Portfolio activity, October-November 2009

October is the time to do my semi-annual purchase of funds. My asset allocation plan shows that I need to top up two asset classes:

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.

Portfolio activity, April-July 2009

Just to update my regular fund purchase in April. The asset allocation plan in April indicated top up required for asset classes:

1. US
2. Asia Pacific Ex Japan
3. REIT

I have only bought REIT in April, while I was preparing for the funds for the rest. When the fund was ready, it was July and the asset allocation had changed due to the rise in Asian stock markets. The asset classes to top up in July was US equity only, for which I bought Vanguard Total Stock Market ETF (VTI).

As of 7-September-2009, my portfolio allocation is shown below.

	Current	Target
Equity	67%	75%
US	23%	25%
EU	14%	20%
JP	4%	5%
APEJ	8%	10%
SG	4%	5%
REIT	14%	10%
Fixed Income	33%	25%
Global	7%	10%
Asia	6%	5%
SG	13%	10%
Cash	7%	0%

The next regular fund purchase is in October. The 7% cash shown above is the savings for this coming purchase.

Sell VWO to cut future dividend withholding tax?

Right now, I still hold Vanguard Emerging Markets Stock ETF (VWO) and pay the dividend withholding tax every year. I wonder if it would be better to sell VWO to cut the future dividend withholding tax. Before I continue, here’s some background:

1. In a portfolio asset allocation update in 2007, I decided to use Lyxor ETF Asia Pacific Ex Japan listed at SGX (symbol: AEJ) to replace VWO for future purchase. But I still keep my VWO holding.
2. As a result, I am still paying every year 30% dividend withholding tax on the dividend I receive from VWO.
3. The dividend withholding tax is about USD10-15 every year.
4. In my previous post on claiming back US dividend withholding tax on non-US equity ETF, I decided not to pursue that avenue to claim back dividend withholding tax for VWO, because my broker’s Form 1042-S does not list the necessary information and the dividend tax amount is small to worth the effort.

To get an idea of how much dividend withholding tax I would be paying if I were to hold it for the next 30 years, I calculated the cumulative present values of the tax in this spreadsheet Present value of VWO dividend tax (Google Docs) with a discount rate of 2.5%. The rate 2.5% is the interest rate of CPF Ordinary Account.

As you can see, the cumulative present values of the tax paid for the next 30 years are between USD200-300. Compare this with the broker commission of USD15 if I sell VWO, it seems logical to me to sell VWO to save on the tax. The sales proceed would be used to buy VWO’s replacement – Lyxor ETF Asia Pacific Ex Japan.

Does this make sense to you? Is the maths correct? Let me know and leave your comment, please.

Portfolio activity, October 2008

This post is way overdue, but just to update my portfolio activity for the regular fund purchase in October. I topped up the followings according to my asset allocation plan:

• Europe — iShares MSCI Europe ETF
• Asia Pacific Ex Japan — Lyxor Asia Pacific Ex Japan ETF
• REIT  — REIT stocks in SGX
• SG fixed income — SGS bond ladder (partial)

I bought 4-year and 6-year SGS bonds from Fundsupermart, and 5-year SGS bond from primary auction. So the bond ladder is 50% complete. I will hold these SGS till maturity and add 5- or 6- year SGS bond in the future to complete the bond ladder.

The fund purchase was done in late September/early October. It brought my asset allocation to the target 75/25 but it didn’t stay for long (which is normal). The fnancial crisis that followed brought the equity allocation down and it hovers around 65% since then. I thought may be I would do an early top up in January next year, before the next scheduled one in April. But, nah, I think I will be too lazy to do it. Back to my life…

Building bond ladder with FSM

In the portfolio activity in April this year, I kept the fresh fund for Singapore fixed income in FSM cash fund, instead of building the SGS bond ladder that I have planned. It was because the yield of 5-year SGS bond was low and I was really busy to go to bank to bid for it. But I have overlooked a quick and convenient way to build SGS bond ladder — the SGS bonds offered by fundsupermart (FSM). FSM charges 0.1% of nominal value as initial processing fee and 0.1% of nominal value deducted from coupon payment as annual custody fee.

