Following my asset allocation plan, I have bought the funds below (through the broker stated in brackets):

1. iShares MSCI Europe ETF (Saxo)
2. Lyxor Asia Pacific Ex Japan ETF (SCB)
3. Lyxor Japan ETF (SCB)
4. iShares Citigroup Global Government Bond ETF (Saxo)

On the other hand, I have taken the opportunity in the recent rise of bond price to sell Legg Mason Global Bond Trust, an actively managed unit trust fund. Following the sale, I do not have any actively managed fund in my portfolio, except UOB GrowPath 2040 in CPF SA. I will allocate the sale proceed to US equity, again, according to asset allocation plan.

The main attraction is that there is no minimum commission for trading in major stock exchanges around the world, so it is very good for small transaction, especially if you want to do monthly contribution into ETF. Read the Brokerage & Market Fees, FAQ and this post by hyom. Besides the questions raised n FAQ, I also gathered the following information by calling the online trading hotline at 1800 242 5333 (don’t call the general hotline as the officers are not equipped to answer online trading-related question).

1. All shares are held in SCB.
2. No monthly custodian fee.
3. No dividend handing fee.

Currency exchange rates

I compared SCB currency exchange rates with that of Oanda.com for a random couple of days, see the spreadsheet below (or open the spreadsheet here). As you can see in the last column (Amount % Difference), HKD rate is consistently bad while others fluctuate. I have only transferred money to USD account and did so when the Amount % Difference is in the 0.5–0.6% range.

ETF listed in London Stock Exchange

According to London Stock Exchange (LSE) webpage on  ETF, ETFs attract no stamp duty. The two brokers (POEMS and Saxo) that I have used to purchase ETFs in LSE follow this rule and did not charge stamp duty.

For SCB, you will have to pay the stamp duty of 0.50% on buy trades. I called up SCB, cited the webpage and asked if there was a mistake and whether stamp duty would be refunded if the transaction in LSE was a ETF. SCB said they would call back. Few days later, SCB called me and said all buy trades in LSE will attract stamp duty. Huh?

So how much commission in total (including stamp duty) will I be paying when I use SCB compared to Saxo? See the spreadsheet below or open the spreadsheet here. SCB is more expensive than Saxo when your trading  amount is only slightly over $1000 ($1066.67 to be exact). This means SCB is only cheaper when you trade below $1066.67.

Comments

The ETFs and REIT shares that I use in my portfolio are listed Singapore exchange, US stock exchanges and London stock exchange.

1. I am inclined to use SCB for transaction in Singapore exchange and US stock exchanges.
2. I will continue to use Saxo for transaction in London stock exchange.
3. For currency exchange, I am OK with the hassle of comparing the rate in SCB with Oanda.com each time before initiating the transfer.

Expenses

Quite a passive year, partly because of delay on planned portfolio activity in October 2010.

Emotion

Nothing much to say here, except the frustration of finding London Stock Exchange(LSE)-listed global bond ETFs that are available in Saxo (the stock broker I use), and the delay caused by the waiting. Anyway, the two LSE-listed global bond ETFs are available now (since May 2011) for trading in Saxo.

Return

Note:

1. IRR = Internal Rate of Return, also known as Dollar-Weighted Returns.
2. TWR = Time-Weighted Returns
3. Both TWR and IRR returns include dividend and un-invested cash holding.

Comments on the return

• The IRR and TWR are almost the same. This is because new cash contribution is evenly spread out over the year, as I save monthly to contribute to the portfolio.
• Portfolio return is quite close to the benchmark, which tells me that my portfolio behaves as expected as a 75/25 portfolio.
• The gap between SGD return and USD return is due to depreciating US dollars.

Portfolio Allocation

There is a slight over allocation in REIT due to a number of right issues by several REIT managers. The Cash holding is caused by the delay on planned portfolio activity mentioned above.

Looking into 2011

There are more and more ETFs listed in SGX and I have not looked into them; could be interesting. For global bond ETF, I will start to use the LSE-listed iShares Citigroup Global Government Bond (IGLO) and iShares Global Inflation-Linked Bond (IGIL) that are now available for trading in Saxo stock broker.

