Portfolio review for 2009

I am late in writing my portfolio review. As usual, it is divided into three sections: Expenses, Emotion and Return.  Let’s dive into it…

Expenses

2009 2008
Number of Buy 9 13
Number of Sell 1 1
Turnover Ratio 0.72% 1.94%
Average Holding Period (year) 139 51
Total Expense Ratio 0.58% 1.45%

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

2009 2008
Portfolio IRR Portfolio TWR Benchmark Portfolio IRR Portfolio TWR Benchmark
SGD
25.60% 25.48% 20.39% -32.54% -32.78% -29.05%
USD
28.92% 23.58% -32.35% -28.85%

*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

Current Target
Equity 72% 75%
US 22% 25%
EU 17% 20%
JP 6% 5%
APEJ 8% 10%
SG 4% 5%
REIT 16% 10%
Fixed Income 28% 25%
Global 7% 10%
Asia 5% 5%
SG 13% 10%
Cash 2% 0%

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.

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2 responses to “Portfolio review for 2009

  1. Hello,
    I stumbled across your website “Mamak Stall Investor” and found it to be interesting. Your discussions about various brokers touches an issue that I’m particularly interested in at this time.

    Specifically, I’m looking for a Singapore based or, at least, non-US based online brokerage outfit that permits trading in the US & Canadian equity markets, US & Canadian options, New Zealand, Australian and a general range of Asian markets. I’m a fairly active trader so I’m looking for low commissions, custodial fees, etc. Interactive Brokers would be a good candidate for my needs but they are US based and owned.

    I note that you have done business with Saxo. They do serve many of the markets that I’m interested in. However, I’ve read a number of customer reviews of them and generally the reviews have not been favorable.

    As for DBS Vickers Securities, I can find no customer reviews for them which I find to be a bit odd.

    Any help that you can give would be greatly appreciated.
    JK

    • Hello JK,

      I am not an active trader and use Saxo only to buy ETF, so I can’t comment on Saxo’s performance for active trading and for option. So far I am OK with Saxo in term of buying ETF. My only feedback is that not all ETFs are available in Saxo, and Saxo cannot add ETFs with multiple currency in London Stock Exchange.

      As for DBS Vickers Securities, the commission is higher than Saxo. I have used it for US exchange listed ETF.

      Hope this helps.

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