Author: Shaun Lim

3 books about investing recommended by Freddy Lim (24 Sept market commentary)

About financial planning – The Richest Man in Babylon
About trading – market wizards and interview with top trader
About risk – against the gods: the remarkable story of risk

He mentioned 5 books, but only gave 3 haha.

Syfe investment methodology

After seeing the “weird” portfolio allocation for Syfe I attended one of their introductory seminar to get a better understanding of their investment methodology and framework.

I was also sent a link to their website containing link to two whitepaper underlying their methodology.

I have to admit I don’t fully understand what is being written in these white papers but in simplest term I believe Syfe view risk as a function of not only portfolio allocation but also market volatility.

Graph extracted from the paper “Constant volatility framework for managing tail risk” sourced from Syfe

They view probability of outsized “drawdown” or losses as being greater in period of market volatility hence will rebalance the portfolio for the increased risk by shifting away from normal % of equity/bond allocation.

The theory is that by avoiding the worst of the downturn the portfolio will not have to recover as much to outperform static portfolio.

Their recent performance in rebalancing through the market downturn show that their framework is capable of reducing portfolio risk in a real market downturn. The jury is still out on whether they can be as nimble on the uptrend as well since they have missed the rally over the last 8 weeks.

Since my initial post yesterday, DJI was down 1,861 points (6.9%) last night.

This rally have been illogical in light of the poor underlying economic data and was built upon assumption of a perfect recovery from the Covid shutdown. Many market observer remain skeptical but I honestly do not know enough to have an opinion either way but is selecting stock for my active portfolio with plenty of margin of safety to weather any economic downturn.

Time may vindicate Syfe’s decision to stay on the sideline. I honestly do not know how well their framework will work and how consistently they will be successful.

But I have to say their customer service have been top notch allowing me to speak to their advisory team prior to committing fully to a portfolio with them.

By contrast my email to Stashaway remain unanswered since 10th June.

Syfe – Investment strategy

TLDR: Syfe adopted a framework to avoid the “tailrisk” of a down market in period of volatility that is unconventional against the approach of other investors such as Bogle.

Eventhough this framework have backtested well since 2010, I question whether this is still sound in the age of money printing.

Nonetheless I think it is brave for them to take such an approach and it is the most interesting portfolio to watch in a recovery.

As I’ve posted last week, I find that Syfe offered a unique roboadvisory in that they have chosen to not stay invested during this period of high volatility and hold onto a outsized treasury bill position.

Kudos to the Syfe customer service, they have been providing me with information relating to my specific question above and beyond what platform such as Stashaway been transparent with (thus far).

Based on the investment methodology white paper shared by them that can be found here Syfe will actively manage allocation into stock market based on the volatility (risk) of the market.

While conventional legends of investment such as John Bogle and Burton Markiel (and even Buffett) will recommend investor to stay invested through market cycle, Syfe have adopted the “Constant Volatility Framework for managing tailrisk” essentially attempting to “time the market”.

If this can be achieved without missing out on the up-cycle, it will be absolutely great. But I remain skeptical that there is a formula that can forego the downside risk without missing out on the up cycle – especially in light of the April to May recovery of this year after record sized intervention by US government.

I’ve posed the question below to Syfe and I will pose their reply when I receive them:

In period of higher volatility, – there’s unwanted negative fat tail but also “wanted” positive fat tail, conventional rule offered by gurus such as Prof Burt Markiel have been recommending investor to stay invested even in period of high volatility. By not staying invested – the portfolio may missed out on the “critical month” of the market recovery.

Given the new norm of money printing/ MMT / QE upending conventional “rule” and wisdom, is the hypothesis behind the framework (sharp decline and drawn out bull market) still valid especially in light of the sharp recovery we’ve seen in the last 8 weeks?

As a layperson, it is my observation that in the last 10 years with MMT, the world’s government beginning with US (and now spreading to Europe & Australia among others) are printing money in support of the stock market and real economy perhaps changing the rules of how the stock market operate (this time is indeed different!) – cheap money is creating a horde of “zombie companies” not generating real cash but sustained by cheap credit. It is my concern as an individual investor on how to “beat” inflation in the era of currency debasement and hence I find it unusual for the high allocation of T-bill even within the highest risked portfolio of Syfe. 

Does the investment committee still have high conviction of their current approach in adopting the “constant volatility framework for managing tail risk”? – with money printing and the sharp recovery in the past 8 weeks?

(I do share the scepticism of the recovery from a common sense perspective but I believe despite the risk, staying invested (in reasonably valued sectors) is the safer choice given the currency debasement risk. This is by no mean a criticism of the choice, rather I find it “brave” to switch out but I will like to “ask more question” prior to making allocation to Syfe as part of my portfolio.)

Investment log – 9th June 2020

I intend to track the performance of the portfolio but will be disclosing the amount in units rather than actual figure for privacy reason. 1 unit can be RM10, RM100 or RM 10,000 (or in SGD).

4th June 2020 – Invested 5 units into Stashaway MY 30%
9th June 2020 – invested 5 units into Syfe SG 21%.

Notwithstanding my mix feeling about SYFE’s portfolio, given their strong portfolio return in 2019 I have invested a small position into Syfe to track the performance relative to the Stashaway portfolio.

Syfe (Sg) – portfolio review 9/6/2020

TLDR: Syfe’s current portfolio is underweighted their custom allocation, even on their riskiest portfolio they are >50% in US treasuries. While the market is scary, it is conventional wisdom for investor to stay invested through the ups and downs of market cycle and not “time the market”.

However all of their portfolio had respectable 20+% return in 2019 they might be onto something.

I am not sure what to make of this odd portfolio.

