FLT ($0.935) = Provide 0.65c DPU (very conservative estimates. Maiden results exceeded forecast) for ~7% yield. Long yield, strong management and low gearing at 28%. Good for 'pure exposure' to Australia and diverisfy away from SG. I will consider adding at $0.9.
Parkway Life REIT ($2.39) = Very defensive and stable with extremely strong financial ratios throughout. However, this comes at huge premium to NAV (1.5 times). Using a conservative 0.115 DPU, yield is only 4.8%, kinda low for a REIT. Will consider adding closer to $2.3 (5% yield)
Capitaland Mall Trust ($1.9) = Largest retail malls backed by Temasek. Latest quarter DPU dropped 6% (largely due to 1-time expenses), leading to annualized DPU of ~11c. Biggest AEI now is rebuilding of Funan (target complete 2019Q4), and lesser extent refurbishing of Raffles City. My biggest concern for retail is the impending arrival of Amazon and other online shopping mediums - hopefully the management has strategies to mitigate these risks. Assuming a DPU of 11c, yield is almost 5.8%. I believe it would be a good deal if I can catch it at about $1.84, below the NAV of $1.86 with a 6% yield.
Mapletree Commercial Trust ($1.42) - Vivocity (40%) and the recently acquired MBC I (~20%) are both extremely good assets, providing a good diversified income. NAV is $1.32, which does mean a slight premium at current price. I am fond of this REIT, but assuming even at the forecasted yield of 8.13c (post MBC acquisition), yield now is merely 5.7% - a bit too low for my taste. Downside could be limited due to preferential offering at $1.42 recently.
Starhill Global ($0.735) = This is a more 'concentrated' choice than Capitaland Mall with higher yield, as it derives near 70% of it revenue from 2 malls - Wisma Atria and Ngee Ann City (no doubt 2 very strong ones in the heart of Orchard). Gearing is at 35.1%. NAV 0.91. For this, I would like to use a more conservative 5c dividend going forward with no growth, translating to 6.8% yield. More than 7% yield (at $0.71) would be extremely tempting.
Starhub ($2.8) - How the great has fallen. Taking a very bad outlook of things (falling pay TV and 4th Telco) and assuming they cut dividends to 4c x 5 = 16c going forward, I would want at least 6% yield. This means closer to $2.6. This is on the basis that their fundamentals (mainly looking at their hubbing statistics) do not deteriorate further.
SPH REIT ($0.96) - Strong balance sheet with 26% gearing. Only 2 malls (Pentagon and Clementi Mall) This is my choice in between CMT and Starhill. Has ROFR on Seletar Mall as further growth. Full year DPU is 5.5c, translating to 5.7% yield. Would look into it should it fall closer to 80cents.
Friday, December 30, 2016
Thursday, November 10, 2016
Quarterly Results Review - 2016Q3
Frasers Centrepoint Trust (FY2016) | DPU: 11.764c NAV: $1.93 4th quarter DPU was 1.5% lower, mainly due to AEI at Northpoint. Full year DPU is 1.3% higher, marking its 10 year consecutive DPU growth. Financial sheet remains very healthy with ample debt headroom. Yield now around 5.8%. I remain very confident of FCT - Strong management records, potential accretive acquisitions from Waterway Point, new anchor tenants at CCP. They've also just acquired the retail podium of Yishun 10. The recent news of Amazon hitting Singapore early next year could put pressure on all retail REITs (and is dragging down its share price). I will look to accumulate should it should fall to $1.8 (around 6.5% yield) |
Super Group (FY2016Q3) | Awaiting takeover at $1.3 |
Sembcorp Industries (FY2016Q3) | 9M results: Utilities begin to show results, with net profit up 11% excluding 1 time items. More overseas (india and China) plants expected to commence in 4Q. Marine profits plunged 82%. Disastrous, but still profit-making I guess. Overall, 9M Net profit plunged 49% to 12.2 cents. Assuming an annualized EPS I was expecting an annualized EPS of 19 cents, but it looks like it could hit as low as 16 cents now. At 16 cents EPS and 10 cents DPS at $2.5, it's P/E is 15.6 and yield is 4%. NAV is $3.58. Free cash flow was a huge positive due to capex cuts. I am most worried about its debt (interest cover at merely 3.4) |
M1 (FY2016Q3) | Revenue fell 10% and 3Q net profit falls 23.4% - a surprisingly bad result. And the 4th Telco isn't even online yet! Market share and everything else remained stable. The introduction of add-on data (to deter the 4th Telco) have reduced their data revenue significantly IMO. Debt keeps climbing higher, with Debt/Equity now at 1.1 from 0.9 last year. Management guided ~12% decline in profit from 'single digit decline' previously. 9 Months EPS is 12.6. Assuming 15cs full year EPS and 80% payout ratio of 12c DPS at $2.1, P/E is 13 and yield is 5.8%. |
Capital Commercial Trust (FY2016Q3) | Continue to hold up well with ever so slightly growing DPU. AEI includes Raffles City refurbishing and redevelopment of Gold Shoe Car Park. I am expecitng at least 8.5c (in the worst case) to 9.0c DPU for a long time. At $1.5, this is yielding 6%. |
Accordia Golf Trust (FY2016Q2) | DPU came in about 5% lower compared to last year, attributed to higher than usual occurence of typhoons in Aug and Sep. Visitors and utilization all went lower as a result. Half year DPS is 2.45c (down from 2.58c). Overall, nothing to be concern about if we believe that the DPU will remain "stable over the long term". Assuming a conservative 4.8c annual dividend, yield is around 7.4% (I am not hopeful of 9.6% present in the slides) |
ST Engineering (FY2016Q3) | Results is not that bad despite the headlines fell in net profits due to 1 off $61M provision. Management guided comparable revenue and lower PBT compared to last year. Expect 15c dividends to be very safe based on strong order books, track records and cashpile. Will look to add this should it hit $3. (5% yield) |
Straits Times Index (FY2016) | Not Applicable |
Friday, October 7, 2016
Letter To Shareholders (4) - Performance Review 2016Q3
Welcome to the 4th issue of ZZ Holdings Shareholders Letter.
