Wednesday, October 9, 2013

MH's Portfolio

So, after those posts on asset allocation, I've being doing some research on the sidelines and I've come up with a list that a Singaporean investor is able to carry out! All this requires is an account with Phillip so that you can purchase the unit trusts. Sure, there's banks and other places that offer the same unit trust too, but they have higher sales charges and some even have platform fees. I do believe that higher expense ratios are a drag on long term performance and should be kept to a minimum.

Anyway, here's the list that I've made so far, still in the works though!

ClassNameTER
US eqdb x-trackers MSCI World Index UCITS ETF0.45%
EAFE eqdb x-trackers MSCI World Index UCITS ETF0.45%
EM eqdb x-trackers MSCI Emerging Markets Index UCITS ETF0.65%
REITsUOB United Global Real Estate Securities1.2%
Global HY bondsLegg MasonWestern Asset Global HighYield Fund Q dis SGD-H1.25%
Global IG CorpSchroder ISF Glb Corporate Bond Fd A Dis SGD Hedged0.75%
EM bondsUOB United Emerging Markets Bond Fd SGD1.25%
Foreign bondsTempleton Global Bond Fund A (mdis) SGD - H11.4%
US bondsJPM US Aggregate Bond A (Mth) SGD (Hedged)0.9%
TIPSFidelity Global Inflation Linked Bond Fd A SGD Hedged0.5%
Commoditiesdb x-trackers DBLCI-OY Balanced UCITS ETF0.55%
Total TER0.85%

So, let's just have a quick summary overview. 

4 parts equities, 6 part bonds, 1 part commodities
4 parts mainly capital appreciation, 7 parts mainly income generating

Let's so delve a bit deeper, shall we?

The reason why the MSCI World index is replicated twice for both the US and EAFE equities is actually a more functional reason than for preciseness. The index itself is nicely split between 54% USA allocation, and 46% rest of the world allocation. By my reasoning, as the rest of the developing world grows, this will eat away at the USA allocation. Anyway, the point is that the index is already quite nicely split near 50/50. There are no products available that are ex-US here, so I guess this is the best that I can do.

Since we're using the DB trackers for the developed markets, why not the emerging markets as well? Both these ETFs are capitalizing, meaning that dividends are used for reinvestment. Considering that the main draw of equities are their growth and enhanced compounding effect. Their draw over Lyxor is simple, they have a much lower bid-ask spread on the SGX. Also, factoring in rebalancing costs, it would not be easy or efficient to reinvest these dividends. Finally, it also makes my life easier!

Since we're on ETFs, let me also add in commodities from the back. Again, I am using this DB tracker because it firstly has the lowest expense ratio of all the commodities ETFs. Secondly, it is also considered a close proxy to the Dow Jones-AIG commodity index. Lastly, I like it because it's "balanced" and it uses "Optimal Yield". Now's the time for you to call me a sucker. But as far as the choice of commodity products available in Singapore, this is really the best, offering a cheap way to diversify!

The reason for equity ETFs is also a simple explanation. They have lower expense ratios of mutual funds, they do not commonly benefit from active management and they have more diversified risks.

REITs now is currently being handle by a mutual fund. There is just no ETF around to suit my needs! Anyway, the UOB fund is quite nicely spread, with the top country allocations going to US, Japan, HK, UK, Aus and Sg. You can't go wrong with those kind of geographical allocations, can you? I would wish for a lower allocation in the US, but you can't always get what you want.

Now, onto bonds. As you can see, ALL my bond funds are actively managed, except for US bonds, where it is technically an index fund, but there is still an active manager behind it.

So, firstly Global HY Bonds is being represented by Legg Mason's Global High Yield Fund, which distributes quarterly and is also hedged against the SGD. Of all the high yield funds out there, I have to give it to Legg Mason when they added Global to the name tag and stuck with it. Although the US dominates the high yield playing field, when naming a fund global, don't you think you should get global exposure? This fund has only 58% in the US, which is heaps and bounds ahead of its entire peer group. Basically, this sold the deal for me. I want global exposure, so that's why this is my fund of choice. Duration is 4.5 years, YTM is 7.36% and average credit rating is BB-.

