Sunday, September 22, 2013

Follow Up Plans 22 Sep 2013

I love the blogs that I read. I think that most of them are fantastic, because they aren't trying to sell me anything or push me in any direction. Rather, it is just a platform for them to share information that they receive, and show their thought process of how they dissect the noise and just take away whatever is useful.

I think they have really helped me start with investing.

Anyway, I'd like to share with you this link from The Reformed Broker, it is titled "All-In and All-Out". Basically, it tells you why you'd be silly to just sit on your money all the time, or be 100% invested all the time. I really like it, and its giving me courage to take the next steps forward.

As of now, I am currently reviewing 3 more funds for me to consider. Incidentally, they are all JPMorgan funds.

They are the Emerging Markets Dividends Fund, the Asian Pacific Income Fund and the Global Income Fund.

However, I think it's safe to say that I am not going to invest into the EM fund yet. Firstly, I don't think that now is a good time to go in. With all the turmoil and volatility, I think it's quite a risky bet. Personally, I don't think it is that cheap looking at the historical values and where things are looking to go. I'd like to wait and see if the tapering does NOT cause an outflow out of EMs. Perhaps the next time I look towards this fund is after the October Fed meeting or early next year, just to let the dust settle down.

The Global Income Fund appeals to me because it is global, it has both equity and bonds, and it has a asset allocation approach. The benchmark is 35% MSCI World, 40% Barclays US High Yield and 25% Barclays Global Credit Index. This is a pretty nice diversified and defensive blend, which I'm quite liking. Also, including dividends, the fund has so far produced an annualised return of 12%, which I have to say, is mighty fine. This is considering that it is 50% equities, 40% bonds and 10% unlisted. In the May bond sell off, the fund only lost a respectable 6% as it's maximum drawdown. I think that's quite impressive, considering that is now pretty much recovered all those loses and is still up YTD about 6.6%. Assets are broadly allocated between Global Reits (5.2%), Non US Bonds (5.4%), Preferred Equity (6.6%), Emerging Markets Equity (7.9%), Non Agency Mortgages (9.7%), High Yield (24.7) and Global Equity at (30.2). I really like the exposure into REITs, Preferred Equity, and Mortgages, though Agency backed would be much nicer. So far, based on their asset allocation, I'm quite loving it. However, on the geographical front, things aren't that peachy to me. Given that the US has a 51.6% allocation worries me a bit. The Eurozone has 17.7% and Japan has 3.5%. This actually makes the places that I have been actively trying to reduce exposure to to make up a whooping 72.8%!!! Of course, you can see it that probably only half of that is in equity, but still, I am worried about it. UK, Asia-ex Japan, Aus/NZ only make up a punny 10% of the portfolio, which is less than Emerging Markets at 14.8%. I don't know if I really like this geographical allocation. However, I do know that most of the US allocation is because of the High Yields. Bond duration is not listed, but I would really like to see something under 4, though I think under 7 is more realistic. Then again, it depends on the YTM of the fixed incomes. All these data are missing from the factsheet, so I guess I will have to dive deeper before I make a decision. Dividend yield is estimated at 5.2% a month, very snazzy, I like! *Update: This fund is actually been running since 2008, and it is rated 5 Stars by MS. 22% are investment grade bonds, while 76% are junk bonds. The duration is 3.9 years! The Unlisted assets were Emerging Market Debt and Convertible Bonds. TER is 1.45%. Here's the link to the JPMorgan website to grab stats. Looks pretty to me now!*

Next, he Asian Pacific Income Fund actually did not appeal to me as the Global Income Fund on first glance, but I have taken a double take at it, and I actually do find it rather appealing. It's benchmark is 50% MSCI Asia Pacific ex Japan and 50% JPMorgan Asia Credit Total. A simple and easy set-up, 50/50. I'd like to highlight that this fund has been going on since 2001 in the US, and it has beautifully returned roughly 8.1% annually, and it has outperformed its benchmark on the long term.  They have a nice Morningstar rating of 4 stars, which means they aren't that bad. They breakdown their equity and fixed assets slightly differently. For equities, it is 64.2% and fixed income is at 32.7%, with the rest being liquidity. So now that equity and fixed income is split, we can really see if the equities and bonds are going crazy. As of now, I really like the equity allocation, being heavily overweight in Australia, Singapore and HK. Taiwan and Korea are placed on the backburner. The only cause of concern is that the HK market is cheap, but it is so linked to property places, let's hope if there's a crash based on that, the fund managers can react quickly enough. As for the fixed income part, I think it is rather balanced except for a large overweight in China fixed income. I suppose they are assuming the RMB will appreciate in value and they will make off the currency difference? Anyway, this fund has the facts on all its bonds. It is pretty much split between investment grade and non-investment grade. The duration is 5.2 years, which provides it barely enough cover since its YTM is 5.74%. Of course, the longer the Fed waits to taper and the longer the bonds are held, duration will drop. With a 5.74% YTM and 4.83% dividend yield, the fund is looking to be paying about 5.47% based on previous dividends. Enough though it lost 11.5% in its largest drawdown so far, the fund is still down 7% from that drop. However, that being said, it is still up 2.9% YTD. *TER is 1.9%, which is very high! Anyway, here's to the JPMorgan page*

Of course, Asia is more susceptible to the money outflows, but that being said, it has not recovered like the Global Income Fund. In my head, that to me says cheap, go for it!

So, as of now, I am seriously considering to take in the Asian Pacific Income Fund as a nice, slow step forward to include equities into my portfolio, and this would by default include the Asian Pacific equities which gives high dividends.

I will be cautious before entering the Global Income Fund or the Emerging Markets Dividend Fund, though I must say that if I do decide to increase my exposure in the EMs, I think this fund would very nicely suit my style.

Going for the hedged month distributions allows and forces me to at least eyeball and review my investments every month. Though, I would not like to rebalance, except for every quarter. Anyway, I think I have decided to lay off the EM div and GI fund until I see a much bigger market correction... I don't know, but that's how I feel now.

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