Performance Highlights
Global markets continue to be volatile, led by interest rates concerns, upcoming US elections and fears on the health of Deutsche Bank.
Locally, STI is flat - gaining a mere 1% quarter on quarter and year to date. The likely entry of the 4th Telco and non-performing loans of O&G seems to be exerting its pressure on the STI (roughly 40% made up by Singtel & 3 Banks).
Our portfolio performed slightly better, gaining 1.5% quarter on quarter, and roughly 12% year to date. We are now roughly break-even since IPO (on 1st Jan 2015).
In 3rd quarter, we paid out dividends of over $800. This is over 50% more compared to $500 last year. We will continue to build up recurring income, brick by brick, little by little.
Operating Highlights
Income for the quarter were up around 8% mainly due to increased revenue and dividends. Actual percentage were lower due to the absence of the one-time SG50 bonus in July 2015.
Expenses were much higher largely due to re-contracting and signing of Samsung Galaxy S7 in July, and gift expense to our parent company in August.
Accounting changes took place which affected the expenses for August - The company decides to perform monthly deduction of income tax instead of one-time lump sum deduction in August 2015.
The main reason is to set it in line with the actual cashflow expenses, and spread out this expense over the year instead of misleadingly inflating August expense. This mean that every month expense will be slightly higher compared to Year 2015 from this quarter onwards.
Note: The income tax for a specific year starts in May and ends in April. For example. The income tax for year 2015 is paid from May 2016 to April 2017.
For the 4th quarter, we forsee higher expenses due to higher social and entertainment activities, as well as costs related to the structural revamp.
Investment - Frasers Centrepoint (FCL)
FCL is one of the largest real estate company on SGX with business units focusing mainly in Singapore & Australia, spreading across the entire chain of residential, commercial, hospitality and industrial properties. It hold stakes in 4 of the Frasers REITs, and as of 9M2016, derives around 70% of its profits from recurring income. This makes it ideal as a dividend and growth play (30% property development).
At $1.48, it trades at more than 30% discount to its book value of $2.19. 9M2016 EPS is 11.9 cents. Annualized conservatively, we expect EPS to be at least 15 cents.
FCL dividend policy is to distribute up to 75% (although usually around 50-60%) of its core earnings, which is in line with 0.86 cents in the past 2 years. Assuming it is able to retain its dividend, this presents a yield of around 5.8%.
Key risk include interest rates hikes as FCL is considered to be quite highly geared (interest cover of 6 and gearing of 0.7). At current valuation, we feel that there is sufficient margin of safety and see it as a good value play. Given its diversified investments, we see this as a mini "Property ETF" that we can hold indefinitely.
Major Structural Change
The company will be undergoing a major structural change in Nov. Revenue in Oct will be slightly affected, and Nov to be majorly (~90%) affected. A one-time asset (leave encash) sale is expected to help offset this revenue loss.
Thereafter, revenue should resume in December and see positive progression in the long term.
Financial Status
We intend to open a Bank of China (BOC) SmartSaver account - designed to takeover OCBC360. This is expected to increase our standard interest rates from 1.75% to 2%, and possibly 3.55% should we meet the required conditions.
[Afternote: After trying out BOC, we were hit with a few major pain points. The internet banking is bad and lack of mobile banking, no e-statements. For the meantime, we feel that the additional admin work is not worth it.]
Maxigain bonus interest is now 0.6%, and should exceed CIMB Fastsaver regardless of the SIBOR soon.
As per last quarter, we continue to anticipate the following services and events in the last quarter of 2016:
1. Smartly, a robo-financial advisor who is gearing for launch.
2. 8 Securities, a potential alternative for much lower brokerage fees.
3. Singapore first ETF REIT
Outlook
With the hot-dividend period winding down, our focus now shifts to preparation for Year 2017. We will start accumulating positions in high dividend investment for the long term with the objective of taking a great leap in dividends amount. This will be further detailed and set in the Annual Report.
Performance Highlights
Global markets continue to be volatile, led by interest rates concerns, upcoming US elections and fears on the health of Deutsche Bank.
Locally, STI is flat - gaining a mere 1% quarter on quarter and year to date. The likely entry of the 4th Telco and non-performing loans of O&G seems to be exerting its pressure on the STI (roughly 40% made up by Singtel & 3 Banks).
Our portfolio performed slightly better, gaining 1.5% quarter on quarter, and roughly 12% year to date. We are now roughly break-even since IPO (on 1st Jan 2015).
In 3rd quarter, we paid out dividends of over $800. This is over 50% more compared to $500 last year. We will continue to build up recurring income, brick by brick, little by little.
Operating Highlights
Income for the quarter were up around 8% mainly due to increased revenue and dividends. Actual percentage were lower due to the absence of the one-time SG50 bonus in July 2015.
Expenses were much higher largely due to re-contracting and signing of Samsung Galaxy S7 in July, and gift expense to our parent company in August.
Accounting changes took place which affected the expenses for August - The company decides to perform monthly deduction of income tax instead of one-time lump sum deduction in August 2015.
The main reason is to set it in line with the actual cashflow expenses, and spread out this expense over the year instead of misleadingly inflating August expense. This mean that every month expense will be slightly higher compared to Year 2015 from this quarter onwards.
Note: The income tax for a specific year starts in May and ends in April. For example. The income tax for year 2015 is paid from May 2016 to April 2017.
For the 4th quarter, we forsee higher expenses due to higher social and entertainment activities, as well as costs related to the structural revamp.
Investment - Frasers Centrepoint (FCL)
FCL is one of the largest real estate company on SGX with business units focusing mainly in Singapore & Australia, spreading across the entire chain of residential, commercial, hospitality and industrial properties. It hold stakes in 4 of the Frasers REITs, and as of 9M2016, derives around 70% of its profits from recurring income. This makes it ideal as a dividend and growth play (30% property development).
At $1.48, it trades at more than 30% discount to its book value of $2.19. 9M2016 EPS is 11.9 cents. Annualized conservatively, we expect EPS to be at least 15 cents.
FCL dividend policy is to distribute up to 75% (although usually around 50-60%) of its core earnings, which is in line with 0.86 cents in the past 2 years. Assuming it is able to retain its dividend, this presents a yield of around 5.8%.
