Monday, March 31, 2014

A Small Victory

Recently, my equity shorts have FINALLY been working out for me.

As gold gets monkey hammered like a Swiss watch everyday at 8.30pm, that means that the US market will be having it's customary pump and dump. That's my personal cue, the PM hammer. So far, it has been working pretty well for me.

I mentioned before, last week I managed to cover ALL my 2014 loses so far and make a profit, just from that single week. I must admit, I was very leveraged, but I have learn my lesson and I kept my stops very very tight.

Just wanted to share a trade I took today.

Personally, I don't think the dump is over yet, but I'm going out for a run now, so I'm not going to babysit my overleveraged trade, haha. Plus, the bounce off the moving average is a logical place to take profits. If I wasn't going to do anything else for the night, I would probably take off a bit of my position, but continue watching it in anticipation for the 1-2am magical dump.

Oh well, been blogging a lot lately! Hope all is well with everyone!

STI Experiment Market Timing

Since my simple backtest of the STI has yielded me pitiful results trying to improve the index, I guess I am resolved to simply recognizing that the STI ETF is the easiest way to get broad and diversified exposure in the Singapore economy.

Anyway, since I was bored (yes, very nerdy, I know), I decided to do a very simple method of market timing my STI ETF purchases.

Throughout 2013, there were 9 instances that my simple method would have generated a BUY signal. The method simple involves purchasing the STI ETF the day that the Slow Stoch leaves oversold territory. That's it. That's all it takes.

Let's see how that goes.

6 March - 3287
26 March - 3287
18 April - 3298
17 June - 3189
*28 June - 3141
*5 Sep - 3049
10 Oct - 3196
15 Nov - 3211
*20 Dec - 3096

This would have averaged out the 2013 buying price to 3194.

If the 3 special dates were included and buying was doubled (due to MacD crossing over under the zero line), the average STI buying price would have reduced to 3170.

3170 may not seem like much, especially when it's hard to compare apples with pears. However, with a quick and dirty conversion, 3170 roughly equates to $3.19 per share of Nikko AM STI ETF.

Anyway, I will do more research of course, this isn't a perfect timing method, and it also is not a regular investing interval as well. However, if you do want to be strict about investing once a month, it is possible to identify the Slow Stoch crossover as a buy point, instead of only crossing over and out of overbought territory. I think for investors with more serious discipline and with a much longer investment time frame, being more consistent and keeping your money in the market longer might be a better way.

Just wanted to share a simple timing strategy!

Unimpressive Results for my STI Studies

I just spent the last 2 hours manually populating the STI list from it's revamp since 2008 until recently, taking note of the constituents that left and joined, and what were their stock prices at those times.

Taking that information into account, I could dissect up the STI and run a backtest to see what an equal weighted performance would show.

Well, after 2 hours of data crunching, I wish I could say something awesome about what I've managed to extract out.

Disappointingly, the results are not that fabulous at all. Since the start of 2008 until the last index rebalance of 24 March 2014, the equal-weighted STI outperformed the actual STI by a mere 2% CUMMULATIVE.

I would consider a 2% annualized return a breakthrough in index improvement, but alas, it is not so. The benefit of removing the 4 stock skew in the STI is almost close to negligible.

Dare I say it, it would cost probably a fraction of a hair less to construct the portfolio yourself bottom up, but the time and effort involved managing the portfolio would not be worth it. Especially with some constituents with such heavy lot size, creating your own equal weight portfolio would not allow you to incrementally add to your portfolio in proportion. It just wouldn't sense.

Honestly, I am very disappointed with the results. The only saving grace is that both portfolios would have yielded more than their cost, assuming 3% dividends a year, it would reap in about 15% dividends about end up about 110% from it's initial cost. The 10% would be barely enough to cover inflation, or perhaps even not beat it at all.

Again, I must add, I am not impressed at all by all the equal weighted method or the STI itself for that matter. Perhaps my data series is too short.... but until I can get more convincing data to prove me otherwise, I suppose this idea will never take off. I will continue to extend the series bi-annually when the STI announces it's semi annual index results.

Saturday, March 29, 2014

Insurance Post

Below is an extraction from The Aleph Blog by the awesome David Merkel. I really respect the man. Here is his take on insurance, and bolded and underlined are my personal emphasis.


This was published in the “Ask Our Pros” column at RealMoney.  I don’t know when, and I don’t have the actual question, but looking at my answer, I think I know what was asked.
I’ve been cheated in the past by insurance companies.  How can I choose an insurance company that won’t cheat me?
This is a question after my own heart.  I worked in the life insurance business as an actuary for 17 years, serving in almost every area that life insurance companies have.

Life insurance agents and products have a bad reputation in the financial press.  Much of that bad reputation is deserved.  Products are often sold that pay agents well, but do not meet the needs of clients.  Agents influence the flow of information between the company and policyholder, and sometimes tell different stories to each side.

The life insurance industry has tried over the years to control the sales process better, so that only suitable products get sold.  Regulators have demanded it, industry groups want a better reputation, and individual companies have learned that writing bad business is unprofitable.  There are regulatory rules, industry conduct codes, etc.  It is difficult to root out bad apples among agents, which can flit from company to company; companies with bad records tend to get disciplined by the regulators and the courts.

Life insurance and annuities are products that are generally sold, not bought, excluding fancy tax reduction schemes used by high net worth individuals.  Typically, though, they get sold to people who will not plan for their own financial well-being, and would not save, invest, and protect their families on their own.  It is an expensive way to invest, but it is better than not investing at all.

There is a need for agent-sold financial products to help those that will not plan for themselves.  This provides a real service, though never as good as what an intelligent investor would do for himself, if he had the time to research everything out.

Disability and health insurance often get a bad rap over claims payment practices, often deservedly so.  Part of the reason for that is that people don’t want to pay the full price of these products; companies respond with lower priced products and get more hard-nosed about claims.  Part of the research that any person should do about an insurance company is their claims payment practices.  State insurance commissioners keep a record of which companies get complaints, and which do not.  Insurance fraud further pushes up costs, and makes companies scrutinize claims more.  Trial lawyers further push up costs by making medical malpractice expensive through exorbitant tort claims.

Auto and home insurance usually don’t draw the same level of complaints as the above areas.  There are some companies that try to be too sharp about claims practices; this is something to watch out for in any insurance company.  Auto insurance (or the equivalent) is mandatory; mortgage companies require home insurance.  The market is regulated, and usually highly competitive.

Another area of complaint is private mortgage insurance [PMI].  PMI benefits the lender, but is paid for by the homeowner.  The benefit to the homeowner is that he can buy a home, and not make a down payment of at least 20%.  The lenders require PMI when the ratio of the first mortgage to the appraised home value is greater than 80%.  New laws require PMI to go away when the ratio drops below 78%.  Homeowners can petition the lender when the ratio is at 80%.  (The lender will probably require a new appraisal.)

Now all this said, insurance companies have had a lower return on equity in the past 20 years than all other companies on average.  Insurance companies don’t make all that much money.  So where does the money go?  1) Agents.  2) Benefit payments.  3) Home office expenses.  Investment income usually subsidizes insurance companies; they lose money on underwriting on average, and when the pricing cycle is weak, they lose substantial amounts.  Since the inception of health insurance, the insurance industry may have lost money in aggregate.

In Summary:
  • Plan your investment and protection needs yourself, or find a trusted advisor to help you.  Investment knowledge pays its own dividends.
  • Study a company’s claims paying practices before buying.
  • Review expense and surrender charges and other contract terms.
  • Choose an insurance company off its reputation, and not price only.

