that increases or decreases in price in tandem with the total return net benchmark (before fees).

Can quote example?

3. Asset allocation. Say you have 1 equities etf such as IWDA and 1 bond etf. Say you are 60/40. When buying, buy the laggard to bring back towards 60/40. When selling, sell the winner, bring it back towards 60/40.

Isn't this the basic principle of buy low sell high?

 

[BBCWatcher]

Suppose if I buy 1 share at 53 USD today, 10 years down the road how do I know what is the NAV for this share?

Um, you just look at the share price, and that directly reflects your total unrealized return to that point (excluding the broker sales commission and currency conversion back to Singapore dollars if you were to sell). It's just that simple.

The fund manager simply takes all dividends and buys more shares, within the fund. If the prices of all those shares of stocks don't move, but if those stocks are collectively paying a 2% net dividend yield, then the fund share price will increase by 2% per year. But you don't have to worry about all that. You just buy the fund, and the fund manager takes it from there.

There are two levels of value accumulation, actually. The companies represented within the fund can also, individually, retain earnings and plow those earnings back into company investments. You don't worry about that either. IWDA, for example, owns shares in thousands of companies, with thousands of management teams making millions of business decisions. The fund manager (Blackrock) exercises some management oversight on your behalf, voting in shareholder meetings and such. Occasionally Blackrock does back a shareholder proposal or other outside effort to influence management behavior, and Blackrock has a lot of shares.

Anyway, for you it's stone simple, and that's a good thing.

As an aside, in the United States there are some fund managers, such as Vanguard, that offer so-called "Target" funds. Let me say up front that these funds are tax inappropriate for non-U.S. persons. However, they're lovely in their simplicity. Let's suppose for example that you're planning to retire about 30 years from now. OK, you go to Vanguard (for example) and pick their "Target Retirement 2050" fund, which is the closest match. You buy the fund every month, and you tell Vanguard to reinvest the dividends automatically (which is a checkbox you can tick). And then you do...absolutely nothing, except sit back and relax, for decades of monthly buys from your salary. EVERYTHING happens automatically. Vanguard rebalances the fund at every point in time, including gradually progressively shifting from stocks to bonds starting from 2043 (7 years before "target"). Then, around 2050, you start drawing down the now bond-heavy fund (70% bonds/30% U.S. and global stocks) during your retirement years. Simple, and it's very low cost. Lovely stuff.

 

[cheongmanz]

Um, you just look at the share price, and that directly reflects your total unrealized return to that point (excluding the broker sales commission and currency conversion back to Singapore dollars if you were to sell). It's just that simple.

Thanks BBCW for the explanation but I'm still confused about the selling part.

For the sake of simple example, let's say the ETF will give me 2% net dividend every year and reinvested back to the ETF. At 10 years time, I will have accumulated 20% net dividend. So am I correct to say that 10 years later, the stock price for this ETF is supposed to be 53 + (53 * 0.2) = 63.6?

 

[BBCWatcher]

For the sake of simple example, let's say the ETF will give me 2% net dividend every year and reinvested back to the ETF. At 10 years time, I will have accumulated 20% net dividend. So am I correct to say that 10 years later, the stock price for this ETF is supposed to be 53 + (53 * 0.2) = 63.6?

That's essentially correct in your logic, but your math needs a bit of tweaking to refine the example.

First of all, the important assumption for this analysis is that, across the thousands of stocks that the fund holds, the per share price is held constant. Obviously that doesn't happen in the real world since share prices bounce around every stock market minute. Over 10 years we would hope that the share prices rise, on average, but for this analysis we're holding the per share price constant to see what effect reinvested dividends have.

Second, if we assume a 2.0% annual dividend yield (net of taxes of course; the fund takes care of that), dividends are effectively compounded when reinvested because the fund owns progressively more shares, and each added share also generates a dividend. With that compounding it's more like $64.61 per fund share after 10 years (2.0% compounded annually; annually isn't quite right, but this is just an example).

Then we've got another adjustment to make: the annual fund management fee. It's 0.20%, so we can simply reflect that as a 1.8% net dividend (in this example calculation). Do the math that way and, after 10 years, the share price should be $63.35 or thereabouts under all these assumptions.