Key risk include interest rates hikes as FCL is considered to be quite highly geared (interest cover of 6 and gearing of 0.7). At current valuation, we feel that there is sufficient margin of safety and see it as a good value play. Given its diversified investments, we see this as a mini "Property ETF" that we can hold indefinitely.
Major Structural Change
The company will be undergoing a major structural change in Nov. Revenue in Oct will be slightly affected, and Nov to be majorly (~90%) affected. A one-time asset (leave encash) sale is expected to help offset this revenue loss.
Thereafter, revenue should resume in December and see positive progression in the long term.
Financial Status
We intend to open a Bank of China (BOC) SmartSaver account - designed to takeover OCBC360. This is expected to increase our standard interest rates from 1.75% to 2%, and possibly 3.55% should we meet the required conditions.
[Afternote: After trying out BOC, we were hit with a few major pain points. The internet banking is bad and lack of mobile banking, no e-statements. For the meantime, we feel that the additional admin work is not worth it.]
Maxigain bonus interest is now 0.6%, and should exceed CIMB Fastsaver regardless of the SIBOR soon.
As per last quarter, we continue to anticipate the following services and events in the last quarter of 2016:
1. Smartly, a robo-financial advisor who is gearing for launch.
2. 8 Securities, a potential alternative for much lower brokerage fees.
3. Singapore first ETF REIT
Outlook
With the hot-dividend period winding down, our focus now shifts to preparation for Year 2017. We will start accumulating positions in high dividend investment for the long term with the objective of taking a great leap in dividends amount. This will be further detailed and set in the Annual Report.
Monday, September 19, 2016
Quarterly Results Review - 2016Q2
| Frasers Centrepoint Trust (FY2016Q2) | DPU in previous vs current: $0.116 - > $0.120 Price in previous vs current: $2.00 -> $2.17 Yield in previous vs current: 5.8% -> 5.5% BV in previous vs current: $1.91-> $1.90 Revenue dipped as expected due to Northpoint AEI. Income was stable due to retained distributions from previous quarter, and higher management fee in units. Debt remains healthy. |
| Super Group (FY2016Q2) | EPS in previous vs current: $0.0424 EPS in previous Q2 vs current: $0.094 -> 0.088 DPU in previous vs current: $0.010 -> $0.010 Price in previous vs current: $0.90 -> $0.78 Tolerable results with profits dropping "just" 7%. The reasons for holding remains the same as before - strong operating cash flow (and FCF) and balance sheet with good margins. I am estimating 4 cents earning for the year. No turnaround in sight so this will be in the freezer for a while. |
| Sembcorp Industries (FY20161H) | EPS in previous 1H vs current: $0.20 -> $0.97 DPU in previous 1H vs current: $0.05 -> $0.04 Price in previous vs current: $2.7 -> $2.8 Yield in previous vs current: 4.0% -> 2.8% BV in previous vs current: $3.6 -> $3.6 (~$3.3 excl. pref shares) Surprising hit on Utilities segment, although I am still confident in the long-term fundamentals of India. Marine as expected post disastrous results. Assuming an annualized EPS of 19cents, P/E at current price is 14.7. |
| M1 (FY2016Q2) | EPS in 2014 vs 2015: $0.191 -> $0.191 EPS in previous 1H vs current: $0.096 -> $0.089 DPU in previous vs current: $0.153 -> $0.153 Price in previous vs current: $2.48 -> $2.78 Yield in previous vs current: 6.2% -> 5.5% Management guided single digit decline in profit. Not good at all. Interim dividends of 7c is maintained. They are investing in new technologies but it will take the longer term to see any payoff. |
| Capital Commercial Trust (FY2016Q2) | DPU in 2014 vs 2015: $0.086 -> $0.086 DPU in previous Q2 vs current: $0.0219 -> $0.0220 Price in previous vs current: $1.4 -> $1.55 Yield in previous vs current: 6.1% -> 5.5% BV in previous vs current: $1.72 -> $1.72 Flat results and DPU should be maintained. I don't see any upsides or downsides now, and at this price it's probably fully valued. |
| Accordia Golf Trust (FY2016Q1) | DPU in previous Q1 vs current: $0.00176 -> $0.0182 (12M: $0.0663) Price in previous vs current: $0.65 -> $0.68 Yield in previous vs current: ~10% BV in previous vs current: $0.89 -> $0.96 Slight decrease in operating income (2.3%) due to heavy rains and earthquake, but DPU increased slightly due to Yen appreciation. Profits after tax is 6% lower. No of visitors and utilization rate went slightly lower due to above reasons, but should not pose too much concern. This is still trading at a huge discount to NAV which is my safety net. My yield cow for the long term. |
| ST Engineering (FY2016Q2) | Flattish results but management foresee lower profits compared to 2015. This is in contrast with the "comparable profits" guidance given earlier, leading to selldown in share price. |
| Straits Times Index (FY2016) | Not Applicable |
Tuesday, September 6, 2016
CPF - OA to SA Transfer
After much deliberation, I finally decided to do it.
It's one that decision that I cracked my brains over back in January, but I think it's time I take the first step. What prompted the change of mind?
1. The market rebounded and I didn't even invest my cash, much less CPF-OA. Timing the market is harder than you think, and it's definitely not guaranteed that I am comfortable using OA to beat 2.5%.
2. I realized my CPF-SA is accumulating very slowly from Mandatory Contribution. At this rate, It is going to take forever to reach $161K, or whatever the FRS in the future.
3. Do you know you enjoy an extra 1% interest on your first $60K, but only $20K can come from OA? That means if I do the transfer, I earn a whole extra 2.5%.
4. Barring unforeseen circumstances, I probably won't be getting a flat for another 5 years. That means another full 5 years of OA accumulation.
5. I do admit I am strongly influenced by AK and several other bloggers. These guys are getting $6K-$10K in interest every year. (Some of them maxed out SA as early as 32 years old) The government is literally helping them fulfill the growing "minimum sum".
---
By transferring this $20K, I would accelerate my SA account at a much faster rate.
In the first year, I would earn an extra $500+ in interest.
For 10 years, I would get an extra $6.4K.
For 20 years, an extra $15K.