My personal takeaways:
1) All insurance agents suffer from Agency Risks. Their interests is not yours.
2) Expensive insurance and investment is better than none at all
3) If you understand what they are doing, you will definitely do better yourself

My Post On The STI

The Straits Times Index is the large cap, blue chip index of the Singapore Stock Market. It has 30 constituents after being revamped from the previous 48 stocks and has been that way since the start of 2008. The previous link has the initial 30 stocks listed in 2008, and you can see that the index is constantly being reviewed and changed here.

Following the thoughts of (The) Boring Investor regarding the inefficient of the STI, one of the upcoming projects that I will undertake in the future will be breaking down the index to show it evolving over time, as well as to compare an equal-weighted strategy to a market-cap weighted strategy that the STI currently follows. Alternatively, I would also like to propose other fundamental variables to help improve on the equal weighted strategy, such as finding over or undervaluation.

One simple way is too look at the PE multiples of an index:

From my studies, I know that PE multiples actually makes up about roughly 50% of the market returns, irregardless of other fundamental values like earnings or dividends. To me, that makes the study of understanding PE ratios and valuations an extremely important one.

The issue though, is how can we use the PE multiple to help us if we will not be investing in the cap-weighted STI? If we are using the plain vanilla STI, then obviously the best buying opportunity would be when the STI PE has bottomed out. However, since we're buying the STI as a whole, and with those skewed weightings, we are not as at much risk as the individual holdings. Having an equal weighted basket may not accurately reflect the basket's PE bottoming at the same time as the normal STI. Some stocks in the STI can drop big time during crisis, about 70%

To have a clue on what the PE and PB ratios can look like during stress, someone else has already done the groundwork for me, and I will take his work at face value. The pictures are extracted from his blog here.

As you can see, during times of distress, the actual better indicator is the P/B ratio, I feel. The reason for this is because that book value is not constantly changing, and therefore during times of crisis ought to be more reflective or even more optimistic than normal. I find the above information perhaps a bit skewed to the upside, since it takes into account the performance of the STI before the index revamp. According to this article, the STI ETF itself admits that it's average PE is 12.9 and PB is 1.42 which div yield is 2.7% since it was incepted in 2002.

The quickest way to check on the STI PE and PB ratio is to look at the ETF information which is updated at the end of everyday over here. Current PE is 13.8 and PB is 1.34 and div yield is 2.77%. How it look like to me? It actually looks rather fairly valued here to be to be honest. However, if PB ratio every drops below 1, that to me is perhaps one of the most bullish contrarian signs that I can get!

However, what is interesting is that since 2008, dividends has been... unimpressive. I find it actually rather disappointing that DPU per year has topped at 12c, bottomed at 6c and is now about 9c. The yields are looking thin, though it is in line with the historical data that the STI returns are boosted by dividends which account for 3% of returns, and capital gains which account for 5%. Still pretty impressive for the long run.

Finally, another method to look at PE ratios, is from FundSupermart. Their research insights also includes the PE ratios of other countries and indices as well. But honestly, without knowing their historical mean and average, that data is actually not very meaningful at all.

I've wasted an hour plus thinking about this. Gawd. I'm gonna study hard for my CFA the rest of the day!

Only the Brave

Took the short and covered making 15 points off the RUT.

Being ballsy with the QQQ and taking 30 points here too. Took a massive risk position, but I had good stops.

The SPY ran through all my stops and it didn't look convincing at all. I didn't take the roller coaster down, it didn't look as fun and steep as the others.

Is it finally time to sell the rip? It has been a good method for me the past week, I quickly recovered from a lot of losses.

My main observation of the week: The USD has been selling off with US equities. Usually, they have been working with negative correlations. This hasn't happened before since I've started in the market. I see massive potential downside to the USD if US equities start selling off. This means people aren't toggling their money between cash and equities. It means people are en masse leaving the USA. This to me is a pretty clear sign that all is not well in the current situation right now.

It'll be interesting to see what advice next week brings and how people defend their bullish thesis. Everyone hates the bears, unless they are one themselves.

REITs, Of Course I'm Going To Talk About It

Since I bought my first lot today, give me a break will ya?

After finding out more of what I have gotten myself into, I have to say that I have found a very useful site in terms of resources, specifically for the Singaporean Investor.

The site is a bit old, non-fancy, nor is it updated with the latest cutting edge details, but what the author has done is to share his take and views on the S-REIT environment, and I must admit that I am thoroughly and happily educated by his writings.

First piece is regarding about REIT sponsors. I always knew they existed, but I never knew to what extent does their relation entails. This is a good piece to shed more light on a topic which is generally just skipped over by most REIT investors. (*wink wink* Croesus Retail Trust does have a sponsor, the Croesus Group)

Next, he has a 2 piece combo about REITs Rights, covered in part 1 and part 2. Again, this is something that I know about, but not many people have spent the time like the author to make a detailed account of the process as well some personal thoughts into his writings. I'm much more aware of them now!

Lastly, I found a link of his site to this book right here titled: Investing in REITs: Real Estate Investment Trusts. The reviews look really good, so I have found an alternative to get the book, instead of having to wait over a month for it to get shipped from and get lost in the mail here. NOQ has an alternative, and the book isn't too expensive at about $50. I will consider purchasing this book in the near future. Perhaps immediately after I finish with my CFA exam, haha. 

Well, that's all for now folks! 

PS. I found this EXCELLENT pdf slide show that talks about a slightly more advanced, but vague and incomplete methodology of REIT valuation. Quite interesting, I must admit. I will also be dissecting this after my CFA!

Friday, March 28, 2014

Croesus Retail Trust [Portfolio Buy] March 2014

Just one of the many places under the portfolio of Croesus Retail Trust.

I decided to take the trade in my SCB account as I saw the price decline to a level which I thought has a very good margin of safety. I shall list the rationale below.

Current dividend yield based on the forecasted DPU will give a yield of 9.27%, which is honestly, quite sickening.

Based on Price/NAV, the Trust is currently selling at a 4.15% discount.

Based on the 52 week low, the lowest price ever recorded was 0.845. This represents a downside risk of 3.5% based on capital gains loss.

Of course, there is no gaurantee that the 52 week low will hold and people will buy in at that price. However, if it really is capped to the downside here, the risk reward-ratio is insane, since you're going to be getting a yield of 4.5% every half a year.

The last dividend will actually be paid out in a few days, for the 2nd half of 2013. I'm looking forward to the announcement likely in August later this year to announce for the distribution for the 1st half of 2014.

With an invested position now, I will definitely be watching this like a hawk, ready to pick up cheaper shares to make sure that with the dividends distribution, overall returns for this investment selection will be positive!

Nostramoney End March

I know it sounds like it's on hindsight and of course even an idiot can see that the US markets has not been doing particularly well over the last week, but I've been watching and stalking for a top in US equities for a long time now.

I have short positions since mid Feb all the way until now. In the past few days I've been going short at any recovery that has a nice round top, and covering a bit when the index spikes downwards. My open short positions are increasing, but as the indices get pumped lower each day, I move down my stop losses so that those profits will definitely be digested. It's hard trying not to be greedy, especially when you're a firm believer that we should be at the turning point any moment now. Who knows, maybe we've already passed it and we ain't going to be looking at Ms. 1880 for a while now.

I'm personally looking for the S&P to head to the interim March low of 1831 and then to smash through it by next week, and then it's free falling until 1740-1760. I'll definitely look to enter short and exit on spikes down to realize profits. This scenario ought to happen by the end of April, then I expect a BTD mentality and a little pump up. Nothing fancy, perhaps back to 1820 levels, and then once it starts to roll over, I'm hoping on the bandwagon down. If that doesn't happen though, I wouldn't be surprised to see the LAST new high over 1900, and then that has got to be it. I mean, like seriously, statistically, gawd.