Anyway, the bottom line is that even if stock prices move sideways (net zero movement), we would expect that the fund's share price should gradually rise solely due to dividend reinvestments (net of taxes and expenses). And the math behind that fund share price increase is along the lines outlined above. (It's even a little more complicated than that since the fund makes a little bit of money loaning out shares to short sellers, but we've got the basic idea now.)

 

[Sausage]

Actually we also need to take into account exchange rate and hope in future the UK rate does not devalue more than the stock gain right

Sent from Xiaomi MI MAX using GAGT

 

[BBCWatcher]

Actually we also need to take into account exchange rate and hope in future the UK rate does not devalue more than the stock gain right

Not exactly. First of all, in the example cited, we're assuming the stock prices don't budge in your "home" currency terms, just to understand what happens to dividend reinvestments.

The longer answer is that IWDA is not any currency or currency-like instrument, such as a bond. It's a basket of stocks. IWDA happens to be quoted in U.S. dollars, but that doesn't particularly matter except that, since it's not Singapore dollars, you have a roundtrip currency conversion cost in/out.

If you buy an ounce of gold using Singapore dollars, you don't own a currency either. You own gold. (Not recommending this; it's an example.) The value of gold could stay absolutely fixed in Singapore dollar terms -- that's possible. Or it's possible for gold to stay fixed in Swiss franc terms -- that's also possible. Or neither. But it's not a currency, not ANY currency, even if a newspaper (or Internet site) prints a U.S. dollar price for gold.(*)

Yes, OK, IWDA owns shares of stocks of companies that conduct business in practically all the world's currencies, and in various ratios. So as currencies bounce around in value compared to each other, that might surface to some extent in the real business results of the companies that IWDA holds. But it's very indirect stuff when you're holding a broad global stock fund. Moreover, the Monetary Authority of Singapore tends to peg the Singapore dollar against a basket of currencies of trading partners -- to "outsource" monetary policy to other central banks, essentially. So really, when you buy IWDA with Singapore dollars (starting from Singapore dollars), you're effectively exchanging a basket of currencies for a basket of real businesses.

(*) Singapore doesn't have any gold mines, so it's always imported, at some point anyway. Even if you're buying gold using Singapore dollars, that's not how gold gets into Singapore. The wholesaler buys the gold using some other currency. Same principle.

 

[hwmook]

Actually we also need to take into account exchange rate and hope in future the UK rate does not devalue more than the stock gain right

Sent from Xiaomi MI MAX using GAGT

No, that's not how you should think. Just like the example of gold, what currency is it? The value of it can be expressed in SGD, USD or any currency you fancy. The same apply to a company, Apple for example is trade in USA using USD but does that mean you should care about USD exchange rate? No, Apple does it's business globally and have big chunk of its revenue outside of USA so the company is not only linked to USD, the global currency movement all affect it's revenue thus it is incorrect to think that USD exchange rate go up equal to you earning more on your Apple stock.

As an example,
1. USD goes up, Apple non-US revenue goes down, Apple share price drop.
2. USD goes down, Apple non-US revenue goes up, Apple share price go up.

So which scenario would you earn more? In an ideal world, both are the same. In a non-ideal world, either one can result in you earning more.

 

[Sausage]

ok
i will start watching this

 

[kongming0209]

ok
i will start watching this

Am I right in saying based on past performance (yes doesnt mean future will) the intent to buy iwda for global exposure is that the returns are higher 4~5% per annum in the long run with dividends reinvested and price slowly going up...

As opposed to no usd currency risk with purely buying sti etf which gives about 2~3% dividend even if price is flat in 30 years time?

 

[JuniorLion]

Am I right in saying based on past performance (yes doesnt mean future will) the intent to buy iwda for global exposure is that the returns are higher 4~5% per annum in the long run with dividends reinvested and price slowly going up...

As opposed to no usd currency risk with purely buying sti etf which gives about 2~3% dividend even if price is flat in 30 years time?

IWDA actually consist of some components of STI ...