How much do the fees reduce the yield? To do this comparison, I use the data in SGS web site as the yield before fee; and FSM Bond Factsheet to calculate the yield after fees. For the latter, I point my browser to FSM Bond Factsheet, then select a SGS bond, enter 1000 as the amount to buy, enter indicative price + $0.10 (to simulate the 0.1% processing fee on $1000 nominal value) as maximum price to buy, and finally hit the Submit button the get the net yield to maturity. My assumption is that the net yield from the calculation above includes the fees charged by FSM and the bid-ask spread.

The bonds that I have compared are as follow, with the yield to maturity from SGS web site and FSM calculator respectively. Data are extracted on 1 August 2008.

1. NX01100H; Coupon 3.625%; Maturity 01/07/2011; Years to Maturity: 2.92 (years), 1.36%, 1.10%
2. NX02100S; Coupon 3.500%; Maturity 01/07/2012; Years to Maturity: 3.91 (years), 1.84%, 1.63%
3. NX04100F; Coupon 3.625%; Maturity 01/07/2014; Years to Maturity: 5.91 (years), 2.47%, 2.29%

The fees and spread reduce the yield of the above bonds by 0.18% ~ 0.26%. Compare this with a bond ladder built by bidding SGS bonds at zero cost, this method has the advantage of building a bond ladder faster and saving the trip to banks.

Thanks to this post in sgfunds.com for the information on FSM SGS bonds.

Consolidated my ETF holdings

Last month, as planned in my previous post, I transferred part of my ETF holdings to Saxo. My ETFs are now held in the accounts below.

• DBS Vickers Securities
  • Vanguard Total Stock Market ETF (US)
  • ABF Pan Asia Bond Index ETF (HK)
• Saxo Capital Markets Singapore
  • iShares DJ STOXX 50 ETF (UK)
  • Vanguard Total Stock Market ETF (US)
  • Vanguard Emerging Market ETF (US)

I will use Saxo for my subsequent ETF purchase. ETF in DBS Vickers Securities will remain as it is to save transfer fee.

How long did it take to complete the transfer? After I have authorized both parties (one for transfer-out, one for transfer-in), it took about ten working days. Remember to ask both parties for forms and instruction to authorize both parties to do the transfer. The transfer from optionsXpress to Saxo was delayed because I did not know I also need to inform the party who will do the transfer-out of shares.

Classification of REIT

REIT is part of my portfolio and I try to hold REITs (from SGX) across different sectors. I want to see how my current REIT holdings are allocated, so I use the classification in my favourite PC game SimCity – R.C.I. for Residential, Commercial and Industrial. But some REITs, like hospital REITs, do not fall under any of this category. I refer to the classification in this post and simplify it to R.I.C.H. – Residential/Hospitality, Industrial, Commercial and Healthcare. I calculate the allocation of my REIT holdings according to this classification and it looks like this (total is 100%).

Clearly, when my asset allocation plan says it’s time to add REIT, I will add Residential/Hospitality REIT.

Consolidating my ETF holdings

My ETFs are held in several broker accounts, as shown below. This is because I have changed broker several times when searching for low cost broker for ETF in US, UK and HK exchanges.

• DBS Vickers Securities (formerly DBS Vickers Online)
  • Vanguard Total Stock Market ETF (US)
  • ABF Pan Asia Bond Index ETF (HK)
• POEMS
  • iShares DJ STOXX 50 ETF (UK)
• optionsXpress
  • Vanguard Total Stock Market ETF (US)
  • Vanguard Emerging Market ETF (US)

Each broker has its disadvantage. DBS Vickers Securities is the only broker I know in Singapore that does not charge custodian fee for US stocks, but its commission is higher than others. optionsXpress, which started its business in Singapore later, charges less commission than DBSVickersOnline, but funding the account is a bit troublesome when I use bank draft from Custom House for its lower foreign exchange spread. Finally, POEMS charges custodian fee and dividend handling fee, though its UK trading commission is lower than others. So, it would be good if there is a broker that is easy to fund and with low commission to hold all my ETFs.