I say, between May or latest, the 1st quarter of 2015 we will have a massive correction in the US. Of course, this will lead to a recession and the effects will rollover to the rest of the world as well. I think the S&P hitting 1500 is considered a really conservative target, but that's the first goal for me if I start to short for the longer term during the upcoming bear phase.

I highly doubt that gold will correct past the 1275 level. If it holds up, I will be a marginal buyer and add in a bit more and finally just hold my position. If it breaks, I will just be holding until it crosses this level again. A break will expose the current bottom that it has formed. However, I'm actually quite optimistic that we're going to bounce off and head higher by the end of next week.

My hot call which I am sticking my guns to a property bottom in Singapore end 2015. So, my investment strategy is so far quite straight forward. At least 50% cash-like investments, and 50% market neutral with a short 2 year horizon. I'll be needing back my money then to make the highest, most leveraged buy of my life, haha.

Well that's it I suppose. Oh, I also think that sovereign bonds won't be good too, so I'm leaning towards investment grade corporates. The end of the next recession is going to mark the all-time low that we see in interest rates for the rest of my life, but I wouldn't take a wager on that. Maybe we go negative instead? Haha, so maybe I should say the lowest positive yields we would see. After getting tricked the last time, ain't nobody is going to fall for an extended ZIRP anymore. Bonds will be slaughtered after offering their last use as protection for the upcoming crash, and then I believe that they would have outlived their usefulness for a decent amount of time in the future.

Wednesday, March 26, 2014

SGX Dividend Tools

Browsed around again, I'm getting a bit too interested for my own good in individual securities. Am I going to be one of those people with a heavy home-bias and high systematic risks?

Anyway, here are some tools just for me to make future references.

SGX Dividend Data
SGX Dividend Announcements

The first site is particularly useful in looking back historically to look at the dividend history of a company. It's quite interesting to see their DPU over time, and it gives a fast and easy way to skim the surface of a company and their unofficial dividend policy.

The second site is great as well, listing the most recent announcements regarding dividend actions. They also have a special tab which filters out the announcements to only show stocks which are closing their books within the next month in the future. This would be useful for people holding onto to dividends stocks to know when is the ex-div date, as well as people looking to buy into these stocks within the next few weeks, since dividend actions can affect price.

2 Intersting Links

Stumbling around the interweb, I found 2 interesting links.

The first link is actually quite a good long blog post about calculating intrinsic value without too much focus on the technical jargon behind it, and with more focus on getting to the answers that you want. He does provide a few different valuation methods, all of which should definitely come under my study once I begin to analyze individual stocks and develop a robust framework with a nice margin of safety.

The second link is actually from Investopedia that has a nice quick summary and outline of the CFA level 1 course. Honestly, I think I'm going to cheat and seriously just study off from this, as well as listen to the webcasts from the CFA youtube channel. It sends me straight to deep sleep, but it does give me nightmares, haha.

All right, that's all from me. I'm hoping for the markets to have a nice tumble going into closing, and for PMs to finally make a comeback recovering. Silver looks like it is interim basing right now, which I'd love to see recover and finally work for me! Anyway, time to sleep, night peeps.

Tuesday, March 25, 2014

The Flipside of Homeownership

Surprisingly, I found this article on ZeroHedge. Who would've thought, eh?

It's a pretty interesting take on the complete lack of diversification, use of leverage, liquidity risks, hidden liabilities, market timing and his take on renting.

Personally, I find this article grade A in it's class. This ought to be a mandatory read for anyone who is thinking of buying a property for investment purposes. As a home, it should be treated very differently. Like what the author suggests, it should be treated as an expense rather than an asset, and I do believe so as well.

I feel too many Singaporeans believe that property investing is the only alternative to playing the stock market against "the pros". The sooner more people realize and understand the unbalanced risks that they are taking into a single property investment that isn't a sure-win, the better people will thrive financially.

But then again, in this negative-sum world that we live in, is it better that your competition has more dry powder and ammunition to fight against you? We all know what money and greed can do to people. As kind-hearted as you may be, I wouldn't count on anyone returning the favour when personal gain is at stake.

Oh, the moral dilemma.

Monday, March 24, 2014

REITs again, oh boy

So today I placed my order for Saizen on SCB, but alas, it seems so many people had the same idea as me. There wasn't enough people selling, so I didn't get to buy anything in the end, haha.

Anyway, after thinking about it more, I picked out a few REITs that looks fundamentally delicious. They are Saizen REIT (0.895), Frasers Comm (1.245) and Starhill Global (0.78).

Honestly honestly, if I wasn't accumulating money so that I can buy a place and move out, I would definitely be looking to create a nice fundamentally weighted, diversified portfolio of the REITs with the best underlying assets. This would be looking at about 18 different REITs, Business Trusts and Stapled Trusts, which I feel is quite a nice spread of risk.

7 of these REITs are focused solely on Singapore, while 5 are invested in Singapore as well as other countries. The remaining 6 are not focused on Singapore at all. That's a pretty good spread.

Across industries, the highest concentration is 8 in the retail / office sector. 3 are specifically for office and industrial, 4 are into hospitality, 2 in medical and 1 in residential. However, a good sector spread is not necessarily the aim, it's more for stable and value focused dividends and capital appreciation in the long run. The sectors are quite defensive, so it should be quite a robust portfolio.

I think I will try to use a simple blend of the RAFI rules, as well as more fundamentally deeper ones by Clear Eyes Investing referencing his Dividend Compass. One of the aspects that will definitely be included will be land lease expiry, which I think has been actually a rather overlooked part.

But seriously though, I don't think I will embark on any of this until I complete my level 1 CFA first, and only then I'll think about it! Hopefully I can rope in another friend and maybe who knows, we'll have an ETF run by us one day!

Virgin Stock Purchase?

After reading a post by AK at A Singaporean Stockmarket Investor, I felt compelled to analyze Saizen REIT a bit further.

Looking at their website and just browsing through, it finally hit me that ALL Japanese land have freehold tenure. That's a pretty spiffy thing in my book.

As you can see, the current price of 0.88 is pretty much running around it's late 2012 values where it flatlined for about 5 months before it took a tiny dip and went on it's merry way up.

At the current vaulations that I am looking at, the lowest price has been at that dip, with dragged the price of down to 0.867. That is a whopping -1.47% downside from here!

I don't know why, but I feel like I have a very strong margin of safety. Even if the stocks move sideways for a while, or even dip down 3-4% over the year, as long as I hold it until the next dividend payment or 2, I feel quite certain that loses on this trade will be very low.

I'm going to transfer a sum over from DBS to SCB to execute this trade tomorrow at 0.88. Just so I can test the water and have a feel of what it is actually like to own and individual stock security. Oh, I like to live dangerously!

Also currently on my watchlist is Far East HT and Religare. I quite like Religare, given the theme of medical assets and all. A short turn lower from current positions should be expected, and I might pick some up if I'm feeling good about my Saizen purchase. Croesus Retail Trust is also on my radar, given that is has pretty much flatlined over the past 8 months, with a tiny pop, but a quick smash back down in mid Feb. The 9% yield that it's offering does seem extremely tempting, I must admit.

Sunday, March 23, 2014

Singapore REITs

Lately I've been thinking quite a lot about REITs, especially the ones in Singapore.

First off, EVERYONE is confused about REITs, business trusts and other dividend paying SGX securities. So, howsabout I clear up some of these misconceptions? There is a super clear explanation of the differences between those, as well as Stapled Trusts in this post over here. I highly recommended for everyone to take a quick peek just to know the difference for your own future reference.

