CPFIS Review - CPF-SA Investments

I promised a review of my CPF investments in my investment strategy for 2012 post earlier in the year. So, here it is and I will start off with a review of my CPF Special Account (i.e. CPF-SA) investments.

Background

According to the CPF Board, “given the higher risk-free interest rate on the Special Account, it is better to be more conservative than to subject these savings to the uncertainty of CPFIS returns.” Savings in the Special and Medisave Account (SMA) currently earn either 4% or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is the higher. The CPF Board also announced that the minimum floor rate of 4% in the Special, Medisave and Retirement Account (SMRA) will be extended to the end of 2012.

An additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA). The additional interest received on the OA will go into the member’s SA or RA to enhance his retirement savings.

From 1 July 2010, the first S$40,000 of CPF Special Account (SA) balances will no longer be allowed to be used for investments.

Initial Strategy

My initial plan is really to invest all my CPF-SA monies into balanced funds, since CPF-SA is locked in for very long term, has limited use and therefore one can be aggressive. Therefore, I beg to differ with the statement from CPF Board that it is better to be conservative.

Since pure equity funds and stocks cannot be invested using CPF-SA monies, balanced funds are the next best option. Bond funds and Protected funds are out since they will not be able to beat CPF-SA interest rate. Lifestyle funds like UOB GrowthPath series comes with automatic adjustment of asset allocation as one ages, which I rule out because I prefer to do my own asset allocation. I leave out ILPs as they come with higher sales charges. I can get better sales charge by investing in unit trusts at online platforms.

Fund Selection

The next part is to decide what funds to invest. I looked at all the balanced funds available for CPF-SA investment and selected 3 of them. Two are Asian focused balanced funds and another global balanced fund. These funds are classified as Medium to High Risk under CPFIS Risk Classification. The reason being I wanted to be aggressive, and Asian focused balanced funds should deliver better return than a global one.

1 PineBridge International Funds (Formerly AIGIF) - Acrons of Asia Balanced Fund. This is the most aggressive fund in the CPF-SA investment list. Its expense ratio is a bit on the high side, but it has a huge fund size of more than $1 Billion. I like the fact that they are investing in growth companies in Asia, and can even go above 70% on the equity side. They can also invest in preference shares as well. Most of their bond allocation are in SGD denominated papers, so minimum currency risk on the bond portion. Being aggressive, they can under-perform badly during market downturn, but they will be able to out-perform most of the balanced funds when markets are doing well.

2. Eastspring Inv (Formerly Prudential) Asian Balanced Fund. This fund complements PineBridge International Funds - Acrons of Asia Balanced Fund because it invest in Asian equities too, but not as aggressive as 1. It will mostly track the index closely, which means it will not under-perform the market badly during downturn. Its bond portion are in US papers, and therefore there is currency risk here. It is a typical balanced fund, with mostly 50%:50% equity:bond allocation. This is a safe fund if you want market return, without being too aggressive or defensive. It has one of the lowest expense ratio in the CPF-SA investment balanced fund list.

3. Templeton Global Balanced Fund. This fund is a global balanced fund, with focus on value large cap. Its bond portion is invested globally. It is also your typical balanced fund, with mostly 50%-60% allocation in equity. Its expense ratio is quite high last time but has since reduced it subsequently by eliminating its feeder fund structure.

Analysis

Since I have started investing in these 3 funds, Templeton Global Balanced Fund have disappointed me. The other two funds had performed up to my expectation.

What Has Gone Wrong

I did not introduce an Asian Balanced value focused fund like First State Bridge to complement my existing growth oriented Asian balanced funds. This has resulted my CPF-SA investment portfolio to be a little bit more volatile than I would have liked. Templeton Global Balanced Fund is supposed to exhibit the stability, but it has disappointed me as far with its performance and volatility.

Also, I should not have rule out UOB GrowthPath series as they come with low expense ratio and low volatility. Given a choice, I would have replace Templeton Global Balanced Fund with either DWS Premier Select Trust 0r UOB Growth Path 2040.