Recently, a friend mentioned consolidating his ETF to Saxo Capital Markets Singapore because of its low commission for UK market, zero custodian fee and zero dividend handling fee. I have explored this option before but put off the idea due to the minimum SGD15,000 requirement to open an account. Later I found out from Saxo customer service that I could transfer in stocks to meet the minimum SGD15,000 requirement. So I decide to consolidate my ETFs to Saxo. The advantages are:

1. Lower commission than POEMS for UK stocks.
2. Zero custodian fee and dividend handling fee as compared with POEMS.
3. Ease of funding: you can fund the account by SGD cheque. Trade done in foreign currency are converted using the current spot rate plus/minus 0.5%. This is close to Custom House rate and lower than banks.

As transferring of stocks from one broker to another incurs fee, I plan to transfer my ETFs only from optionsXpress to get rid of the funding headache, and from POEMS to get rid of the high commission, custodian fee and dividend handling fee. I will leave the ETFs in DBS Vickers Securities because they do not incur on-going custodian fee.

The transfer of my ETFs to Saxo is in progress. I will post update when they are done, so stay tuned.

Portfolio activity

It is April, time to do my semi-annual fund contribution ritual. After a few times, it has been quite a routine. Open portfolio spreadsheet, update price, add fresh fund and restore the equity/fixed income ratio to 75/25, allocate fund within equity and fixed income to asset classes that fall below target allocation, then lo and behold, it says I need to top up the following asset classes (fund name in brackets):

• Europe (iShares DJ STOXX 50 ETF)
• Japan (Lyxor Japan (TOPIX) ETF)
• REIT (REIT stocks in SGX)
• SG fixed income (FSM Cash Fund)

SG fixed income is supposed to be SGS bond ladder, but 5-year SGS yield is comparable to FSM cash fund and I am busy to go to bank to submit the application form, so I choose to leave it with FSM cash fund till the next auction.

All seem easy, but there is a problem. My fresh fund is held in many different accounts: POEMS, DBSVonline, FSM cash fund, and I need to consolidate them before buying the funds. Although transferring money to one account is as easy as a few mouse clicks, and digits travel over the wire in lightning speed, the actual time taken is quite long. It took about 2-3 business days for the fund to reach my savings account, and another 2-3 business days to fund the broker. To help me managing and tracking multiple fund transfers, I draw it on a piece of paper.

Once the fresh fund is in place, purchasing fund is quite fast. For REIT, I bought at buyer’s price as the trading volume was high. For Lyxor Japan ETF, the trading volume was low, so I bought at seller’s price as the spread was very small. For iShares DJ STOXX 50 ETF, as it has just announced that April 30 as ex-date and pending my plan to consolidate all of my ETF shares, I am holding off this purchase.

From rebalancing on spreadsheet to fund transfer to fund purchase, it took over two weeks for the dust to settle. Two weeks is quite inefficient. It would be nice to be able to move fund using drag-n-drop on my desktop. I believe the technology today is able to do it, but I have not seen such product in the market. I still have some transactions to record in the spreadsheet but at least the portfolio storm is over. Phew!

Passivity and simplicity

I have not written in this blog for nearly two months. I have also not read any investment book for the last two months and have become a silent reader in sgfunds.com forum. Busy is one reason, laziness is another. Sometimes I wonder, am I doing enough to track my portfolio? Is there anything I have missed? Have I become complacent after setting up the asset allocation plan, the spreadsheet for tracking the portfolio and the necessary tool for price update?

On the other hand, during the planning phase of my portfolio, there was always the urge to tweak the portfolio. Slice and dice, value tilt, small-cap tilt, collateralized commodity futures… The Internet has too many ideas and too much information that it can do more harm than good. Do you share the same experience?

Well, my experience here is also shared by others. In the thread Simplicity! posted by Taylor Larimore, he quoted experience of investors who were paralyzed and overwhelmed by constant flow of information, and those who were addicted to constant tweaking of portfolio. Following this, Mr Larimore quoted from many famous investors on the simplicity in investing. One of my favourite is:

Richard Young, writer of The Intelligence Report: “If you can’t run your portfolio taking 60 minutes a month, it’s too complicated.”

Oh, also check out the links in the second post of the above thread.

Towards passivity and simplicity. Cheers!