By the time I'm 55, this $20K would bring me more than $20K in additional interest. That means an additional $20K towards fulfilling the FRS.
---
Of course, I am well-aware of the risks. The most important ones are:
1. Less buffer for housing. I have plans to fully pay my flat with cash and minimize the usage of CPF. Still, it is definitely important to leave buffer - which explains why I'm not transferring more.
2. Political risk. Who knows how the withdrawal rules, schemes and interest rates may change in the future?
3. Possible opportunity cost if I ever want to purchase a 2nd property, and unable to withdraw until 55.
In a way, this move is a strong contrast with FIRE. With less OA, it means I have to fork out more cash for housing, and thus weaken my FIRE goals.
It's looking at a time much further in the future. I want to balance my goal of early financial independence, and also start steering the 'old age' ship in the right direction.
---
Overall, I think I'm taking a prudent and balanced approach - using an amount that isn't exorbitant and I am confident of covering.
The last thing you want to worried about when you're old and sick is money. I think what I am doing is taking a small portion of early financial freedom and channeling it into greater old age security.
It's one that decision that I cracked my brains over back in January, but I think it's time I take the first step. What prompted the change of mind?
1. The market rebounded and I didn't even invest my cash, much less CPF-OA. Timing the market is harder than you think, and it's definitely not guaranteed that I am comfortable using OA to beat 2.5%.
2. I realized my CPF-SA is accumulating very slowly from Mandatory Contribution. At this rate, It is going to take forever to reach $161K, or whatever the FRS in the future.
3. Do you know you enjoy an extra 1% interest on your first $60K, but only $20K can come from OA? That means if I do the transfer, I earn a whole extra 2.5%.
4. Barring unforeseen circumstances, I probably won't be getting a flat for another 5 years. That means another full 5 years of OA accumulation.
5. I do admit I am strongly influenced by AK and several other bloggers. These guys are getting $6K-$10K in interest every year. (Some of them maxed out SA as early as 32 years old) The government is literally helping them fulfill the growing "minimum sum".
---
By transferring this $20K, I would accelerate my SA account at a much faster rate.
In the first year, I would earn an extra $500+ in interest.
For 10 years, I would get an extra $6.4K.
For 20 years, an extra $15K.
By the time I'm 55, this $20K would bring me more than $20K in additional interest. That means an additional $20K towards fulfilling the FRS.
---
Of course, I am well-aware of the risks. The most important ones are:
1. Less buffer for housing. I have plans to fully pay my flat with cash and minimize the usage of CPF. Still, it is definitely important to leave buffer - which explains why I'm not transferring more.
2. Political risk. Who knows how the withdrawal rules, schemes and interest rates may change in the future?
3. Possible opportunity cost if I ever want to purchase a 2nd property, and unable to withdraw until 55.
In a way, this move is a strong contrast with FIRE. With less OA, it means I have to fork out more cash for housing, and thus weaken my FIRE goals.
It's looking at a time much further in the future. I want to balance my goal of early financial independence, and also start steering the 'old age' ship in the right direction.
---
Overall, I think I'm taking a prudent and balanced approach - using an amount that isn't exorbitant and I am confident of covering.
The last thing you want to worried about when you're old and sick is money. I think what I am doing is taking a small portion of early financial freedom and channeling it into greater old age security.
Monday, August 1, 2016
Letter To Shareholders (3) - Performance Review 2016Q2
Welcome to the 3rd issue of ZZ Holdings Shareholders Letter.
Performance Highlights
Despite the surprising Brexit event, the markets were unfazed and our portfolio made gains of 5.7% in Q2, compared to the STI which was up a mere 0.7% (a large potion was thanks to CMP divestment). With this recovery, our overall portfolio is now almost in the green.
In 2nd quarter, we paid out a record dividend of over $1300 - highest amount ever since inception. Who says financial freedom is a dream?
Operating Highlights
Income for the quarter were up slightly (about 5% more), largely due to an increase in passive income and dividends.
Expenses skyrocketed in May due to a critical mismanagement event. The board unreservedly apologize to the shareholders for this loss. Other major contributors includes Mayday Concert ($290) and multiple unexpected costs such as SSD Replacement ($250), IEM Cable Replacement ($70) & 2 Dental Visits ($100 after subsidies).
Overall, expenses for the quarter were up 65% compared to last year. Moving forward, we foresee the possibility of a phone replacement, and to a lesser extent some computer components, as potential major expenses in the 2nd half of the year.
Takeover of China Merchant Pacific (CMP)
We divested CMP at the takeover price of $1.02, over 20% premium over the trading range of 80c and 85c. This was entirely pure luck.
Regardless, the company made over $1500 from this unexpected takeover. While we are pleased, do keep in mind that this is an one-time income. At the same time, the company lost a dividend cash-cow and we will look to redirect the monies into other companies.
Financial Statistics (SGXCafe)
We setup account at SGXCafe to further analyze our portfolio. Base on our current holdings, here are some statistics:
Beta - Surprisingly, our portfolio is less volatile than the STI, standing at 0.71.
Value at Risk - We are 99% confident that we will not lose more than 9% of our portfolio.
Expected Shortfall - How bad can things get when terrible things happen? Put another way, in 1% of the time, how much drawdown do we expect? We stands at -17%.
Financial Accounts Changes & Outlook
SIBOR rate retracts slightly to around 0.75%. Our Maxigain account will start accumulating 0.4% bonus interest in July and should start surpassing CIMB starsaver very soon. Going forward, we would look to transfer any long-term cash into this account.
In other news, SCB announced the removal of its minimum commission scheme. Our audit team also discovered that CIMB Cash Upfront custodian account charges $3 for dividend processing. Given this, we are no longer interested in performing any transactions using these accounts.
We eagerly anticipate the following events in the 2nd half of 2016:
1. Smartly, a robo-financial advisor who is gearing for launch.
2. 8 Securities, a potential alternative for much lower brokerage fees.
3. Singapore first ETF REIT
Outlook
With the divestment of ST engineering and CMP, our cash holdings are getting too high for our liking. While we would love to get more equities, the strong rally is not favoring it.
We look forward to growing our revenue and re-balancing our portfolio in the upcoming quarter.