Action Plan

There is not much I can do now. I cannot switch funds because of the increasing CPF-SA investment limit. If I sell one of the funds, I will not be able to re-invest the proceeds anymore since I will have to maintain at least $40K in my CPF-SA. I also cannot invest using my CPF SA funds anymore since I have not reach the investment limit in my CPF-SA. I guess for my remaining funds in CPF-SA, I will have no choice but to just leave it there and earn the CPF-SA risk free interest rate.

PS: Most of my CPF-SA investments are in Non-IA status, which explains why the $40K restriction comes in. If you have invested using IA status, then you can perform the switch even if your CPF-SA has less than $40K. Thanks to Sanye for posting the question.

Making Changes to Your Investment Portfolio

Dear all,

In my previous post, I have discussed how one can use a simple and yet efficient method to determine whether his/her investment portfolio is stable or not. The concept is really not to touch the portfolio unless it is really necessary. Using simple black box technique and dividend yield computation can determine whether it is necessary to make changes to the portfolio. If one had been following through his/her investment process dilligently, there should not be any need to make changes most of the time.

Now, let's say one had detected that the portfolio is not really that stable. Which means, there is really some junk stocks in the portfolio and it had affected the portfolio quite a lot. What to do next? Well, it is time to make changes but try not to make wholesale change. The aim is to minimize trades. Do minor changes with maximum impact. Some of the things to take note of when making changes are discussed below:

1. Assess and isolate problem. It is important to isolate the problem. Since we know that there is a problem, it might be contributed by only one or two junk stocks with high allocation in the portfolio.

2. Plan to make changes. The key is to make minimum change. So, have a plan to make changes after you assess and isolate the problem. You might not need to get rid of all the problem stocks in one go.

3. Make changes and collect more data points. After making the necessary changes to your portfolio, collect more data points and see whether your changes are effective. It is not the objective to have a perfect portfolio and end up with high turnover. Rather, we want to make small changes but big impact. It is an iterative (not once and forget) process to see whether your changes are effective or not. If necessary, one need to re-visit 1. and 2. again.

4. Reflect on your mistakes. What causes the portfolio to be unstable in the first place? Is it because the stock had ran up too fast? Or is it because the fundamentals of the company had become worse? Is it because your stock selection process and overweighting ideas are wrong? etc.

5. Gain acceptance. It is important not to look back too much on your mistakes. While it is not good to make investment mistakes, try to learn, accept your mistakes and move on. Continue what you had been doing. Try to fine tune your stock selection process as you go along but do not feel sad about it. Try to make it better the next time.

A Black Box Approach to Portfolio Performance Measurement

Dear readers,

I have been asked questions like - What is your portfolio's CAGR? What is the cost price of the stock that you have purchased? When did you buy the stock? etc.

Frankly speaking, I had not been able to answer most of these questions. In fact, I don't really compute CAGR or look at the cost price of each stock in my portfolio. I don't even remember when did I bought a stock, especially for those that had been purchased years ago. Then how do I measure the performance of my portfolio? This post attempts to answer this question.

I like to use Engineering analogy when managing my investment portfolio. Because I am an Engineer by training, sometimes I don't really like to use financial terms to analyze or describe stuff. Therefore, you don't see spreadsheets, excel tables, detailed analysis on companies etc on my blog here. I am not an analyst and I will not attempt to be one here. I am also not an accountant and therefore I do not claim to be an expert in numbers.

What I can do though is to try to put everything together and make it work. An Engineer will not claim that he understand every component in a system and how they behave, but at least he try to understand how the system behave in normal/adverse condition and make small changes based on observations. But there will not be a drastic re-design to a system that is working most of the time.

A black box approach to portfolio performance measurement is what I had been doing most of the time. What it means is that without looking at what is the content of the portfolio, I just get the closing market value of my portfolio every day to have a feel of how my portfolio as a whole is behaving. From there, I can roughly know how my portfolio react to market movements every day. Is it volatile? Has it underperformed? etc. If my portfolio is behaving normally most of the time based on my observation, I will not go into individual stock at all. Which means, I will not bother looking at the closing market price of each stock in my portfolio, let alone decide which stock to sell. A black box approach is a simple yet effective method because once you select good stocks to invest, your portfolio should be stable enough to withstand market downturn. Granted, there are some stocks which might not perform to your expectation after you introduced them but as long as your portfolio on a whole is well-diversified and you keep on over-weighting the better ones, it should be good enough. You should not attempt to make changes on a portfolio that is working most of the time, just like you don't do a re-design of a system that is working and already been deployed to be used by customers. Yes, the system is not perfect and there is some bugs but as long as it works most of the time, it is good enough. Learn to live with some junk stocks in your portfolio.

