Tag Archives: turnover ratio

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.

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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.

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.

Portfolio review for 2007

Time for portfolio review. Although I have compiled the result in early January, busy schedule has prevented me from posting at that time. That’s all well and fine because I would like to write more than just reporting return. As Warren Buffett warns in Berkshire Hathaway 2004 Chairman’s Letter, the greatest enemies of equity investors are expenses and emotions. Fortunately, expenses and emotions are two things investors can control, compared to market return that is beyond control and prediction. This year I will review expenses and emotions first, then report on the return.

Expenses

I will look at two aspects of expenses: turnover ratio and expense ratio. But first lets look at the number of transaction that I have made:

  • No. of Buy: 8
  • No. of Sell: 2

The two sell transaction is to reduce the SGX stocks allocation closer to the target allocation.

Turnover Ratio = 4.53%

Turnover ratio is given by dividing the lower of buy or sell amount by portfolio value. For my portfolio, sell amount is used. What does this number tell in term of holding period of the funds in the portfolio? Divide 1200 by turnover ratio will give you the average holding period in month. For my portfolio:

Average holding period = 264 months or 22 years

I guess I can call myself a “long term investor”. 🙂

As for expense ratio, I include expense ratio of fund, transaction fee in the form of commission and sales charge, custodian fee and dividend handling fee to calculate the portfolio expense ratio. For other expenses like dividend drag, opportunity cost of un-invested cash, etc., I leave them out for simplicity’s sake until I find an easy way to calculate them. The portfolio expenses by category are as follow:

  • Weighted expense ratio of all funds = 0.32%
  • Transaction fee as % of portfolio value = 0.49%
  • Custodian fee as % of portfolio value = 0.06%
  • Dividend handling fee as % of portfolio value = 0.01%

Total expense ratio of portfolio = 0.88%

Transaction fee constitutes the largest part of the expense ratio. As I have three more transaction to make for investing my CPF-SA money, and an average of 2-3 transactions each in April and October fund purchase period, the portfolio will likely to have roughly the same number of transaction in 2008. Custodian fee and dividend handling fee have fixed amount, so with the increase of portfolio value, these fees will become less as % of portfolio.

Emotions

I wish there is a checklist for this. Anyway, my experience in 2007 tells me that checking price history before making a planned fund purchase is a bad idea. It can cause some hesitation (whether the price was going up or down) and delay in making the purchase, as written in this previous post. After this lesson, I try to make the transaction without checking the price history, and it works pretty good. Just a few days ago, I logged in to fundsupermart.com, submitted the buy order for CPF-SA money and logged out immediately; all was done under 3 minutes. Although the fund holding page showed the price of the fund, I did not go to the price history section.

As I write, I recall a paragraph in Your Money and Your Brain that is related to the checking of price history:

Therefore, once you become interested in a company, it’s a good idea to let two weeks go by without ever checking its share price. At the end of that period, now that you no longer know exactly where the shares are trading, do your own evaluation — ignoring stock price and focusing exclusively on business value.

Return

A-ha, finally, the portfolio return.

Portfolio return = 4.35% in SGD or 10.69% in USD

Benchmark return = 0.69% in SGD or 6.81% in USD

The return is calculated by using XIRR function in Excel and includes dividend and un-invested cash holding.

The portfolio allocation as at 31 December 2007 is:

portfolio-allocation-2007-12-31.png

* APEJ = Asia Pacific Ex Japan

As I am going to invest my CPF-SA money from October 2007 to March 2008 before the new rule kicks in, I have stopped adding my monthly savings into the equity part, in anticipation of the increase of equity allocation by CPF-SA investment. This explains the higher-than-target cash holding. I expect the allocation to be restored in April 2008 when the CPF-SA investing stops and when I do the regular half-yearly fund purchase at that time.

No major life event in 2007, so for 2008 — same plan, stay the course.