Next, Global Corporate Bonds. This goes to Schroders with their ISF Global Corporate Bond fund. Again, what takes the cake is the nice allocation, and I think this has to do mostly with using an appropriate benchmark. In this case, it is the Barclays Capital Global Aggregate Credit component. Duration is 5.2 years, YTM is 3.68% and the averager credit rating is A-.

Under the EM bonds category, we have UOB yet again. The allocation is wonderful. The highest single country allocation is Mexico which is sitting under 6%. That's a great spread around the EM universe! The duration though, is nothing to hoot about at 7 years. YTM is clocking in at 6.7%, but there is no mention of credit rating. Checking their annual reports, roughly 40-50% of their issues are investment grade or higher, while about 30% is non investment grade and the remainder are not rated.

Listing itself under Government or Government-sponsored Fund says something about the next fund, doesn't it? The Templeton Global Bond fund is PERFECT. It has zero allocation to the US, which is exactly what I was looking for! I've talked about this fund a few times before, and I do believe this to be one of the few great funds out there. The current duration is a fantastic 1.64 years, YTM is 4.10% and credit rating is A. Say whuttt?

Next, US bonds. JPMorgan is leading the way this time, with its Aggregate bond fund. It is SGD hedged, follows the appropriate benchmark, aims to exceed it if possible and I think it pretty much is the only bond fund that I'm holding with it's credit rating being at least AA, if not AAA. Duration is 5.3 years and YTM is 2.8%.

Last, but not least, the TIPS category. There is actually no contest in this division, there is pretty much only 1 suitable candidate and its credentials are quite decent. Fidelity Global Inflation-Linked Bond Fund again, like the other Global funds I fancy, has a very good allocation that does not favour the US market, although just like high yield bonds, the US issues many inflation linked bonds. Duration is 4.9 years, YTM is 0.56% and average credit rating should be AA.

 So, there we have it. That, ladies and gents, ought to be my core portfolio.

Equities 
TER
US eqdb x-trackers MSCI World Index UCITS ETF0.45%
EAFE eqdb x-trackers MSCI World Index UCITS ETF0.45%
EM eqdb x-trackers MSCI Emerging Markets Index UCITS ETF0.65%
+low expense ratio
+broad diversification
+dividend capitalizing
+good geographical spread
Bonds
TERDurationYTMCreditCurrency Risk
Global HY bondsLegg MasonWestern Asset Global HighYield Fund Q dis SGD-H1.25%4.57.46%BB-Hedged
Global IG CorpSchroder ISF Glb Corporate Bond Fd A Dis SGD Hedged0.75%5.23.68%A-Hedged
EM bondsUOB United Emerging Markets Bond Fd SGD1.25%76.7%BBHedged
Foreign bondsTempleton Global Bond Fund A (mdis) SGD - H11.4%1.644.1%AAHedged
US bondsJPM US Aggregate Bond A (Mth) SGD (Hedged)0.9%5.32.9%AAHedged
TIPSFidelity Global Inflation Linked Bond Fd A SGD Hedged0.5%4.90.56%AAHedged
Average1.01%4.764.23%A-

Alternatives
REITsUOB United Global Real Estate Securities1.2%
Commoditiesdb x-trackers DBLCI-OY Balanced UCITS ETF0.55%
All in all, I think that the portfolio is pretty solid so far. I am especially loving the bond portion of my portfolio. Expected 4.2% yields, with duration under 5 years and credit rating of about A-? Crazy, haha! 

I have already begun monitoring the prices for these ETFs/funds. I'll definitely try to buy in at it's max drawdown one of these days. Until then, it's just nice to watch it and see how robust it actually is, especially if a crisis comes and knocks down everything!

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