As always, stay the course and tune out financial news.

Recently, a reader left a comment that a multiple-currency ETF was added to Saxo upon his request. I have sent a request to Saxo again to add the two global bond ETFs. Will update when I have their reply.

I posted HERE that I may consider bond ETF in London Stock Exchange following the reduction of Saxo commission from GBP 15 to GBP 8.  But alas, when I asked Saxo to add the following two global bond ETFs, Saxo replied that they were not able to add because these ETFs are traded in multiple currencies (GBP and USD).

• iShares Citigroup Global Government Bond (IGLO), traded in USD.
• iShares Global Inflation-Linked Bond (IGIL), traded in USD.

When I probed further and informed Saxo that the two ETFs have different stock symbols for different currencies, Saxo replied they still could not add them because they share the same ISIN number on the same exchange.

Ok, let’s try POEMS. I emailed their tech support to add these two ETFs. And on the following day, it was added! So now you can buy the two ETFs in POEMS, just note that the ETFs are traded in GBP and their symbols are:

• iShares Citigroup Global Government Bond (SGLO), traded in GBP.
• iShares Global Inflation-Linked Bond (SGIL), traded in GBP.

However, there is a catch: POEMS charges a higher commission (GBP 25) compared to Saxo. Given this, I am undecided whether to use POEMS or not.

According to my asset allocation plan, I needed to top up US asset class. But after allocating the required amount from my fresh fund to the US asset class, there was some, but not much, surplus left. I could allocate this surplus to the asset class that almost reached the bottom threshold of its allocation, which was Asia Pacific ex Japan.

In the end, I topped up only the US asset class with all the fresh fund to save time and commission, since the top up of Asia Pacific ex Japan by the relatively small surplus did not change much the allocation of all asset classes.

… the minimum commissions charged on stocks traded on the following exchanges will be lower from 1 May 2010:

• Euronext Amsterdam (AMS) from EUR 20 to EUR 12
• Euronext Brussels (BRU) from EUR 20 to EUR 12
• Euronext Lisbon (LISB) from EUR 20 to EUR 12
• Euronext Paris (PAR) from EUR 20 to EUR 12
• Frankfurt/Xetra Stock Exchange (FSE) from EUR 20 to EUR 12
• London International Exchange (LSE_INT) from USD 40 to USD 20
• London Stock Exchange (LSE_SETS) from GBP 15 to GBP 8
• Milano Stock Exchange (MIL) from EUR 20 to EUR 12
• OMX Helsinki (HSE) from EUR 20 to EUR 12
• Sistema De Interconexion Bursatil Espanol (SIBE) from EUR 20 to EUR 12
• Swiss Virt-X (VX) from CHF 30 to CHF 18
• Swiss Exchange (SWX) from CHF 30 to CHF 18
• Wiener Börse – Vienna Stock Exchange (VIE) from EUR 20 to EUR 12

Saxo Capital Markets will raise the minimum commissions charged on stocks traded on the OMX Copenhagen Stock Exchange (CSE) from DKK 19 to DKK 29.

The reduction of commission for London stock exchange is almost half. Great! Now I only need half of the previous investment amount to achieve the same ‘sales charge’.

With this low commission, I may also consider bond ETF in London stock exchange when I need to add to my global bond asset class. Currently I use unit trust fund for global bond asset class. Below are the global bond ETFs in London stock exchange that I may use:

• iShares Citigroup Global Government Bond (IGLO)
• iShares Global Inflation-Linked Bond (IGIL)

Expenses

Expenses have gone down because of reduced number of transaction. This also translates into lower turnover ratio and longer average holding period.

Emotion

After the financial crisis in 2008, one of the hot topic that surfaced in 2009 is buy-and-hold, as shown in this Google search result. Investor started to question the logic of buy-and-hold, and when they saw the S&P 500 Index returned -1.4% per year from 1999 through 2008, many termed this as the “lost decade”‘ for investors and went on to say “buy-and-hold is dead”. But seriously, who would invest in a 100% S&P 500 index fund portfolio in reality? When investors say “buy-and-hold is dead”, many examples are given – some use S&P 500 index in the above example, some use a basket of stocks, etc. So are all types of buy-and-hold dead? We should ask what John Bogle asks, “Buy and hold what?” in the interview in Is Buy-and-Hold Dead?, where he explains which buy-and-hold is long dead before the financial crisis.

