Category Archives: Portfolio Management

StockQuote 2.1.3 released

This is a bug fix release for the price import error when importing price from Yahoo Finance, due to changes in its HTML code recently. No new feature was added.

Download this release at the download page.

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.

Portfolio activity for October 2010 is delayed

My regular half-yearly investment should have already happened in October but it was delayed, due to difficulty in finding a suitable platform to buy global bond ETF—Saxo refused to add the global bond ETFs I requested because it is multiple-currency while POEMS added the ETFs but their commission is high, read my post here. The portfolio asset allocation has been within the 5% threshold from the target 75/25 stock/bond ratio since October, but within the bond portion, global bond is under-allocated and requires top-up. That’s why I am looking for global bond ETF to add. I prefer not to add to the current global bond unit trust fund in my portfolio because of the fund’s active management.

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.

Portfolio activity, May 2010

The latest portfolio activity happened in May. It was scheduled in April but was postponed due to travelling in overseas.

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.

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.


StockQuote 2.1.2 released

This is a bug fix release for the price import error when importing price from Yahoo Finance, due to changes in its HTML code recently. No new feature was added.

Download this release at the download page.