Performance Highlights
Despite the surprising Brexit event, the markets were unfazed and our portfolio made gains of 5.7% in Q2, compared to the STI which was up a mere 0.7% (a large potion was thanks to CMP divestment). With this recovery, our overall portfolio is now almost in the green.
In 2nd quarter, we paid out a record dividend of over $1300 - highest amount ever since inception. Who says financial freedom is a dream?
Operating Highlights
Income for the quarter were up slightly (about 5% more), largely due to an increase in passive income and dividends.
Expenses skyrocketed in May due to a critical mismanagement event. The board unreservedly apologize to the shareholders for this loss. Other major contributors includes Mayday Concert ($290) and multiple unexpected costs such as SSD Replacement ($250), IEM Cable Replacement ($70) & 2 Dental Visits ($100 after subsidies).
Overall, expenses for the quarter were up 65% compared to last year. Moving forward, we foresee the possibility of a phone replacement, and to a lesser extent some computer components, as potential major expenses in the 2nd half of the year.
Takeover of China Merchant Pacific (CMP)
We divested CMP at the takeover price of $1.02, over 20% premium over the trading range of 80c and 85c. This was entirely pure luck.
Regardless, the company made over $1500 from this unexpected takeover. While we are pleased, do keep in mind that this is an one-time income. At the same time, the company lost a dividend cash-cow and we will look to redirect the monies into other companies.
Financial Statistics (SGXCafe)
We setup account at SGXCafe to further analyze our portfolio. Base on our current holdings, here are some statistics:
Beta - Surprisingly, our portfolio is less volatile than the STI, standing at 0.71.
Value at Risk - We are 99% confident that we will not lose more than 9% of our portfolio.
Expected Shortfall - How bad can things get when terrible things happen? Put another way, in 1% of the time, how much drawdown do we expect? We stands at -17%.
Financial Accounts Changes & Outlook
SIBOR rate retracts slightly to around 0.75%. Our Maxigain account will start accumulating 0.4% bonus interest in July and should start surpassing CIMB starsaver very soon. Going forward, we would look to transfer any long-term cash into this account.
In other news, SCB announced the removal of its minimum commission scheme. Our audit team also discovered that CIMB Cash Upfront custodian account charges $3 for dividend processing. Given this, we are no longer interested in performing any transactions using these accounts.
We eagerly anticipate the following events in the 2nd half of 2016:
1. Smartly, a robo-financial advisor who is gearing for launch.
2. 8 Securities, a potential alternative for much lower brokerage fees.
3. Singapore first ETF REIT
Outlook
With the divestment of ST engineering and CMP, our cash holdings are getting too high for our liking. While we would love to get more equities, the strong rally is not favoring it.
We look forward to growing our revenue and re-balancing our portfolio in the upcoming quarter.
Friday, July 15, 2016
Shiny Things
The "Shiny Things" thread on HWZ Money Mind is a goldmine of valuable investment information. I have benefited tremendously and I highly encourage any investor, new or experienced, to slowly digest the wealth of goodies within that thread.
While I have always known the benefits of low cost ETFs, the discussions further strengthened my perception on them, and more importantly on asset allocation and re-balancing.
The best thing is you get concrete details on the exact ETF to purchase (to cut taxes to minimum), and numerous real-life examples on portfolio allocation.
Below are some copy and paste bits of information that I feel will be useful for my future reference.
Note: I am definitely going to support Shiny Things's book for his contributions and efforts.
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The new Shiny Things Seal of Approval list:
* Singaporean stocks: ES3
* Singaporean bonds: A35
* Global stocks: IWDA on the London Stock Exchange (was VWRD, can also add in EMIM)
* Global(ish) bonds: QL2 (*Changed to CORP if you have >$100K)
* Broker for >$100k USD: Interactive Brokers
* Broker for <$100k USD: Standard Chartered
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IWDA is optimized replication ETF and doesn't have EM. VWRD is fully replicated ETF and covers EM. These two fully justify 0.05 expense difference IMO
VWRD does indeed include about 1000 extra holdings and can probably expect a smaller tracking error though optimisation might lower the costs for the fund. About 400 of the extra holdings are EM stocks.
As for IWDA, the ETF holds 1621 different companies, while the MSCI World index which is tracked by IWDA constitutes of 1636 companies (as of december 31st 2014). It is not full replication, so if you are worried about those 15 companies having a major impact on your portfolio, do not bother with this ETF. I think the difference is too small to make a big deal out of it. It is physical replication (as mentioned in the fact sheet) instead of synthetic replication, which means they do hold the actual assets and not for instance derivatives as with synthetic replication. It is optimised in terms of not holding all the assets their benchmark holds, but as said earlier this paragraph, it comes close :wink: .
The FTSE index that VWRL/VWRD tracks is indeed more geographically diversified. If this is very important to you, you could add an emerging markets ETF or just buy the VWRL/VWRD ETF, it is your pick. I would go for IWDA+EMIM because I prefer that they are accumulating and having a really slight advantage in TER.
------------------------------------------------------------------------------------------------------------------------
Nah. If you care about emerging markets, then just go for VWRD; if you don't, then use IWDA. Using a whole bunch of little funds to fill in any gaps in IWDA is just going to cause you to run up transaction and rebalancing costs. Just pick one or the other.
Because they're issued by shitty issuers. Hyflux didn't even bother to get a credit rating on their bonds, they just stuffed the market full of these bonds on the assumption that "oh people have heard of us, we'll spin them a nice story, they won't care that we're heavily indebted and having trouble paying everything".
Bank bonds are good, especially Singaporean bank bonds, because those are rock-solid names. Bank pref shares are good if you're really gagging for income, though they should only be a small part of your portfolio. But high-yield long-dated junk-bond trash doesn't deserve a place in your portfolio, except through a well-diversified high-yield bond ETF - and even then it should be 3-5% of your portfolio, absolute max.