I feel that the REITs in Singapore are particularly fair valued in the long run, considering that their R/B ratio is at NAV or even lower for some. It can be argued that the past few years of exploding property prices has actually inflated their NAV over it's actual current value, and I personally would take that stance. Though, it is still particularly attractive considering that the yields for some of these REITs are at 9%! (AscendasHT)

In my personal opinion, I believe that a retirees investment portfolio should include quite a fair share of real estate assets such as REITs that can produce a steady state of reliable income, which is above and beyond the grasp of mere bonds. This should be because the retiree should be more focused on the payout of the portfolio, which should ideally be fairly regardless of market situation, and not bother too much about capital appreciate or depreciation in the short run. As long as the trusts are properly managed, they ought to be able to slowly but surely grow it's value over the longer run.

With that said, I find REITs attractive for a few particular reasons:
1) Dividends are paid out in SGD
2) SGX listed stocks are regulated fairly well
3) Fair (maybe almost even cheap) yields and valuations
4) Investments are backed by an underlying asset

I personally believe that in Singapore, only a few things are constantly on the rise, and that is the cost of labour and land. Since it is not really possible to invest in people, I suppose that next best alternative is land?

However, the problem arises as to HOW you would invest in such cases. Currently, there are only 2 solutions. First, you buy into the Phillip Real Estate Investment Fund. It's not too shabby. It gets all your diversification done in a jiffy, and you can invest in nice rounded amounts, like $500 or $1000. The only problem here is that you are paying fund expenses which are about 1.5%, and you have no choice over the profile of the portfolio.

The second solution, is definitely not as easy. It would comprise in buying your own portfolio of selected REITs. In this case, the benefit is clear, you would not pay yearly expense ratios which just eats away at your returns. The REITs universe in Singapore is not too large that you would be mind boggled to do analysis on them. However, the question then becomes evident. Which REITs do you invest in, and what should be their portfolio weights?

After roaming the blogosphere a bit, I landed on this FANTASTIC blog by (The) Boring Investor. I have to say, it is not boring at all, and it is a fantastic read! I have learnt much from his posts!

Perhaps one of the biggest things that I have learnt about his posts is about the importance of the asset expiry profiles of the different REITs, which he has nicely drawn up a table caa Sep 2013. The same day, he also wrote a post explaining why it is important to analyse the expiry of their assets, essentially since the assets in REITs are not usually forever, and this can substantially affect it's future performance. My personal conclusion from both his articles are that REITs with assets mostly expiring within 30 years are likely not to be attractive for the long term investor, so assets sought should have a longer lease period before their expiry. Referencing his table, certain REITs are well suited to be included for long term portfolio investors, while others seem more like hit-and-run, especially during cycle lows. Certain attractive REITs in respect to this area are: AscendasHT, Ascendas India, Ascott, CapitaComm, CapitaMall, CDL HT, Croesus, Far East HT, Frasers Comm, Frasers CT, Keppel, MappleTree Comm, MappleTree Industrial, Parkway Life, Religare, Starhill and Suntec. I find it very enlightening and this has actually added in a very new dimension to my future REITs analysis!

Another fantastic dimension that he has helped me changed is his analysis of the STI, especially by showing it against an equal-weighted portfolio. Dividends included, here are his results:

Performance with dividends over the past 13 years (Simple Average)
STI: 6.7%

Equal-weighted STI: 14.1%
Equal-weighted STI - Heavyweights: 15.4%

Interesting points to note, is that other than the years 2006 and 2009, his alternative strategies of the Dogs and Puppies of the STI has actually managed to beat the STI every other year. The outperformance is quite massive actually! I have to personally say that I am pretty impressed by this strategy and I think it is rather robust! (however, I have noticed that there is survivorship bias in his current data. I have commented on his post, still waiting for his insightful reply!)

Second takeaway is about the grossly disgusting tilt that the 4 STI overweight stocks provide. Just the 4 stocks of DBS, OCBC, UOB and Singtel take up 41% of the STI. That means the remaining 26 make up the 59% of the STI. This once again reinforces the current revelation that I just had from reading my book (I haven't wrote a post about the chapter I'm referring to yet). The revelation is that market cap-weighted indices are likely not to be the best rationale for creating an index of stocks. I personally believe that the RAFI method, although seemingly more complex and less intuitive to the regular investor with seemingly lots of market voodoo and financial words, are completely more logical and sound than traditional cap-weighted indices.

That has again prompted me to try to figure out what would be the best way forward investing in not only the locally listed REITs, but also the STI.

One way forward on the REITs front is of course, to construct my own personal REITs index. I am very motivated by this following the post mentioned by (The) Boring Investor as well as this post by Mr. Breakout, concerning his Ganja Index. Of course, clearly inspired by the RAFI indices which has a brief outline of it rules in this .pdf on page 14 and also on this wiki page. For Real Estate indices, heir specific points of note that helps them build such an index is Revenues, Total Assets, Adj. Funds from Operations and Dividends averaged over the past 5 years. Of course, at the end of the day, Price also has to be included into the mix. Regardless how fundamentally attractive an asset is, there is always a price where it no longer becomes a good investment. There are many ways to calculate and assign different weights to different factors, which would give an overall weight in the portfolio, so I shan't be too concerned about things now, especially when I actually don't have the time and resources to construct such a portfolio, plus the REITs markets do not seem too bright in the near future to warrant such a focus in time and energy yet.

A similar procedure can be done for the STI as well. Personally, considering the huge overweight of the STI to those 4 stocks and the under representation of the others, I'm clearly in favour of creating a index which is anything but market cap weighted! An interesting article can be read here. Personally, I am in favour of anything which is not predictive and has the overall weight affected by the current price of the security. Again, I cannot stress the point that regardless how attractive fundamentals may be, there is a point of price indifference, followed by just sheer and unrealistic optimism. Which is why I prefer to look at the current facts, untainted and just plain jane, and work from there.

Finally, and perhaps the least interesting of all, in my sudden interest in preference shares. Although I was interested about it earlier this week, it is again by another post by (The) Boring Investor that reminded me about why I was interested in them in the first place. I view them as a very small, but useful asset class to be strongly considered for purchase in the future if they are ever available and offered to retail investors.

With that... I shall sign off for the night, skip my evening run and head to bed early. Long and early day for me at work tomorrow. How will I get anything done now with all these things floating around in my head?

Saturday, March 22, 2014

Weekend Musings

Just some of my thoughts lately.

First, an article from ZeroHedge regarding James Montier from GMO. Just some back story for those that don't know, but GMO is a pretty down to earth firm that focuses on long term investing based on current valuations. I have to admit, although not perfect, their predictions have been pretty accurate. That makes for an excellent outlet to hear about asset allocation and investing in the long run.

The main point of the article is about the overvaluation of almost all markets. Relatively, some markets are cheaper than others, but to him, nothing is a clear-cut value investment for the long term. To me, that translates into still staying skeptical of the equities rally, and instead focus on downside protection of current investments, and also to raise cash for the upcoming opportunities.

Secondly, it is a series of posts from Clear Eyes Investing with regards to dividend investing. Todd Wenning is a clear proponent and supporter of long term dividend investing, and I might say that I am quite sold on the investment principles of it. Just some articles for future references:

The Most Important Metric for Dividend Investors (spoiler: it's FCF cover)
Dividend Compass White Paper (and his rationale for the components)
Personal Dividend Compass excel worksheet (for me to do my future work)

The Dividend Compass worksheet that he has will be very useful when I start evaluating individual REITs to build up my own REITs portfolio and fundamental index. I ought to build one eh, and make it into an ETF. I'm sure TONS of Singaporeans would love it and invest in it.

Anyway, that's all for now. In other less interesting news, I've finally signed up for my term Life Insurance and I'm waiting for my acceptance letter. My OCBC credit card should be on the way soon, I'll try to rack up some small expenditures to reward myself for my hard work and savings for the past year. I've still barely looked at my CFA book. Damnit, okay I'll go study a bit laer.

