BigFatPurse tracks two model portfolios and a real money portfolio. We will take this opportunity to review the performance in 2015.
Being a Straits Times Index (STI) Exchange Traded Fund (ETF) advocate, we have created a model portfolio to simulate a dollar cost averaging investment plan and tracked its returns.
The model assumed a regular investment of S$500 per month, buying into STI ETF at the prevailing prices. Dividends were reinvested to buy more ETF in the following month, in addition to the S$500. It started on 2008.
Over the course of 8 years, a total of S$47,500 have been invested. The profits made were S$5,178, and this means the compounded annual rate was 2.6%.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
This isn’t a fantastic number considering the CPF Ordinary Account was offering 2.5% per year. A lot more was expected from the stock market.
The unusually low returns from STI ETF was due to two reasons.
First, Singapore stock market was one of the worst performers in 2015. We only did slightly better than Greece. It came out as a surprise as Singapore’s financial position was much stronger than Greece. But the stock market reflected the similar confidence issue.
Second, the Singapore stock market has seen dwindling trading volume since the 2008 financial crisis. Singaporeans and foreign investors seemed to have lost interest in local stocks. No one could pinpoint the exact problem and one of the most used reasoning was that most Singaporeans preferred to put their capital in properties during the preceding booming years.
If we compare the total stock market capitalisation against the Gross Domestic Product (GDP) of Singapore, we are near historical low. According to Gurufocus.com, Singapore’s Total Market / GDP ratio has ranged between 92% to 418%, and currently it is at 101%. Hence, Singapore stock market is considered cheap based on historical stats.
Well, an undervalued stock market doesn’t mean it must rise. This is the constant test of investors’ mettle.
You can refer to the comprehensive guide on STI ETF and its returns on this page.
Singapore Permanent Portfolio
This is the second model portfolio we have created. I have written a book about it and simply put, it is about diversifying your investment capital into stocks, bonds, gold and cash equally in each.
How has it done in 2015 since stocks were a disappointment? Bloomberg answered it best, The Year Nothing Worked: Stocks, Bonds, Cash Go Nowhere. Indeed, the Singapore Permanent Portfolio was down 3.8% in 2015.
But before you dismiss the utility of such a portfolio, continue to read on to get the actual perspective of the portfolio.
The primary objective of investing in Permanent Portfolio is to achieve stability, or minmise volatility. The Permanent Portfolio is known to be the Portfolio with the lowest volatility.
Hence, measure the drawdown in the portfolio, or the risk adjusted returns.
|2012 Worst Drawdown||-3.33%|
|2013 Worst Drawdown||-9.53%|
|2014 Worst Drawdown||-2.28%|
|2015 Worst Drawdown||-8.40%|
And truth be told, the maximum drawdown of the model portfolio did not go below -10% since we started tracking it. This means Permanent Portfolio has proved its stability despite the crash in gold, rising interest rates and lacklustre stock market.
Most investors would have only looked at the returns and felt that the Permanent Portfolio was doing a disservice. They have forgotten how much of their wealth were protected in such difficult times. They looked at the glass half empty and forgot what they had enjoyed.
I believe the model portfolio would be executing a rebalancing in time to come, considering the cash level has increase close to 35%. The returns would become more obvious when more of such rebalancing happens.
The Model Singapore Permanent Portfolio Performance was tracked here.
Lastly, this is our value investing portfolio using the CNAV strategy.
Unlike the above two model portfolio, this is a real money portfolio.
Currently the portfolio consists of 14 SGX stocks and 9 Bursa stocks. The latter were added in 2015 and of course suffered some forex losses as Ringgit continues to slide.
Surprisingly, our Malaysian stocks were doing much better than the Singapore ones despite the forex losses.
But overall, the CNAV portfolio was down 10.7%, vs STI ETF’s decline of 12.8% in 2015.
Since inception of this portfolio, it has been compounding at 6.9% while STI ETF has been losing at 2.2% per year during the same period.
The performance of the portfolio can be viewed from this page going forward.
It is important to have an investing strategy and stick to it.
I notice most investors struggle during tough times because they do not have an investment framework to hang onto. They would just go where the wind blows, float where the tide goes. It is detrimental to their wealth to be part of the herd.
No strategies can make money all the time. It is about having the faith in the strategy, really understand how it works in different times, accepting the disadvantages, and stick with the strategy through thick and thin that would change your investment outcome.