------------------------------------------------------------------------------------------------------------------------
STOCKS (70%)
1. 45% ES3
on SGX / SGD (SPDR® Straits Times Index ETF) / TER 0.30% / Semi-Annual Distribution
2. 20% IWDA
on LSE / USD (iShares Core MSCI World UCITS ETF) / TER 0.20% / No Distribution ie Reinvest dividends
3. 5% EIMI
on LSE / USD (iShares Core MSCI Emerging Markets IMI UCITS ETF) / TER 0.25% / No Distribution ie Reinvest dividends
BONDS (30%)
1. 20% A35
on SGX / SGD (ABF SINGAPORE BOND INDEX FUND) / TER 0.25% / Annual Distribution
------------------------------------------------------------------------------------------------------------------------
Hang on, hang on. The reason you glide down to bonds as you get older is so that you don't get clobbered by an equity downturn just before you retire. You make a tradeoff - giving up returns to reduce your risk. When you're younger, you can afford to take more risk and invest more of your money in stocks, because you can sit there and ride out a market cycle. But when you're older, you can't afford to get blindsided by a stock-market collapse, so you move into bonds, which have less volatility and smaller drawdowns.
You should have made most of your returns already by the time you're close to retiring; moving into bonds locks in those gains, as well.
On the one hand, you're saying "wow switching to bonds is a terrible idea", but then down below you're saying "what if you'd retired in 2009?". If you'd retired in 2009 with an all-equity portfolio, you'd have been completely ****ed, because your retirement portfolio had just taken a 50+% hit. But if you'd retired in 2009 with a 50-50 stocks-bonds portfolio, you'd have been pretty much fine. You might've taken a 20% drawdown, tops.
That right there is why you move into bonds when you get older. People who left their portfolios 100% in equities because "stocks have better returns, stocks will never go down!" were the ones who had to postpone their retirement because half their retirement portfolio got wiped out.
------------------------------------------------------------------------------------------------------------------------
If you keep waiting, you'll end up never buying. When it's going down, you'll think "oh no it's going down I don't want to buy it when it's going down!", and when it's going up you'll think "oh man it's going up, I'll wait for it to pull back a bit" and then you'll end up buying at the ding-dong high.
Don't be that guy.
Just put it in now and leave it for 20 years. The STI is relatively cheap at the moment (its price-to-earnings ratio is on the low side), so now's a good time to buy in if you're in for the long term.
------------------------------------------------------------------------------------------------------------------------
On agents:
It's good to remember that there's a conflict of interest there. The more expensive products they sell to you, the more money they make. If they have a product that gives you 3% returns and gives them 10% commission, vs a product that gives you 10% returns and 3% commission, be sure that they will sell you the first one and pocket their 10% commission.
They can still say, why not use your CPF? Extra 0.5% returns!
------------------------------------------------------------------------------------------------------------------------
On Algorithm Trading
------------------------------------------------------------------------------------------------------------------------
I have the minimum required to open an interactive brokers account and am planning to do 1000SGD of DCA in IWDA each month. Is the cost savings of spread premium + TT charges (each month) + account inactivity fee enough to warrant one to open an interactive brokers account since it seems that the TT charges (each month) seems to eat up the cost savings?
Yep, it's worth it. No wire charges, and FX at mid-market - the difference between Stanchart and IBKR for international stocks comes from the inactivity fee at IBKR, and SGD 1k a month is the line between "it's cheaper to pay Stanchart's FX rates" and "it's cheaper to pay IBKR's activity fee". And besides, you'll be at the $100k line in IBKR before long, which is where they stop charging the inactivity fee.
The new rule - if you've got more than $10k USD, and you do more than $500 USD a month, you should use IBKR. Above that amount, you'd be paying more in FX spread at Stanchart than you'd pay in maintenance fees at IB.
------------------------------------------------------------------------------------------------------------------------
To any kind of "would XXX stock rise", "will fed rise rates" kind of question:
I would be rich if I know.
------------------------------------------------------------------------------------------------------------------------
You do have FX exposure, but not quite where you think: you have FX exposure to the currency of the assets inside the ETF, not the currency of the ETF itself.
Let's imagine a hypothetical Zimbabwean ETF, listed in America. So the ETF is denominated in USD; it owns a bunch of Zimbabwean stocks valued in ZWD; and your home currency is SGD.
Let's say you buy $10,000 SGD worth of that ETF.
If the SGD halves in value, but everything else stays constant: your $10k SGD worth of the ETF is now worth $20k.
If the ZWD halves in value, but everything else stays constant: your $10k SGD worth of the ETF is only worth $5k (because the value of the assets in the ETF has halved).
If the USD halves in value: nothing happens! The value of the assets in the ETF has doubled in USD terms; but the value of the shares has halved in SGD terms.
------------------------------------------------------------------------------------------------------------------------
OK, here's the deal. Currency diversification in ETFs really doesn't matter - trust me on this, I can show you the math if you want - but if you try to buy a bunch of different currencies' ETFs while you're at Stanchart, you will get absolutely incinerated on FX costs. Stanchart's FX spreads for anything other than USD and SGD-denominated stocks are way too wide; this is my one and only complaint about them, but it's a big one.
You can move money directly in and out of IB. The really nifty thing if you're an expat is that you can move money in and out in multiple countries - so I can transfer money in to IBKR from my Singapore or Aussie bank accounts, convert it to USD (at interbank rates!), and then wire it out to my US bank account.
If you're doing a big lump of cash it can be a monster saving - imagine you've just sold a house in London for a million quid, and you need to convert the cash to USD. If you do it at the bank they'll probably take 30 pips out of you, that's $3,000 USD; but if you do it at Interactive you'll pay one or two pips, so you save nearly three grand.
At Stanchart, the spread on GBPSGD is about 2% wide - so you have to pay about 1% (half a spread) in foreign-exchange spread each time you want to buy or sell a GBP-denominated stock using SGD.
IBKR doesn't have a direct GBPSGD pair - you have to do "sell SGD for USD" and then "sell USD for GBP". But even though you have to do two trades instead of one, the spread only ends up being 0.02% - one-one-hundredth of what you'd pay at Stanchart.
------------------------------------------------------------------------------------------------------------------------
On the Permanent Portfolio:
I'm gonna set my stake in the ground right here: I think the Permanent Portfolio has some good ideas (diversify and rebalance), but I think the asset mix it chooses is sort of ridiculous, and it's not a good long-term investment plan because of that asset mix.
