Saturday, November 23, 2013

Rebalancing Issues

Well, the Capital Spectator has just posted up a fantastic post on his blog again, which shows the boxplot for the major asset classes which he follows.

US Stocks (VTI)
Foreign Stocks Devlp'd Mkts (VEA)
Emg Mkt Stocks (VWO)
US Bonds (BND)
US Junk Bonds (JNK)
Foreign Devlp'd Mkt Gov't Bonds (BWX)
Emg Mkt Gov't Bonds (EMLC)
Commodities (DJP)
Foreign Gov't Inflation-Linked Bonds (WIP)
Foreign Invest-Grade Corp Bonds (PICB)
Foreign Junk Bonds (HYXU)
Foreign REITs (VNQI)

The rationale for making a boxplot? Here it is. "The main attraction is the ability to quickly summarize rolling performance data across a range of asset classes (or markets within an asset class) in search of insight on portfolio rebalancing decisions."

Perfect! That is exactly the sort of information that I would like actually. With this information, I think it will definitely help me make better choices when rebalancing, to know what seems undervalued and overvalued (assuming price is accurately baked in), based on current returns and historical returns.

I've just added commodities finally to my holdings, and after looking at this chart, I feel more sane knowing that I am underweight in REITS and equities. I think that the contrarian in me does not like the idea of topping up anything within the 25th and 75th quartile unless it is balancing day. Anything which is overextended and below the 10th looks like a great contrarian buy to me, and anything over the 90th seems like it is asking for a trimming of positions.

After looking at this boxplot, I am thinking of definitely more positions in US Bonds, perhaps TIPs and EM bonds as well. If EM stocks and real estate finally falls out of favour and drop to 25th or below, I might consider increasing positions, especially for the EM stocks.

It is still very hard for be to get my asset allocations right because I have to invest in lumps of $100-$1500 when topping up existing funds, and between $1000-$1500 when entering new funds. I've taken positions in most of the funds that I have been talked about, except for an additional developed equities fund and a real estate fund. I am now quite perfectly fine missing out on those funds, because I feel that real estate is globally heavy, and I don't like the vibes I am getting from equity markets.

Actually, I just did a review of the funds in my portfolio, and I must say that I am quite disappointed with Schroder holding my Corporate bonds portfolio. The minimum subsequent top-up value is at a very disgusting high value of $1500, while all the rest are either $500 or $100, with pretty much no restrictions on redemption, other than First State, which is in no means any shape to have its position reduced, haha!

Now then, I think come around Monday, I will be liqudating my Schroder's fund and moving into JPMorgan's Global Corporate Bond Fund. It has the same rules as the other JPM funds, minimum fund value of $1000, top-ups of $500 and no minimum redemption, which means I rebalancing downwards can be quite pinpoint accurate. Yes, I think that I'm definitely going to do that on Monday. This move will help me when it comes to portfolio rebalancing, especially in the first few years when the difference between $500 and $1500 makes a large impact on my portfolio.

I'll spend the rest of the week reviewing the allocations that I have spread across the different funds I own, and look towards owning a more precisely balanced portfolio which is much in line with my initial plans, as well as give some thought on where I would like to minorly overweight or underweight assets! I know, so exciting right? Haha!

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