Thursday, March 20, 2014

Best Example of Regular Investing?

Very interesting article on Barron's that takes a look at bad market timing.

It's really worth a read through. This is really pushing me towards building an extremely long-term portfolio with the focus of eventual dividends usage for retirement income.

How's about this?

40% basket of SGX REITs
30% bond funds

In a severe market crash, the prudent thing to do is to raze down the bond portion and double down on equities! Then slowly bit by bit add back to the bond portion once equities get fair valued, waiting for the next correction.

It sounds simple, but I know things is life never really is.

Wednesday, March 19, 2014

Are You Buy-Yen?

I shall now refer to Tiho Brkan from the Short Side of Long as Slong, haha.

So Slong has a pretty awesome free newsletter. I really appreciate his work, he is really no nonsense and he cuts out all the crap and goes straight to the point. His previous analysis for Russia really compelled me and I took the trade because it really is the rational and logical thing to do. The trade so far is in small unrealized profits. It doesn't mean he's a forecaster or fortuneteller by any means, it means that this guy has a good eye out for value and knows how to take advantage of it. It just so happened that it quickly turned to our advantage.

His recent spotlight is on the Yen, and honestly, it just looks crazy. I am already long Yen through shorting the GBPJPY, but that is also because I have a 3 pronged view that

1) the GBP is overvalued
2) the JPY is undervalued
3) it's a good risk-off proxy trade

However, with this current longer term view of an eventual short squeeze for the yen, I am going to take up a new interesting approach that I've never taken before. I will be trading a basket of 4 different Yen crosses, each of them short with a 0.5% stop loss and behind the March pullback.

I picked these pairs because of their reasonable spreads, as well as their marginal carry charge.

Since I'll be shorting all of these pairs, I'll be penalized on carry. The AUDJPY looks quite appealing to short, but the carry charge on that is more substantial.

Anyway, let's see how it goes. I'm extremely bored in my "fun account" with a current 15 open positions. Things were going pretty well the other day when they were all in the green. Oh well, it's a marathon, not a sprint. I'm quite confident that most of my trades will do well. I've got 2 pairs which I'm looking at on the weekly/monthly view, so that could potentially turn out quite well, for a long time. The only problem is that it might take a while, haha.

Tuesday, March 18, 2014

Currency Hedging Costs

I was searching the net for the costs of hedging currency, and I found these two links.

The first is by the Canadian Capitalist. The main wealth of information is actually in the comments.

The other is by the Retail Speculator. He gives a very detailed and in-depth explanation of the whole process.

Personally, I am in the camp that currencies DO NOT even out with each other over the long run. Perhaps this is especially so more relevant in today's world where countries are devaluing their currencies by printing more money.

I see currency hedging very essential for bond investors, since the returns there are quite fixed predictable (YTM), and therefore low. However, currency swings can go against you and destroy your returns there if you are unlucky.

The way I see it, if you have a belief that index investing has benefits over active investing, you would be a supporter for currency hedging as well, and this is why.

If you are fine not taking a risk with active managers and settling for the market return, essentially that is the parallel to currency hedging. It means that you are fine not speculating the currencies performance and you are fine with the current rate now.

Basically, it frees you up from adding another dimension to your analysis of investments. If the underlying investment is expected to perform 10% in a year, you would have certainty that your hedged investment in that security is going to around there, with a slight tracking error. Currency hedging isn't a perfect hedge, but it brings you to about what you would expect.

The conclusion from the posts that I read is that the costs of hedging will cost you roughly about 1%. If that is the case, then I do think that I have a much higher preference for hedged currency mutual funds now, since outsourcing the hedging part leaves me with less worries and also less costs.

Switch-a-roo Bond Funds

I've been thinking a lot lately, especially since I recently discovered the (dis)advantages of foreign currency investing.

I know that I shouldn't like mutual funds. They have high expense fees and a sales charge to boot. But, I think in the context of Singapore, and especially to what some can offer, some mutual funds (unit trusts) are really an investment worth considering.

I've had quite a decent sized allocation to the Nikko AM Short Term Bond Fund, especially since Phillip reduced it's sales charge of it from 0.2% to 0%, making it essentially a money money fund with a higher yield.

Since my allocation from earlier this year until now, the fund has returned to me 0.08% on a cost basis. Sounds pretty shit, until you realize that in a matter of 2 months, they've outperformed all the local banks savings account interest rates!

The Nikko AM STBF is a pretty decent fund. It had a low initial sales charge (0.2%) and it has a low management/expense ratio of 0.3%. The focus is on short term bonds of good credit quality, and they do hedge back currency exposure. I think that is a main point here, that currency swings which can be drastic and sharp at times do not hinder the already small but steady returns of the bond fund. A 2% swing against you in currency can essential wipe of a year's worth of returns by the fund, which is probably why they do manage their currency risks.

However, I have sold out a sizable portion of my STBF and instead I have moved some over to the UOB SGD Fund Class A (Acc). Honestly, this is the bombz for bondz. Although it has a sales charge of 0.75% and it's annual management fee is 0.6%, I think that it is worth it. The fund does hedge it's currency as well, but the fund is a lot more internationally diversified and does offer a higher internal yield. Even discounting the effect of the sales charge and the higher management fee, the UOB fund would have done better than the STBF.

Current 1 year NAV-NAV change for STBF is 1.71%
Current 1 year NAV-NAV change for UOB is 3.52%
Discount the sales charge of 0.75%, the UOB fund would have performed 2.74% for the year.

That comes up to about 60% outperformance within a year and an extra 1% of returns. Once you take into account longer periods, the effect of the sales charge will be much more reduced due to the larger and more consistent outperformance of UOB.

Essentially, after doing the math and considering the sales charge, as long as you hold onto UOB for more than 5 months, you will have a better overall long term performance.

Since it is my view that the economy is likely to be crappy for the next 18 months or so, I have thus decided to shift my allocation from the STBF to UOB, especially concerning funds which I do not plan to use in the near future. I shall be adding more to my UOB positions, especially when I top up my investment accounts and raise cash from the STBF sale.

Sunday, March 16, 2014

ABF Singapore Bond Index Fund

After much thinking, I do recognize the fact that have investments denominated in SGD can be a great thing, especially if the SGD is appreciating against most other currencies. Therefore, I am going to do a similar analysis that I've done for the STI ETF and port it over and see how the analysis framework works with the ABF ETF.

The main concepts of the framework is to look at rolling returns from a historical basis to identify the mean returns, as well as the standard deviations to identify when the ETF can be considered overbought or oversold, giving a structural process to the investment decision making.

The ABF Singapore Bond Index Fund is an ETF run by Nikko AM, which is the asset management branch of DBS. Linked here is their end of Jan factsheet. I don't know why the Feb factsheet isn't out, but here it is just for some reference. The Annual Report is pretty interesting too. There are just 6 issuers in the fund, PSA, SP Power, LTA, Temasek Financial, HDB and the Singapore Government.

I used the historical prices tools on Yahoo! Finance to retrieve the monthly data of the ETF. The ETF was launched 31 Aug 2005, but for some reason prices only start from 2008.

The fund NAV and price can be tracked here on Phillip, so of course it'd be good to be able to pick up the fund at a discount!

So the table above shows the statistics of the rolling 1, 3 and 5 years of the ABF ETF. However, the 5 year statistics is quite sorely lacking, since data mined only started in 2008, give about less than 20 readings, making it rather unreliable as of now. I wouldn't pay too much attention to it.

