Save&Invest

Diversify, diversify, diversify

Look at the performance of three investors' simulated portfolios

In January, The Sunday Times Invest introduced a Save & Invest Portfolio Series which features the simulated portfolios of three real retail investors over a year.

The series began with 25-year-old Shona Chee, a technical account manager, and her simulated investment portfolio devised by a panel of four professionals from CFA Society Singapore (CFAS). Then we featured 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 only for illustrative and educational purposes.


(Clockwise from left) Retiree Wang Moo Kee,  Technical account manager Shona Chee and Entrepreneur Getty Goh, 38, with his wife Eleanor Chia. PHOTO: ST FILE

  • Save & Invest Portfolio Series

  • The Save & Invest Portfolio Series will feature the simulated portfolios of a young working adult, a married couple with two young children and a retiree over a 12-month period.

    It will guide retail investors in basic investment techniques and how to build a portfolio in line with their financial goals and risk tolerance. This initiative involves the Singapore Exchange collaborating with CFA Society Singapore and MoneySense, the national financial education programme.

All three portfolios are limited to instruments listed on the Singapore Exchange (SGX) to keep them easy to monitor, simple and accessible, as well as the Singapore Savings Bonds, which can be bought via automated teller machines.

The main asset classes are domestic equities, real estate investment trusts (Reits), global exchange-traded funds (ETFs) and bonds.

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

The simulated portfolios are constructed for an ideal investment time horizon of five to 10 years.

The three portfolios, which went live on Jan 18, are being tracked by The Sunday Times each month until early next year.

This is the fourth part of the series, where we will highlight the portfolios' performance.


Good asset allocation key to returns

PORTFOLIO PERFORMANCE


The CFAS panellists who track the simulated portfolios are (from left) Mr Phoon Chiong Tuck, head of fixed income at Lion Global Investors; Mr Jack Wang, partner at Lexico Capital; Mr Praveen Jagwani, chief executive officer of UTI International, Singapore; and Mr Simon Ng who heads the multi-asset investment team at Shanda Group. PHOTO: ST FILE

The portfolios' performance from Jan 18 to the end of February shows the benefits of diversification. During this period, domestic equities and Reits outperformed their benchmarks while global allocations and bonds suffered.

Overall, all three simulated portfolios are reflecting gains, with Mr Goh and Mr Wang's portfolios outperforming their respective benchmarks.

Ms Chee's portfolio is slightly underperforming her benchmark.

Part of the reason is the higher trading costs related to the construction of her portfolio, due to her lower investable sum of $40,000.

However, over time, trading costs as a percentage of total performance will decline in a predominantly buy-and-hold portfolio.

Ironically, Mr Wang's portfolio - which has the most conservative profile with about half of his $400,000 investable sum in bonds - is the best-performing over the period. This is mainly due to the relatively small allocation to global ETFs which underperformed, while the domestic equities and Reits allocations delivered strong performance.

Mr Goh's portfolio was the second best-performing portfolio over the period on a net return basis.

To recap, the panel and Mr Goh had earlier decided to hold back half of the allocation meant for domestic equities, Reits and global ETFs in the first four weeks due to volatile market conditions and the fact that his portfolio has a large equity exposure.

The panel evaluated whether to deploy the second tranche of Mr Goh's equity allocation a month after the initial investment.

As global equity markets generally continued to trend lower by the middle of last month, the panel subsequently decided to fully invest Mr Goh's equity allocation on Feb 18.

ALLOCATE WISELY

Research has consistently shown that the bulk of investment returns are achieved from prudent asset allocation and not market timing.

THE CFAS PANEL

TWO GOLDEN RULES

In Singapore, consumer prices have declined for 15 straight months and growth has declined in sync with the region. Times like these serve to underscore the importance of the two golden rules - diversification and long-term investment horizon.

'' THE CFAS PANEL

Holding back helped reduce the volatility of his portfolio.

On the flip side, it unfortunately detracted from returns.

With the benefit of hindsight, Mr Goh's portfolio would have delivered an even stronger performance if the equity allocation was fully deployed at the beginning.

This is because while global equity markets were broadly lower by mid-February, the stock picks (domestic equities and Reits) and the selection of global ETFs all outperformed their respective benchmarks.

Ms Chee's portfolio was mainly dragged down by trading costs, and actually outperformed Mr Goh's portfolio on a gross basis.

Ms Chee's request to include a healthcare stock was a good call, as Raffles Medical was in the second best-performing position in her portfolio.

The CFAS panel said: "Research has consistently shown that the bulk of investment returns are achieved from prudent asset allocation and not market timing. These portfolios have been designed with these principles in mind."

The panel has decided not to make any changes to the portfolios as the current allocation appropriately reflects the desirable risk-return equation for each profile.

It noted that global markets have been plagued by unusual volatility and risk aversion.

This has caused widespread decline in equity markets and has triggered a rush into defensive investments like gold.

The CFAS panel said: "In Singapore, consumer prices have declined for 15 straight months and growth has declined in sync with the region.

"Times like these serve to underscore the importance of the two golden rules - diversification and long-term investment horizon."

Looking ahead, the global economic environment continues to remain uncertain. The main factors depressing global financial markets are weak global growth, low commodity and energy prices, the slowdown in China and negative interest rates in Europe and Japan.

•The second seminar on the Save & Invest Portfolio Series will be for growth-focused investors. It will be held on April 16 from 9.30am to noon at the SGX. To register, visit www.sgx.com/academy. To analyse the financials of SGX-listed firms, you can check out StockFacts (www.sgx.com/stockfacts) . Please send your queries on this series to lornatan@sph.com.sg

A version of this article appeared in the print edition of The Sunday Times on March 06, 2016, with the headline 'Diversify, diversify, diversify'. Print Edition | Subscribe