 

[limster]

Actually we also need to take into account exchange rate and hope in future the UK rate does not devalue more than the stock gain right

Sent from Xiaomi MI MAX using GAGT

repost: imagine that you are buying clothes and the price tag has multiple currencies. Whatever currency you pay in is not that important, you pay whatever is most convenient for you. The value of the clothes you bought is not determined by the currency you paid in.

https://forums.hardwarezone.com.sg/115986048-post1568.html

 

[Wishdom]

repost: imagine that you are buying clothes and the price tag has multiple currencies. Whatever currency you pay in is not that important, you pay whatever is most convenient for you. The value of the clothes you bought is not determined by the currency you paid in.

https://forums.hardwarezone.com.sg/115986048-post1568.html

What if you are looking to sell? Isn't the end game to sell off for retirement income? Forex means something. The value of your portfolio in sgd basis will be affected by current fx rates simply because iwda/vwrd is denominated in usd.

I don't understand this narrative that is perpetuated by so many of you ; including shiny things and BBCW. Did you all just memorise and roll it off your tounge or am I missing something big?

Sent from Ilovennp using GAGT

 

[BBCWatcher]

What you're trying to achieve with long-term savings is to support a future lifestyle. That future lifestyle will be in some retirement country (not necessarily Singapore -- you have to figure that out at some point), and with some blend of non-local spending. For example, you might spend two months per year spending in Swiss francs and euro, skiiing the Alps. The currencies you need to exchange for goods and services to support your future lifestyle are then important. But they're not important until then.

I fundamentally agree with Vanguard's approach in their "Target Retirement" funds. They hold the global equities allocation of the "Target" portfolios steady until 7 years before the target date, then starting at that point they make their gradual, progressive shift to a 30%/70% stocks/bonds allocation by the time the target date is reached. That's then the drawdown portfolio allocation, designed to support years and decades of funding for a retirement lifestyle. (Not designed to be withdrawn all at once, please note.) The bonds are, of course, U.S. dollar denominated bonds -- Vanguard U.S. is catering to those who are retiring in the U.S. Emergency reserve funds should be highly correlated with the currency of the country(ies) where you have a right of abode.

So, "Don't worry," basically. As long as your investments are prudent (well diversified) and age appropriate, and as long as you start a gradual adjustment to a drawdown posture at 7 years before drawdown age (or up to 10 years before if you're very conservative), that'll work fine. Moreover, you might not be sure where you'll retire, so I wouldn't make such decisions all the way up front at age 25, for example. Here's where I differ with ST a bit, perhaps. I don't like overweighting Singapore listed stocks as much as/as early as ST does. I feel more comfortable for those with a right of abode in Singapore expecting to retire in Singapore to overweight ES3 only somewhat (e.g. up to 20% of stocks), then more aggressively overweight ES3 within the 7 to 10 year portfolio rebalancing before drawdown age. So something like this:

Accumulation Phase: 20% bonds/bond-likes (MBH, SSBs, CPF), 80% stocks/stock-likes (of which up to 20%, i.e. 16%, is ES3 and the rest in IWDA, IWDA+EIMI, or VWRD, plus your primary HDB residence typically)
....gradually adjusting within the 7 to 10 year period before Drawdown Age to....
Drawdown Phase: 70% bonds (MBH, SSBs), 30% stocks (split 50-50 between ES3 and global stocks)

I'm just flat out uncomfortable with what I view as too much overweighting of ES3 during one's Accumulation Phase, in part because of the Japanese experience and also the fact the SGX isn't likely to have any meaningful future Apples, Alphabets, Amazons, etc. -- no IPOs. I don't have a perfect crystal ball, but it's reasonable to forecast that the SGX will be a relatively low capital gains, dividend-oriented play, and that's not something I recommend overweighting during one's Accumulation Phase.

One other assumption I'm making here is that you're dealing with quality currencies. You should skip low quality currencies, except for immediate, on-the-fly spending needs. I currently wouldn't want to have really any fraction of wealth in Venezuela's currency (or currency correlates), for example. Fortunately, the Singapore dollar is a high quality currency, and that's a major advantage for Singapore resident investors. MAS manages the Singapore dollar as a trade-weighted basket of currencies, with some volatility dampening applied, and that works!