However, looking at the 1 and 3 year rolling returns, things are looking a lot more interesting. At of the current month, both the 1 and 3 year rolling returns are past their 1 standard deviations down. That means statistically, that there at least 84.2% that rolling returns increase from this point onwards.

I cute off the bottom of the graph, since it only shows the number of observations. However, just for information's sake, the graph starts from 2011 until present day, and each observation is the 1st trading day of the month.

As you can see from the graph, the 1 year returns is negative now, and the 3 year returns are in the positive zone now, indicating a rather attractive entry point. However, my main concern is actually the interest rate risk of this investment. The fund does even concede in its annual report that a 1% rise in interest rates will cause the fund to lose about 6% of its NAV because of it's current duration. That means if interest rates rises 1% over the next 3 years, the fund will probably break even. I don't know, it feels like quite a bit of risk with very low upside potential.

Then again, based on recent trends, it does seem like the global economy will be slowing down, deflation risks might appear and the stock market might not be a good place to camp out with your money, regardless of the fact that you still get dividends throughout the holding period. It is a minor plus point throughout a bear market though. Perhaps I will give it a shot, a token investment to embolden me to use the SCB trading platform.

Home Bias... or Currency Bias?

After I had posed a question to The Turtle Investor (TI) regarding his asset allocation and his intentional home bias, I've been constantly thinking and thinking and thinking about. In the shower, in the car, in my bed, everywhere! In my mind, I've finally battled it out to just some remaining questions that has to be answered:

1) Has the SGD appreciated against other currencies?
2) Has it appreciated on a whole as a currency, or only against a few currencies?
3) What is it's appreciation against the other currencies, or depreciation against them?

4) What is the handicap of a home-biased investor?
5) Comparing this handicap to the currency appreciation and transaction costs, is it finally worth it?

So, I will do a quick and dirty post to try and answer these questions so that I can get a clearer picture in my mind for myself as well. Do take note that all the comparisons are the Nominal Effective Exchange Rate (NEER), and not the Real Effective Exchange Rate (REER). Why am I using NEER when the REER is much more useful? Because it's easier to find la!

0) History of the SGD
I found this interesting article, which is a case study of the SGD. The SGD was created in 1965 at a fixed exchange rate, but in 1973 made the landmark move to change to a floating rate. After a couple of revisions, the closest form to it's present day form is after 1978 when Singapore left the Sterling Area Countries because of the devaluation of the pound. It's an interesting article to read to get an understanding of the SGD.

1) Has the SGD appreciated against other currencies?
2) Has it appreciated on a whole as a currency, or only against a few currencies?
3) What is it's appreciation against the other currencies, or depreciation against them?

While the above charts show from 1999 til present, it's not particularly useful because I can't find the exact start and ending values. Therefore, I went over to and looked at the 10 year charts. Over the past 10 years, the SGD has performed against the other currencies as such:

GBP: +3.94% (+47% over 10 years!)
USD: +2.93%
JPY: +2.55%
EUR: +1.65%
NOK: +1.40% (+15% over 10 years)
SEK: +1.26%
CAD: +1.12%
AUD: +0.87%
NZD: -0.06%
CNY: -0.08%
CHF: -0.86% (-9% over 10 years)

After looking at the results, I have to say that I am pretty shocked. The USD, EUR, GBP and JPY are the 4 biggest currencies traded in the world and also held as foreign reserves, and they have just been doing nasty. Perhaps it is all that government and central banking intervention? Regardless, I think this have quickly pushed me away from considering GBP investments in the near future.

The NOK and in some part, the SEK, is considered the new "safe haven" currency, due to their massive asset base and non linked exchange rate. Quick searches on the internet will tout the NOK as the safest currency in the world, but I'm not so sure about that, especially when you look at the currency performance.

Moving onto the commodity currencies, we get the CAD, AUD and NZD. Of the 3, the NZD is considered the safest of the lot. The AUD and NZD has one main thing going for them, which is their high interest rates, which helps supports their currency. If that has to be lowered and there's an economic downturn which brings about less demand for commodities, what is going to save them? See their performances during the GFC, it is... scary.

Now, the grand daddy of them all. The Swiss CHF. Long touted as the safest currency due to it's previous gold links, it is no longer the case anymore. Perhaps the last straw that took it for the currency is the fact that in 2011 they set a price ceiling for the EUR/CHF, effectively eliminating any long term appreciation in the CHF against the EUR. Although not perfect, I would say that the Swiss economic system is much more sound than it's Western counterparts. It's currency is still vulnerable, as all fiat currencies in this world is, as noted in this article here.

4) What is the handicap of a home-biased investor?
5) Comparing this handicap to the currency appreciation and transaction costs, is it finally worth it?

Referencing this 2009 paper, it can be seen that for Japanese investors who had home bias actually underperformed the market by about 3.5% annualized over 15 years. That is actually quite a substantial amount! Over 15 years, a global portfolio would end off with 67% larger ending value than Japanese equities. However, of course it also has to be noted that the late 90s and the 2000's were not a particularly exciting or good time to be in Japanese equities.

In SCB, the currency conversion costs are between 1 to 1.55% per direction of conversion. (USD is 1.0%, while GBP is 1.3% and CHF is 1.55%) Since dividends when paid out and eventual capital gains when cashed out will be paid out in the foreign currency, you effectively have a 1.5% sales charge on entry and a 1.5% exit fee on your exit to convert it back to SGD.

6) Conclusion

I know it isn't very concrete and mathematical, but after thinking about it, it does seem like investing in other investment vehicles overseas looks a lot less attractive than previously thought. Most of the majors are significantly disadvantaged to compete with the SGD in the long term (though, my research is purely on a nominal basis, real terms would be considerably more accurate and justified). I am of course assuming a paradigm shift in the fundamental values of these currencies against the SGD, rather than a mean reverting one. If the GBP/SGD goes back to 3 or the USD/SGD back to 2, then of course, I will just shut my mouth and never speak again.

I have to do more research regarding this, especially the transaction costs involved. Is paying 1.5% expense ratio to have exposure through a managed fund which hedges back to SGD worth it, or is it more worth it to invest in a low-cost ETF in a foreign currency and do hedging yourself? Hmm... things are getting very very tricky and confusing in my head right now, haha!

STI Studies

I've been wondering how to accurately create a very simple model that can help advise me when I should or not invest in the STI.

With only monthly values, I've added in rolling 1 year, 3 year and 5 year returns, and the above is the graph.

I think the 5 year rolling returns is less useful, because it is too smooth.

However, I think the 1 and 3 year rolling returns, along with their interaction with each other can provide quite a far bit of information.

From what I understand, as long as the 1 year rolling returns are lower than the 3 year rolling returns, there is no cause to buy, since there are possibilities of the index falling lower. However, a good position to be buying is when both the 1 year and 3 year rolling returns are more than 1 standard deviation below their average. Some previous historical examples of this was in 1998, early 2003 and early 2009. All of those times, it has proven well to have been buying at those firesale prices.

As of my data that I have now, both 1 and 3 year returns look set to decline downwards based on trend and my prediction of the cycle. If that is true, the index would look much more attractive to be bought in perhaps about a years time.

Friday, March 14, 2014

Squirreling Away?

After registering for the SCB trading account and somehow talking to my friends about insurance last night, I feel like proving my point that taking control of simple investing would be much more effective than insurance-savings.

I think with that, I'm going to actively set aside $400 a month and do a simple experiment. With this $400 dollars a month, I will purchase basic term insurance, and I will invest the rest.

