Category Archives: Cost

Good bye, DBS Vickers online

I login to my DBS Vickers online account in November and noticed a mysterious fee charged to my account. It is the custodian fee for foreign stocks, which dbsv started charging in August silently. The amount is $2.14 per month per counter including GST.

To transfer the stocks outside to other broker, there is a fee of S$50 per counter. This is more expensive than doing a sell and a buy to transfer the stocks.

So I sold all my holdings from dbsv in November – vanguard total stock market ETF (VTI) and ABF PAIF Asia bond index ETF (2821.HK). I plan to use standard chartered bank to buy the ETFs back but have not gotten the time to do so.

As to dbsv, you were the broker I used to buy my first ETF (VTI) in 2005 when you were the only local broker who didn’t charge custodian fees for foreign stocks. So long and thanks for all the fish.

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Standard Chartered Online Trading

I opened Standard Chartered Bank (SCB) Online Trading in June, with settlement acounts in SGD, HKD, USD, EUR and GBP currency. I waited for another 3 weeks for the W8BEN form to be processed, so that I could start to use the USD settlement account.

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 FeesFAQ 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.
There are two other things to note:  currency exchange rates and ETF listed in London Stock Exchange.

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.

Portfolio review for 2010

As usual, my portfolio review for year 2010 is divided into three sections: Expenses, Emotion and Return.

Expenses

2010 2009
Number of Buy 4 9
Number of Sell 0 1
Turnover Ratio 0.0% 0.72%
Average Holding Period (year) Infinity 139
Total Expense Ratio 0.36% 0.58%

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

2010 2009
Portfolio IRR Portfolio TWR Benchmark Portfolio IRR Portfolio TWR Benchmark
SGD
5.21% 5.20% 4.47% 25.60% 25.48% 20.39%
USD
14.50% 13.70% 28.92% 23.58%

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

Current Target
Equity 71% 75%
US 25% 25%
EU 13% 20%
JP 5% 5%
APEJ 7% 10%
SG 3% 5%
REIT 17% 10%
Fixed Income 29% 25%
Global 5% 10%
Asia 4% 5%
SG 16% 10%
Cash 3% 0%

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.

Lower commission for stocks traded in London Stock Exchange

I received this email from Saxo last week:

… 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:

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.

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 review for 2008

Using the same format as last year portfolio review, below are the expenses, emotion review and return of my portfolio for year 2008.

Expenses

2008 2007
Number of Buy 13 8
Number of Sell 1 2
Turnover Ratio 1.94% 4.53%
Average Holding Period 618 months 264 months
Total Expense Ratio 1.45% 0.88%

While turnover ratio has dropped, expense has gone up because of two reasons.

First, there was more number of buy in 2008, in order to move CPF-SA money into Growpath 2040 fund before the restriction in using CPF for investment kicked in April. This adds to the total expense ratio.

Second, total expense ratio also increases because of the outgoing transfer fee charged by stock brokers when I consolidated my ETF holdings.

Emotion

I invested my monthly savings on time in April and quite early in October, may be I was eager to “finished the job”. I did not hesitate, wait and monitor when making purchase, something I did in 2007. All in all, the year 2008 was pretty much a boring year. And that’s good for me.

Return

2008 2007
Portfolio Benchmark Portfolio Benchmark
SGD
-32.54% -29.05% 4.35% 0.69%
USD
-32.35% -28.85% 10.69% 6.81%

Return is calculated by using XIRR function in Excel and includes dividend and un-invested cash holding. Though slightly lower than the benchmark, the portfolio return is quite close to the benchmark. This is because SGD-USD exchange rate is almost the same in the beginning and end of 2008.

The portfolio allocation as at 31 December 2008 is shown in the table below.

portfolio-allocation-2008-12-31

The last portfolio activity was in October. Since then, cash (6% in the table) is being built up from the monthly savings that will be invested in April 2009. The equity portion (62%) is lower than that of 2007 (65%), due to the financial crisis that started in October 2008.

Looking into 2009

With my ETF holdings consolidated in one place and the investment vehicle decided, the portfolio has finally passed its formation years since 2005. Phew~!

I have also increased the monthly savings for the portfolio by a meager amount as I have just received, well, a meager pay increment. Other than this, while the same may not be said for the stock market (don’t ask me about it), I expect 2009 to be an uneventful year for my portfolio.

To all passive investors out there: stay the course.