 

[BBCWatcher]

The value of your portfolio in sgd basis will be affected by current fx rates simply because iwda/vwrd is denominated in usd.

No, not quite. IWDA and VWRD are not U.S. dollars either. They are baskets of shares in real businesses.

The ideal case is that the Singapore dollar is persistently "strong" relative to shares when you're a buyer, then the Singapore dollar is persistently "weak" relative to shares when you're a seller (retired and drawing down). Whether the U.S. dollar is strong or weak at particular moments doesn't actually matter -- it's merely the intermediate currency between your Singapore dollars and these shares.

Over the years and decades in long-term investing, the currencies won't actually matter. In periods of time when the Singapore dollar is relatively strong relative to shares, or when shares are on sale, or both, you'll buy more IWDA. In periods of time when the Singapore dollar is relatively weak relative to shares, or when shares are selling at a premium, or both, you'll buy less IWDA. That's called Singapore dollar cost averaging, and it works. Even if IWDA bounces around and moves sideways (in Singapore dollar terms), you win. If IWDA generates a long-term real return -- a very reasonable, conservative forecast -- you win more.

As it happens, IWDA is also available quoted/listed as SWDA. The only difference? IWDA is quoted/listed in U.S. dollars, and SWDA is quoted/listed in British pounds. There's absolutely no difference in the stock holdings, and if you buy SWDA you're not buying British pounds either. You're buying shares, the same shares.

Did you all just memorise and roll it off your tounge or am I missing something big?

The latter, it seems. Currencies are only ever meaningful in terms of what they can be exchanged for in terms of real goods and services, either in the present or in the future. When you buy IWDA, you're exchanging Singapore dollars (presumably) for shares in real businesses, not for any other currency(ies). (IWDA is not a basket of bonds.) When you sell IWDA years or decades from now, you're exchanging shares in real future businesses (with all the technology and growth factors applied, along with profits along the way) for...future Singapore dollars (if you're retiring in Singapore). So all you're betting here is whether the world's businesses will generate a decent or better total real return over a long-term span. Is that a very reasonable bet? Absolutely.

But it shouldn't be your only bet. You're still (if you're smart) going to optimize CPF, probably accept your heavily subsidized HDB BTO unit as your primary residence, hold some Singapore dollar denominated bonds at least for your emergency reserve fund (Singapore Savings Bonds are great), avoid overweighting particular sectors (such as real estate, which seems to be a common affliction), have adequate defenses using "Big 3" insurance necessities, show up for work and do a good job, avoid a too lavish lifestyle, don't get in trouble with the law, don't have an extramarital affair, put some effort into keeping your spouse/partner happy, don't get addicted to drugs or gambling, and doggedly save and invest for decades. That's not quite a complete list, but it covers most of the important stuff.

 

[iCuteCube]

But do research on the ways of investing IWDA if you determine it is a suitable choice.

The FX risks are a killer for smaller ("micro") players.

 

[Shiny Things]

But do research on the ways of investing IWDA if you determine it is a suitable choice.

The FX risks are a killer for smaller ("micro") players.

Er, the "ways" of investing? It doesn't matter which way you buy IWDA, you're still taking FX risk. And that's totally fine; if SGD is strong your onshore investments will do well; if SGD is weak your overseas investments will do well.

 

[Wishdom]

@BBCW

I see where you are coming from. The FX risk comes from sgd as a currency in itself rather than the usd.sgd rate. Much appreciated.

Sent from Ilovennp using GAGT

 

[BBCWatcher]

I see where you are coming from. The FX risk comes from sgd as a currency in itself rather than the usd.sgd rate.

Yes, that’s basically it. The Singapore dollar is not a “conventional” currency, though, where you would worry as much about a devaluation in the currency relative to all (or practically all) other currencies that then persists for many years. Unless MAS completely screws up (unlikely), the Singapore dollar should closely track a trade weighted basket of major currencies. So it shouldn’t drift too far out of bounds for any significant length of time.