Insurance component:
$25.60 for 200k Life / TPDInsurance
$10 for 100k Critical Illness
$10 for 100k Early Critical Illness

Savings component:
60/40 Equity and Bond allocation

Equity Component will be the GBP class of the PowerShares RAFI All-World 3000
Bond Component will be the GBP class of the iShares Global Corporate Bond

1) Transfer $354.40 monthly from my DBS account to my SCB account and convert from SGD to GBP into the settlement trading account
2) Calculate value of current holdings
3) Value average the excess cash and any dividends to get a 60/40 allocation

*Note: The equity shares are priced in GBX, so they are about £10 per share, while the bond shares are priced in GBP at £60 per share. This means that monthly purchases would be quite lumpy, but there should be as little cash holdings as possible. As long as the bond portion is never below 30% or more than 50%, the goal is just to efficiently contribute money towards snowballing the investment.

I ran a simple savings calculator with, assuming $350 monthly contribution and a quarterly annualized rate of an extremely moderate 4%  for the next 20 years (ending age 45). By these calculation standards, I should be able to comfortable hit $100,000 nominal value by the end of that period and quite possibly up to $150,000 if the markets do well!

Or you know, you could buy some insurance-saving plan and have no freedom and flexibility to allocate your funds, and no negotiations to defer cashflows or early withdrawal, and have sub-par performance.

I am thinking about the STI ETF, but my readings and knowledge is yelling out to me and telling me that I should think more globally. There are much more risks investing in a specific country, which is largely geo-political, but there is also currency risks as well.

Anyway, I shall be updating more on this soon! I need to think about this more.

Thursday, March 13, 2014

Mundane News

For the most mundane and boring news ever, continue reading please...

So today, just to test out the iBanking facilities of SCB, I have set-up my DBS account to do an interbank transfer. After raising my transfer limit to a plausible amount, I transferred a nominal amount just to see how the facilities work and mostly to check on the speed of the transfer, as well as any charges incurred (there should be none).

I did the transfer at 3.30pm today on a Thursday, I should expect it in my amount by Monday morning, if not, something is grossly wrong with the system. Anyway, I'll just see how fast it goes. Once it's done, I will do the reverse as well to find out how long it takes to move funds out of SCB.

However mundane this is, it does help me understand the limitations of my investing agility. Ideally, everything is as fast as possible, giving me the maximum opportunity to enter in on a trade if an account does not have sufficient funds.

Also, knowing the process of the system helps me work out and better manage my money across the different accounts.

I think I have resolved to:
DBS - leave a nominal sum for emergencies
Phillip - hold excess SGD cash, as well as invest into suitable SGD-denominated unit trusts
SCB - hold SGX listed SGD securities, mainly GBP-denominated ETFs, and USD alternative capital gains ETFs
CMC - currency CFDs, possible hedging option

There you go, pretty much all the trading and investments that I will ever do from now on is going to fall within these 4 accounts. I really do like to keep things simple, so I hope this helps me!

Finding LSE ETFs

Today is one of the few days where I've been a bit less fast-paced than how I normally am. I think it's the fact that today was an easy and lazy day at work, and there wasn't anything too stressful going on in the office. To top that off, I left work early and got a tons of errands done (refer to earlier post) and I spent the night chilling out.

Well, I've decided to get to work a little bit. Since I've decided to open a SCB online equities trading account, I've got to do some online equities trading, right?

Now I'm at the LSE website trawling through the different ETF issuers, trying to make a shortlist of ETFs for me to consider. There are only 2 criteria so far:

1) Any SGX listed ETF in SGD should be excluded, since the currency conversion is not worth it
- ABF Singapore Govt Bond
- iShares Barclays Asia LC 1-3 years
- iShares Barclays Asia HY Bond
- iShares JPM Asia Credit Bond
- iShares MSCI India
2) The ETF has to be in GBP so that I only need to manage a single currency.

So all right, here we go!

Non Useful Issuers:
UBS - Provides a few country ETF options, but mainly hedged back to the GBP
FinEx - Only has 1 Russian Bond ETF
First Trust - Has EM, UK and US indices, but it is indexed to it's own proprietary indices
PIMCO/Source - Only 1 fund is interesting, the PIMCO Sterling Short Maturity Source ETF
Ossiam - Only 1 fund, UK minimum variance

Semi-Useful Issuers:
ETFS - Long ETFs for precious metals and energy commodies, as well as Grains, Agri and DJ-UBS baskets
HSBC - Decent range of single country ETFs, BRIC, Latin America and a Developed Real Estate ETF
RBS - Arca Gold Bugs Index, BRIC and Russia
Invesco - Very interesting range of RAFI indexes, US1000, EM, Europe, AsiaPac Ex Japan. Could be very viable (potential alpha) substitutes to traditional indexes, as well as the very interesting Listed Private Equity ETF.

Probably Useful Issuers:
Vanguard - Their low-cost vehicles for the S&P, EM, All-World, Developed Europe, Developed Asia Ex Japan and their interesting All-World High Dividend Yield
SPDR - Interesting Dividend ETFs (EM, Euro, UK, US, Global, Pan Asia) , ACWI IMI, shorter term fixed income, DJ Real Estate
DB - Wide range on equities, but fixed income seems to have weak selection and not all ETFs have pound issues
Lyxor - Wide range of products as well, but they are all capitalizing. However, they do offer the MSCI World Risk Weighted Index that UBS stopped offering
iShares - The grand daddy of ETFs, they have a huge range of products, covering mostly the broader base rather than country specific. They also have a private equity fund as well

With that, I end off my night at 3 a.m. after all that grueling research. I would like to piece everything back together and make sense of heads and tails. I still have to make a nice huge spreadsheet of what are the available investment options (GBP share class), then I will slowly eliminate double counting of indexes by overlapping firms. In the end, I should have a list of funds that could replace my current unit trust holdings, especially the ones with high expense ratios. I will also have a separate group of funds that are a bit more narrow defined, but broad even to give diversification protection if I am deciding to make a contrarian bet on a sector, country or region.

But for now, I shall sleep and dream about all of these things, haha!

Wednesday, March 12, 2014

A Day of Errands

Today I left work early so that I could run some errands that I've been meaning to.

Firstly, I went to OCBC to submit some personal documents so that they can approve my credit card. The guy that I asked told me that it would take about a week for my card to arrive and for me to use, so I won't be putting off buying my airline ticket for my holiday anymore, I'll just do it later.

Secondly, I finally went to SCB to open up a bank account with them. I opened up the generic basic internet banking account, called the e$saver account.

As you can see, the account is seriously FUSS-FREE. The only thing is that everything is through the internet, so that means I won't be getting any paper statements. I have to diligently download the statements I suppose, since I would like to keep a record of my account. There's also a decent 0.1% interest on it, which of course, is better than DBS right now. Shame on DBS actually.

Of course, this account is mainly a transitional account for money to flow into the SCB settlement account for me to trade online equities. I've been wanting to open an account with them, and I have finally done it. I have decided to have settlement accounts in SGD and GBP for now, but perhaps USD in the future.

It'll be about a week as well before I can start making online trade transactions as well, so we'll see about that as I test the platform, find out about the charges and I will of course report the whole experience here.

Balls Deep - That's How I Roll

Put your money where your mouth is at.

I say I'm a contrarian, so that's what I'm doing now. Take a look at this chart.

Resolution might not be so pretty, it's just a quick and dirty screenshot. I'm actually kind of busy today, but I wanted to document this entry.

My investment vehicle of choice is the HSBC GIF Russia Equity, the SGD class of course. While I would like to have returns hedged in normal circumstances, I guess I think it might actually be towards my advantage to leave it un-hedged. Hedging USD/RUB and then USD/SGD to get a SGD/RUB hedge is just too much time and effort of monitoring, so I won't be doing that.

