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Cash is king in volatile times

Cash levels in portfolios raised due to volatility, to get ready for opportunities post-US election

The market uncertainty that has been wreaking havoc on investor sentiment has prompted the panel advising on our simulated investment portfolios to raise the cash element to 20 per cent.

In the 12th part of the series introduced by The Sunday Times in January, we look at the October performance of the portfolios, which went live on Jan 18 and are being tracked monthly until next year.

The investors are 25-year-old Shona Chee, a communications manager, entrepreneur Getty Goh, 38, who is married with two young children, and retiree Wang Moo Kee, 61.

The Portfolio Series does not involve actual money as it is intended for illustration and education only.

All three portfolios are limited to instruments listed on the Singapore Exchange - to keep them simple, accessible and easy to monitor - and to Singapore Savings Bonds, which can be bought via ATMs.

While there are similarities in the three portfolio holdings, the allocation for each profile differs, depending on the individual's risk-return objectives and preferences.

Each portfolio has a different benchmark that best reflects its mix. Mr Goh's portfolio, for example, is heavier on blue-chip shares, while Mr Wang goes for bonds to reflect his more conservative stance.

The simulated portfolios are constructed by CFA Society Singapore (CFAS) for an ideal investment horizon of five to 10 years.

The CFAS panel said: "Given the increased uncertainty as we go into November, the panel decided to raise cash levels in all three portfolios.

"Typically, raising cash signals two things: keeping the powder dry to quickly take advantage of opportunities after the US elections, and a defensive positioning of the portfolio in view of asset volatility."

PORTFOLIO PERFORMANCE

After four consecutive months of gains, all three portfolios fell in October.

  • Investors' feedback

  • MS SHONA CHEE

    "The series is helpful in enabling me to gain a perspective on how to maximise returns from investments and how to build a more diversified portfolio for my lifestyle needs.

    "I plan to do a work-compatible MBA in the United States next year or in two years and it will cost about US$80,000 (S$110,600). Hence, I may require some liquidity in the near future.

    "Meanwhile it would be good to plan investing in higher-yield stocks/bonds to accelerate gains, and for that I am willing to add another $20,000 in investable assets in order to generate better returns in the time period leading up to it.

    "Now that I'm based in the US, I may consider some US-based stocks not available in Singapore, but I suppose the series will continue to only feature investment products available in Singapore."



    MR GETTY GOH

    "The Portfolio Series has allowed me to see the other types of investment options that are available.

    "As a whole, it is a very good exercise. It made me realise the other investment options but it gave me a sense of what type of returns a person can realistically get. It made me realise that the market is dynamic in nature.

    Investments should also be made with a long-term horizon. This is because I can see that every time the article is featured, the (short-term) economic conditions are quite different. So the realisation is that, to make money from investments, one must be prepared to hold them for several years.

    "Personally, not much has changed, apart from CoAssets' listing on the mainboard here. We are Singapore's first and only listed crowdfunding platform and we have been quoted on the Australian Stock Exchange with effect from Sept 5.

    "While listing a firm was hard work, I am glad we did it as it has given us even greater exposure and credibility among our registered users. So right now, a lot of my focus and attention is on growing CoAssets. Therefore, I don't intend to increase or decrease my investment amount in the simulated portfolio."



    MR WANG MOO KEE

    "The Portfolio Series provides guidelines for retail investors and indicates trends of investment. I believe (new) investors will benefit most from the series.

    "Personally, my strategy is not to park money in the stock market all the time. Most of the time, I park my cash in the bank and wait for opportunities to invest.

    "Today, retail investors have many avenues to access information and investment tools. For instance, information on the company, business environment and stocks are widely available and there are investment seminars and talks that investors can attend. So they tend to be more sophisticated or educated, compared with investors in the past.

    "Investors may also have preferences for or are familiar with specific markets because they are job-related."

Ms Chee's was down 0.54 per cent for the month, beating the benchmark (-0.97 per cent) by 0.43 percentage point. Mr Goh's portfolio was down 0.62 per cent, beating the benchmark (-0.85 per cent) by 0.23 percentage point, while Mr Wang's portfolio was down 0.7 per cent, outperforming the benchmark (-1.05 per cent) by 0.35 percentage point.

Holding cash in October contributed to the relative outperformance, as most equity markets fell.

Last month, most of the outperformance for all three portfolios came from the Singapore equities allocation, driven by another strong month for SingPost which rallied almost 9 per cent.

The bond allocation also outperformed the benchmark, as all the retail corporate bonds and the iShares JPM Asia Bond ETF (partly due to a stronger US dollar against the Singdollar) registered gains.

The global exchange-traded fund (ETF) allocation underperformed the benchmark mainly because of the correction in gold prices which affected the gold ETF. Both A-Reit and Capitaland Mall Trust corrected more than the S-Reit index, detracting from performance.

PORTFOLIO ADJUSTMENTS

The CFAS panel continued to de-risk the portfolios ahead of the United States presidential election on Tuesday. In the third week of last month, it raised cash levels closer to the 20 per cent target.

In Ms Chee's case, the panel sold Sats and the China ETF, while Mr Goh's portfolio was divested of Sats and the Lyxor Commodities Non- Energy ETF. Mr Wang's portfolio offloaded Sats, the Asia ex-Japan ETF and half of his A-Reit and Capitaland Mall Trust positions.

As at Oct 31, Ms Chee's cash stood at 19.7 per cent, Mr Goh's at 21.4 per cent and Mr Wang's at 18.2 per cent. Ms Chee intends to invest an additional $20,000 in her simulated portfolio. However, the panel has advised her to hold off for now.

A version of this article appeared in the print edition of The Sunday Times on November 06, 2016, with the headline 'Cash is king in volatile times'. Print Edition | Subscribe