For anyone who hasn't run across it: the PP advocates 25% in long bonds, 25% in cash, 25% in gold, and 25% in stocks. Their argument is that it covers every possible economic and inflationary scenario: if the economy strengthens, bonds and stocks do well; if the economy weakens, cash and gold do well. If inflation, stocks and gold do well; if deflation happens, cash and bonds do well.
There are two huge problems with this, though.
The big one is that they're basically positioning for the apocalypse. Stocks do the best out of all asset classes over the very long term, so you want your portfolio mostly in stocks. These guys are one-quarter in stocks; I reckon if you looked at this portfolio since 1980 it would have been incinerated by a boring 60-40 stocks-bonds portfolio. Those allocations to cash and gold are absolutely huge, so when stocks and bonds outperform cash and gold (which is what happens the most often) you're going to have a huge drag on your portfolio from all the cash and gold you're sitting on.
Secondly, their 25-25-25-25 allocation doesn't reflect how the real world works. They've got 50% of their portfolio in stuff that works well during deflation, but (outside of Japan) deflation just doesn't happen that often. Same for economic shrinkage - they've got 50% of their portfolio in stuff that works when the economy's shrinking, but economies just don't shrink that often. If you wanted to weight this portfolio toward the actual probabilities of this stuff happening, you'd have maybe 5% of your portfolio in deflation hedges, and 10% in economic-shrinkage hedges... and that still leaves 85% to put in stocks and bonds, like a normal person.
The permanent portfolio is pretty much one step above allocating your portfolio to guns and canned goods.
While I have always known the benefits of low cost ETFs, the discussions further strengthened my perception on them, and more importantly on asset allocation and re-balancing.
The best thing is you get concrete details on the exact ETF to purchase (to cut taxes to minimum), and numerous real-life examples on portfolio allocation.
Below are some copy and paste bits of information that I feel will be useful for my future reference.
Note: I am definitely going to support Shiny Things's book for his contributions and efforts.
------------------------------------------------------------------------------------------------------------------------
The new Shiny Things Seal of Approval list:
* Singaporean stocks: ES3
* Singaporean bonds: A35
* Global stocks: IWDA on the London Stock Exchange (was VWRD, can also add in EMIM)
* Global(ish) bonds: QL2 (*Changed to CORP if you have >$100K)
* Broker for >$100k USD: Interactive Brokers
* Broker for <$100k USD: Standard Chartered
------------------------------------------------------------------------------------------------------------------------'
IWDA is optimized replication ETF and doesn't have EM. VWRD is fully replicated ETF and covers EM. These two fully justify 0.05 expense difference IMO
VWRD does indeed include about 1000 extra holdings and can probably expect a smaller tracking error though optimisation might lower the costs for the fund. About 400 of the extra holdings are EM stocks.
As for IWDA, the ETF holds 1621 different companies, while the MSCI World index which is tracked by IWDA constitutes of 1636 companies (as of december 31st 2014). It is not full replication, so if you are worried about those 15 companies having a major impact on your portfolio, do not bother with this ETF. I think the difference is too small to make a big deal out of it. It is physical replication (as mentioned in the fact sheet) instead of synthetic replication, which means they do hold the actual assets and not for instance derivatives as with synthetic replication. It is optimised in terms of not holding all the assets their benchmark holds, but as said earlier this paragraph, it comes close :wink: .
The FTSE index that VWRL/VWRD tracks is indeed more geographically diversified. If this is very important to you, you could add an emerging markets ETF or just buy the VWRL/VWRD ETF, it is your pick. I would go for IWDA+EMIM because I prefer that they are accumulating and having a really slight advantage in TER.
------------------------------------------------------------------------------------------------------------------------
Nah. If you care about emerging markets, then just go for VWRD; if you don't, then use IWDA. Using a whole bunch of little funds to fill in any gaps in IWDA is just going to cause you to run up transaction and rebalancing costs. Just pick one or the other.
Because they're issued by shitty issuers. Hyflux didn't even bother to get a credit rating on their bonds, they just stuffed the market full of these bonds on the assumption that "oh people have heard of us, we'll spin them a nice story, they won't care that we're heavily indebted and having trouble paying everything".
Bank bonds are good, especially Singaporean bank bonds, because those are rock-solid names. Bank pref shares are good if you're really gagging for income, though they should only be a small part of your portfolio. But high-yield long-dated junk-bond trash doesn't deserve a place in your portfolio, except through a well-diversified high-yield bond ETF - and even then it should be 3-5% of your portfolio, absolute max.
------------------------------------------------------------------------------------------------------------------------
STOCKS (70%)
1. 45% ES3
on SGX / SGD (SPDR® Straits Times Index ETF) / TER 0.30% / Semi-Annual Distribution
2. 20% IWDA
on LSE / USD (iShares Core MSCI World UCITS ETF) / TER 0.20% / No Distribution ie Reinvest dividends
3. 5% EIMI
on LSE / USD (iShares Core MSCI Emerging Markets IMI UCITS ETF) / TER 0.25% / No Distribution ie Reinvest dividends
BONDS (30%)
1. 20% A35
on SGX / SGD (ABF SINGAPORE BOND INDEX FUND) / TER 0.25% / Annual Distribution
------------------------------------------------------------------------------------------------------------------------
Hang on, hang on. The reason you glide down to bonds as you get older is so that you don't get clobbered by an equity downturn just before you retire. You make a tradeoff - giving up returns to reduce your risk. When you're younger, you can afford to take more risk and invest more of your money in stocks, because you can sit there and ride out a market cycle. But when you're older, you can't afford to get blindsided by a stock-market collapse, so you move into bonds, which have less volatility and smaller drawdowns.
You should have made most of your returns already by the time you're close to retiring; moving into bonds locks in those gains, as well.
On the one hand, you're saying "wow switching to bonds is a terrible idea", but then down below you're saying "what if you'd retired in 2009?". If you'd retired in 2009 with an all-equity portfolio, you'd have been completely ****ed, because your retirement portfolio had just taken a 50+% hit. But if you'd retired in 2009 with a 50-50 stocks-bonds portfolio, you'd have been pretty much fine. You might've taken a 20% drawdown, tops.
That right there is why you move into bonds when you get older. People who left their portfolios 100% in equities because "stocks have better returns, stocks will never go down!" were the ones who had to postpone their retirement because half their retirement portfolio got wiped out.