Anyway, as I mentioned in my previous posts, Russia is looking might fine and attractive to me. Based on the stats on Yahoo! Finance (using RSX as a proxy), it has had annualized returns of -14% for the last 3 years, and it is already down 15% YTD. And if you compare it to the SPY, it has 14% annualized returns for the last 3 years. So if you though the SPY run in the last 3 years was great, you'd love the drawdowns on Russia.

Personally, based on the RSX, I'm looking for an upside target of about 27-30, which would translate to between 20-35% returns, and this should realistically come in within 6-9 months time. I'm not shy to be more of an in-and-out for this contrarian bet. I personally do not find Russia as a country to be part of my core holdings, so this is merely just a value opportunity which I am taking a risk on. However, knowing how deep the last financial recession went, downside is clearly clearly capped to just 50% of my open position now, and that is a huge long shot.

Which is precisely why I am betting against that happening. For that to happen, current YTD drawdown will reach 63% from the current 22% it has already suffered. That would also bring down the annualized 4 year returns to -44%. (THAT'S ANNUALIZED!) I don't know, but I'm out on a limb here making a bet with probability and odds in my favour, that's all I'm saying.

I've already made the trade and booked the transaction into my contrarian trade log book. It would be interesting for me to do a report of my track record in the future. Perhaps when I have more time!

Tuesday, March 11, 2014

Speaking of Books

... here is a hilarious post by the Tylers from ZeroHedge.

Basically Seth Klarman (along with Warren Buffet) has said that the market looks "fully-valued" or "over-valued".

Jim Cramer's ending response after saying that it doesn't really matter (the gist of it) is that "if you leave now, where are you going to go to?"

So, here's a photo on of the 2 people and their books:

A used Seth Klarman's book goes for $1,600 while a brand new collectible Jim Cramer book goes for $36.95.

Does that mean that Klarman's advice is worth (at worst) 43 times more than Cramer's?

You know what? I think it does.

[Book Review] Successful Investing Is a Process, Chapter 1

Back on 21st December 2013, I was trawling through the interweb, and I came across an interesting post by The Capital Spectator. His post was about his best financial book picks of 2013. Curious, I went to check out some of the titles, but this one stuck out for me. Not only is it one of the 5 books that he published in his first part of his book bits, but it is also the first title that he listed as well. Whether it is in ranked order or in no particular preference, I did not find any other his other book recommendations to my liking. Mostly, they were tangent topics, with less empirical lessons and more vague ones.

Without further ado, let me tell you about this book!

Successful Investing Is a Process: Structuring Efficient Portfolios for Outperformance 

What really impressed me were actually the philosophy of the book and the comments by the people listed on the back cover. Charles Ellis' book with Malkiel "The Elements of Investing" is by far the best and simplest book that every person should read. It should be a compulsory reading in basic financial literacy in high school (upper secondary). Rob Arnott is a truly respectable man that convinced me that the idea of market cap weighted indices are silly, as well as being a proponent of tactical asset allocation. The other people on the cover have interesting CVs as well, but the kind words by these 2 financial heavy weights made me very interested in what knowledge the book had to offer.

I went online to, I bought the book and I got it shipped over to my grandparent's place in Oregon. My family picked it up and brought it back for me when they went back for a vacation and to visit them. That's right, my present from my family that went all the way to the US for vacation wasn't even a book. It was courier service for a book that I had already bought, haha.

So instead of doing an entire book review, I've decided to do short chapter reviews instead. Firstly, whilst working full-time, studying for my CFA part-time and having a life, I don't have extended periods of time to just sit down and digest the book. Secondly, by reviewing chapter by chapter, it ensures that I don't miss any important points that are noteworthy. Thirdly, it is just too mentally draining to read the entire book, haha.

Chapter 1: The Economics of Active Management

Never before in my life after reading an article between active and passive management do I feel more compelled and surer than ever that fees and commissions in the financial industry is a drag to your returns.

Before reading this chapter, I had the notion that active management is a coin flip between under and out performing the benchmark index. However, after reading this chapter and hearing his very simple examples and explanations, my views has changed markedly.

Basically, would you prefer with certainty that you would almost always get the index returns, or would you generally like to underperform the benchmark, with some years of outperformance?

His pie example is a perfect way of envisioning how much less of "the slice of the pie" that you are getting, due to expensive fees by managers who may or may not provide you with superior returns.

I must admit, after reading this chapter, I feel a lot more inclined to low-cost expense ETFs, compared to the more expensive mutual funds that I currently employ. From my previous post, you can see that I spent the better half of last night researching about foreign ETF strategies since they offer a much larger and comprehensive range of products.

This first chapter was not difficult and explained things I already knew, but he explained them so well and flawlessly that I now look at this subject in quite a new light. Maybe bright white instead of paler yellow.

I can't wait to start the second chapter, but I'm trying to pace myself out and make sure that I also do other important things, like studying for my CFA, haha!

Week 8 9 10 / 2014 Update

I've been meaning to do this for so long, but I've been keeping a rough score in my head and I've just been a big bogged down lately to do my weekly updates. I ought to do, it gives me a much better pulse on the markets, though it is quite nice not to think about updating. Without further ado, 3 weeks worth of updates!

Well, I don't know if you guys can tell, but since week 7, the major changes are as follows:
  • DM equities have improved
  • Asia ex Japan is significantly better
  • EM equities unchanged
  • REITs look almost investible now
  • HY is almost back to full bullish
  • Commodities are given the green light
  • Bonds in general have been improving as well

Well, I don't know if you guys can tell, but since week 7, the major changes are as follows:
  • DM equities have hit new ATH
  • Asia ex Japan has bounced back up
  • EM is still weak, barely moved
  • REITs are looking better ever so slightly
  • HY credit up a bit more
  • Commodities is recovering nicely
  • Bonds have all improved quite well
So, the follow-up action that these seems to be telling me is that:
  • Everything all can't be improving at the same time
  • At least one of the major asset classes are wrong, if not, 2
  • Still keep light footed on the economic sensitive sectors, today things are heating up
  • Commodities seems like the best game in town

Monday, March 10, 2014

Investing Overseas

Recently, after reading the first chapter of a book that I just bought (chapter by chapter review coming soon!), I've realized that I'm much more appealed to the use of index ETFs, or at least a low-cost investment strategy that will help me save money in the long term.

That has led me for the past 2 hours to research on various overseas stock markets for information about how to invest overseas.

I was initially thinking of quickly renouncing my American citizenship so that I could legally trade US shares after signing the W8-BEN form. However, it has come to my attention that Singapore and the US do not have any favourable tax treaties. As such, Singaporeans will be taxed 30% of dividends paid out by US companies, and are subject to capital gains taxes as well, unless they fill out the W8-BEN form. (I found it out through trawling this forum thread)

Now, that honestly sucks balls. Pisses me off actually. 30% is a pretty steep cut for a useless government doing nothing. But oh well, what can one do?

Move your money elsewhere!

So, figuring about this horrible tax law, I set about first finding out which countries DO NOT impose an outgoing withholding tax on dividends. My search led me over to this article on Seeking Alpha, with has this table below (this is caa 2011, use the link below the table!!).

And I would like to draw your attention to #9, #15 and #19. Yes, the United Kingdom!

Of all the different places available to invest in, there are basically no other developed financial exchange that can offer better options. So I looked around to compare brokerages and DBS just looks god-awful with their fees. Basically, only their direct debit feature for local SGX listed stocks is attractive and competitive. All their other fees are ridiculous.

Here are the fees by Phillip:

Rather reasonable, isn't it? There seems to be extra charges though, such as dividends handling fee, custodian charges, and also the currency conversion rate. However, I shall be sending Phillip an email asking them all about these charges. I will let you know about what I find out!

Until then, explore the possibility of investing overseas, not through indirect exposure through local firms, but through the SGX listed ETFs and overseas exchanges!