Another simple method I did is to compute the dividend yield of my portfolio. This is obtained by using the year-end CDP statement which detailed all the dividend that had been received during the year. Again, it is just simply adding together all the dividends and derive the yield based on my portfolio size at the end of the year.

Time should be spent on looking at good companies to invest at the right price rather than monitoring the share price of each stock in your portfolio or computing returns, which is really the result rather than the process. Focus on the process and the result will come automatically.

My Investment Portfolio (January 2012)

2012 started off with a bang in January. STI powered ahead to above 2900 points on high volume. High beta stocks and penny stocks finally had their day in the field. It seems that investors had already forgotten those issues that we had in 2011.

For this month, I have attended the following AGMs/EGMs - L-Jacob, Lafe Corp, WBL Corp, HG Metal, Japan Land, Etika and Tye Soon.

KepLand re-entered my top 30 holdings list this month, due to price appreciation. Investors are happy with the special dividend being declared after they sold Ocean Financial Centre to K-REIT. Hong Leong Finance is a new entry to my top 30 list this month as I accumulated the stock on price weakness.

I have bought the following companies from the open market this month - BBR Holdings, Casa Holdings, Guthrie GTS, Hong Leong Finance, Hotel Grand Central, Miyoshi, Singapore Land, SHC Capital, Sin Heng, Soon Lian, Singapore Reinsurance, Superior Multi-Packaging, Tat Seng, TTJ and Venture. As usual, there is no sales transaction done.

I have accepted the following voluntary cash/delisting offers - Leeden and SMB United.

February 2012 will be a result reporting month. Many companies with financial year ending December 2011 will be reporting their full-year results. I will be spending quite some time to go through those results. I will also seek to re-invest my proceeds from Leeden and SMB United back to the market.

My S'pore Stock Portfolio - Top Holdings, cash investment only (correct as at 31 January 2012)

Top 30 Holdings (Sing$ Denominated shares)
1. Jardine C&C
2. F&N
3. Noble Group
4. SembCorp Marine
5. SGX
6. UIS
7. Bukit Sembawang Estates
8. A-REIT
9. CapitaMall Trust
10. Metro Holdings
11. Viz Branz
12. Sing Investment & Finance
13. Singapura Finance
14. OSIM International
15. Wheelock Properties
16. KepLand
17. SP AusNet
18. PSL Holdings
19. Hong Leong Finance
20. APB
21. Fragrance Group
22. Keppel Corp
23. Bonvests
24. United Engineers
25. The Hour Glass
26. VICOM
27. Transpac Industrial Holdings
28. ABR Holdings
29. Aspial
30. Hersing

Top 5 Holdings (US$ Denominated shares)
1. Jardine Strategic
2. Dairy Farm
3. Jardine Matheson
4. Hong Kong Land
5. Mandarin Oriental

Top Holdings (HK$ Denominated shares)
1. Fortune REIT
2. Tan Chong International

Top Holdings (Aust$ Denominated shares)
1. AV Jennings

Top 5 Holdings (CPF OA investment)
1. Keppel Corp
2. Streettracks STI ETF
3. CapitaMall Trust
4. A-REIT
5. Challenger Technologies

My Hong Kong Stock Portfolio
1. Peace Mark Holdings - Under Voluntary Liquidation

My Unlisted Company Portfolio
1. Automated Touchstone Machines Ltd
2. Iconic Global Limited
3. Greatronic Limited
4. China Printing & Dyeing Holdings
5. General Magnetics
6. Fastech Synergy
7. Beauty China
8. Memory Devices
9. Jurong Tech
10. FM Holdings
11. Japan Land - Under Members' Voluntary Liquidation
12. Zhonghui - Under Judicial Management
13. FerroChina - Under Liquidation
14. FirstLink Investments
15. Maveric Ltd - Under Members' Voluntary Liquidation

My Unit Trust Portfolio:
http://www.fundsupermart.com/main/community/Portfolio_View.svdo?id=P199