------------------------------------------------------------------------------------------------------------------------
If you keep waiting, you'll end up never buying. When it's going down, you'll think "oh no it's going down I don't want to buy it when it's going down!", and when it's going up you'll think "oh man it's going up, I'll wait for it to pull back a bit" and then you'll end up buying at the ding-dong high.
Don't be that guy.
Just put it in now and leave it for 20 years. The STI is relatively cheap at the moment (its price-to-earnings ratio is on the low side), so now's a good time to buy in if you're in for the long term.
------------------------------------------------------------------------------------------------------------------------
On agents:
It's good to remember that there's a conflict of interest there. The more expensive products they sell to you, the more money they make. If they have a product that gives you 3% returns and gives them 10% commission, vs a product that gives you 10% returns and 3% commission, be sure that they will sell you the first one and pocket their 10% commission.
They can still say, why not use your CPF? Extra 0.5% returns!
------------------------------------------------------------------------------------------------------------------------
On Algorithm Trading
------------------------------------------------------------------------------------------------------------------------
I have the minimum required to open an interactive brokers account and am planning to do 1000SGD of DCA in IWDA each month. Is the cost savings of spread premium + TT charges (each month) + account inactivity fee enough to warrant one to open an interactive brokers account since it seems that the TT charges (each month) seems to eat up the cost savings?
Yep, it's worth it. No wire charges, and FX at mid-market - the difference between Stanchart and IBKR for international stocks comes from the inactivity fee at IBKR, and SGD 1k a month is the line between "it's cheaper to pay Stanchart's FX rates" and "it's cheaper to pay IBKR's activity fee". And besides, you'll be at the $100k line in IBKR before long, which is where they stop charging the inactivity fee.
The new rule - if you've got more than $10k USD, and you do more than $500 USD a month, you should use IBKR. Above that amount, you'd be paying more in FX spread at Stanchart than you'd pay in maintenance fees at IB.
------------------------------------------------------------------------------------------------------------------------
To any kind of "would XXX stock rise", "will fed rise rates" kind of question:
I would be rich if I know.
------------------------------------------------------------------------------------------------------------------------
You do have FX exposure, but not quite where you think: you have FX exposure to the currency of the assets inside the ETF, not the currency of the ETF itself.
Let's imagine a hypothetical Zimbabwean ETF, listed in America. So the ETF is denominated in USD; it owns a bunch of Zimbabwean stocks valued in ZWD; and your home currency is SGD.
Let's say you buy $10,000 SGD worth of that ETF.
If the SGD halves in value, but everything else stays constant: your $10k SGD worth of the ETF is now worth $20k.
If the ZWD halves in value, but everything else stays constant: your $10k SGD worth of the ETF is only worth $5k (because the value of the assets in the ETF has halved).
If the USD halves in value: nothing happens! The value of the assets in the ETF has doubled in USD terms; but the value of the shares has halved in SGD terms.
------------------------------------------------------------------------------------------------------------------------
OK, here's the deal. Currency diversification in ETFs really doesn't matter - trust me on this, I can show you the math if you want - but if you try to buy a bunch of different currencies' ETFs while you're at Stanchart, you will get absolutely incinerated on FX costs. Stanchart's FX spreads for anything other than USD and SGD-denominated stocks are way too wide; this is my one and only complaint about them, but it's a big one.
You can move money directly in and out of IB. The really nifty thing if you're an expat is that you can move money in and out in multiple countries - so I can transfer money in to IBKR from my Singapore or Aussie bank accounts, convert it to USD (at interbank rates!), and then wire it out to my US bank account.
If you're doing a big lump of cash it can be a monster saving - imagine you've just sold a house in London for a million quid, and you need to convert the cash to USD. If you do it at the bank they'll probably take 30 pips out of you, that's $3,000 USD; but if you do it at Interactive you'll pay one or two pips, so you save nearly three grand.
At Stanchart, the spread on GBPSGD is about 2% wide - so you have to pay about 1% (half a spread) in foreign-exchange spread each time you want to buy or sell a GBP-denominated stock using SGD.
IBKR doesn't have a direct GBPSGD pair - you have to do "sell SGD for USD" and then "sell USD for GBP". But even though you have to do two trades instead of one, the spread only ends up being 0.02% - one-one-hundredth of what you'd pay at Stanchart.
------------------------------------------------------------------------------------------------------------------------
On the Permanent Portfolio:
I'm gonna set my stake in the ground right here: I think the Permanent Portfolio has some good ideas (diversify and rebalance), but I think the asset mix it chooses is sort of ridiculous, and it's not a good long-term investment plan because of that asset mix.
For anyone who hasn't run across it: the PP advocates 25% in long bonds, 25% in cash, 25% in gold, and 25% in stocks. Their argument is that it covers every possible economic and inflationary scenario: if the economy strengthens, bonds and stocks do well; if the economy weakens, cash and gold do well. If inflation, stocks and gold do well; if deflation happens, cash and bonds do well.
There are two huge problems with this, though.
The big one is that they're basically positioning for the apocalypse. Stocks do the best out of all asset classes over the very long term, so you want your portfolio mostly in stocks. These guys are one-quarter in stocks; I reckon if you looked at this portfolio since 1980 it would have been incinerated by a boring 60-40 stocks-bonds portfolio. Those allocations to cash and gold are absolutely huge, so when stocks and bonds outperform cash and gold (which is what happens the most often) you're going to have a huge drag on your portfolio from all the cash and gold you're sitting on.
Secondly, their 25-25-25-25 allocation doesn't reflect how the real world works. They've got 50% of their portfolio in stuff that works well during deflation, but (outside of Japan) deflation just doesn't happen that often. Same for economic shrinkage - they've got 50% of their portfolio in stuff that works when the economy's shrinking, but economies just don't shrink that often. If you wanted to weight this portfolio toward the actual probabilities of this stuff happening, you'd have maybe 5% of your portfolio in deflation hedges, and 10% in economic-shrinkage hedges... and that still leaves 85% to put in stocks and bonds, like a normal person.
The permanent portfolio is pretty much one step above allocating your portfolio to guns and canned goods.
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