This just shows that how much noise there is in the financial media. Investors would be better off to tune out financial news (see the last point of Larry Swedroe’s New Year’s Investing Resolutions). I am glad that I have adhered to my plan in 2009 and will do so in 2010 and beyond.

Return

*Both TWR and IRR returns include dividend and un-invested cash holding.

IRR and TWR

From this year onwards, I will include another type of return - Time-Weighted Returns (TWR), in addition to the IRR (Internal Rate of Return, also known as Money-Weighted Returns or MWR or Dollar-Weighted Returns). The difference between TWR and IRR is that TWR is independent of contributions and withdrawals of money in the portfolio.

• TWR is therefore more suitable for comparing your portfolio return to a benchmark.
• IRR, on the other hand, measures the true return of your portfolio because it takes into account the effect of when you make contributions and withdrawals to the portfolio.

There a few methods for calculating TWR; I use the Modified-Dietz Method. I refer to this Excel spreadsheet example in section Time-weighted method #3: The Microsoft Excel way of this article to calculate TWR.

Comments on the return

• The IRR and TWR are almost the same. This is because new cash contribution is evenly spread out over the year, as I save monthly to contribute to the portfolio.
• Portfolio return is quite close to the benchmark, which tells me that my portfolio behaves as expected as a 75/25 portfolio.
• On the other hand, the portfolio return swings 3-5% more than the benchmark. It outperforms the benchmark in positive year (2009) and underperforms the benchmark in negative year (2008). This is expected as the portfolio asset allocation within the equity and fixed income is not exactly the same as the benchmark, though they have the same 75/25 equity and fixed income allocation.

Portfolio Allocation

The table above shows the portfolio allocation as at 31 December 2009. The current allocation is pretty much close to the target. There is a slight over allocation in REIT due to a number of right issues by several REIT managers.

Looking into 2010

No much change is expected for my portfolio, except, may be for the financial instrument that I use for each  asset class. I hope there will be good ETFs for US equity and Europe equity in SGX. I am not satisfied by the current SGX-listed Europe equity ETFs — the one from Lyxor has a very small asset under management; the one from DB could use up to 100% of its asset in Swap (according to the prospectus).

Another area that look into is the fixed income part of the portfolio. Right now I use actively managed fund as my global fixed income fund. One alternative is to use fixed income ETFs listed in London Stock Exchange (mainly because the dividend is tax-free), but I have not looked into this in detail. Anyway, I find that my new cash contributions have seldom bought into fixed income, there wasn’t even a transaction in fixed income in 2009!

Last but not least, stay the course and tune out financial news.

I first came to know his name from what he has said below on investing (which is also my favourite investment quote):

Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. – Source

Paul Samuelson was referring to the emotional traps (overconfidence, market timing, performance chasing, etc.) that investors often fall into. And that investors would be better off doing it passively. It is also the investment philosophy I adopt and wrote about it in this post 3 years ago.

1. Europe equity
2. Japan equity

No top up for REITs as the current holdings in my portfolio is over the target allocation already, because I have accepted a number of rights issues offered by some of the REITs.

For Europe equity and Japan equity, the funds that I will use remain the same: iShares MSCI Europe ETF and Lyxor Japan (TOPIX) ETF respectively. There is an alternative to Europe equity: Lyxor MSCI Europe ETF that was listed in SGX a week ago.  The broker fee to buy this ETF is cheaper than iShares MSCI Europe ETF, which is listed in London Stock Exchange. But for now,  I will give Lyxor MSCI Europe ETF a miss because it is quite new and the asset under management is only slightly more than USD 6 million.

I have made the transaction for Lyxor Japan (TOPIX) ETF and will buy iShares MSCI Europe ETF next week, after its ex-date on 28-Oct-2009.