Although one of the basic tenet of investing is to stay invested through good time and bad, I was surprised to see all of the portfolio for Syfe is currently loaded up with US Treasuries despite their higher risked portfolio is supposed to be invested mostly in equity.

Looking at their 25% risk portfolio that is supposed to be 90%/8%/2% (Equity/Bond/Commodity), they are currently 55.94% into bond! Majority of this bond is held in US treasuries.

Even their social media account recommend long term investor to stay invested so it was interesting for them to take such a gutsy move in having such a low allocation in equity in their higher risked portfolio.

I was about to write them off but I note that their portfolio did better than I did in 2019 with 24.5% return in 2019 for their higher risked portfolio and a very respectable 21% for their balanced portfolio.

It is unusual for a fund manager to stay on the sideline and in my brief review of other portfolio of stashaway/autowealth, none of them took such a (risky) move.

I am not sure when did they divest the portfolio of the equity position and when are they intending to jump back in. They are trying to time the market and it is something most professional investor find it extremely hard to do.

“There’s a lot of people who get it right sometimes. But nobody gets it right consistently. Don’t try to time the market,” he said. “You will get it wrong. Ride things out. Be well diversified.”

Malkiel – author of a random walk down wall street

If they are able to time the bottom through their methodology (and do it consistently) I will be more convinced of their “magic” but most of the literature suggest that it is extremely hard to “time the market” and it is better to stay invested through the up and down.

If Syfe miss the “critical month” of the rebound, the portfolio will not beat their benchmark.

See this video by morningstar on the peril of timing the market.

By being underweighted equity relative to their desired allocation, they have already missed out on a big bounce from below 2,500 to 3,200 (700+ points) which is a 28% move.

Whether they are genius or otherwise really depend on how they come out of this covid led recession.

DBS Digiportfolio

TLDR: DBS Digiportfolio is conservative even on its most aggressive setting. With DBS as the counterparty it is perhaps one of the safest roboadvisory “startup” in the market. As the portfolio is rather simple, one can possibly recreate the portfolio manually without incurring the management fee.

DBS offer 2 ETF based robo advisory portfolio focusing on either Asia or Global.

Asia Portfolio
There’s 3 risk level ranging from mixture of 48%/45%/7% (Equity/Fixed Income/Cash) in the low risk portfolio to 73%/20%/7% in the “Fast and Furious” portfolio.

Keeping with my “Fast n Furious” selection for Stashaway, I will only be looking at the more aggressive portfolio.

For the equity portion, the holding is in 4 category:
1) Asia REITS ex Japan
2) Singapore STI
3) MSCI China
4) MSCI India

Assuming an equal split between the 4 categories, the china weighting for this portfolio will only be around 18%.

I will not delve too much into this portfolio as even in its most aggressive setting, it is still rather conservative.

Singapore STI for example consist mainly of REITS and financials. There is not much growth there in my opinion. With further allocation into REIT funds and bond, the portfolio will be very conservative.

In the 2 year preceding today, the portfolio roughly breakeven.

Global Portfolio
There’s 3 risk level ranging from mixture of 15%/78%/7% (Equity/Fixed Income/Cash) in the low risk portfolio to 75%/18%/7% in the “Fast and Furious” portfolio.

The composition of the portfolio is rather vanilla, just a blend of US, Europe, Asia and Japan.

In the 2 years to date, the portfolio have a total return of around 7.36%

While the portfolio is projecting a 10 years average return of 102.2%, their return in the last 2 years made me doubt that this is achievable. (Even excluding the March drop).

While this portfolio is more attractive than the Asian portfolio earlier, it is rather vanilla and easily replicated by an investor with a reasonably sized portfolio without paying the 0.7%.

The Digiportfolio is rather conservative but with DBS as the counterparty it is one of the safest roboadvisory portfolio in the market. I think what they offer is good for people that want safety over excitement as the name FnF suggest.

Nikko AM x StashAway: Navigating markets during and after COVID-19

This was my first stashaway seminar conducted by Zoom on 4th June 2020.

Key takeaway for me

  • No one knows where the market is heading. It is heavily dependent on vaccine availability.
  • Size of US stimulus including multiplier effect is = around 7 months of GDP. With economy shut down for 3 months, there’s still buffer in the injection.
  • If you are investing for the LT, what happen in the next 6 months is irrelevant
  • Market could be in a bad shape for the next 3 years, or they can continue bouncing back

There was alot of detailed discussion in the 1 hour session. It is worth listening to.

Video is available through this link as of now.

Why I chose the 30% risk index

Please see earlier post on the composition of the portfolios I was considering.

Between the 4 different portfolios I’ve concluded on the 30% MY portfolio because:

  1. Preference for non-US ETF
  2. Preference for lesser US weighting in current market environment

Between the 22% and 30% portfolio, the main difference is between the government bonds allocation of 11% in the 22% portfolio and the income stocks allocation of 13% in the 30% portfolio.

Having looked at the composition of the iShares Asia Pacific Dividend ETF I notice that it is mainly made up of Australia shares (around 50%) that is income generating blue chip. In this environment where Australia shares is weak, it seem sensible to have such allocation over bonds.

With money printing there is an expectation of inflation hence I believe equity is a better inflation hedge than the EU government bonds in the 22% portfolio.

Comparison between Stashaway Singapore and Stashaway Malaysia

TL;DR: Stashaway MY was preferred for me as it have a more global allocation and does not have possible exposure to US tax issues.

I’ve opened a Stashaway account in both Malaysia and Singapore on the same day with expectation that they will both offer the same product with the same allocation. Afterall they have the same smart people behind them.

However I soon realise while doing a cursory comparison that there is a big difference in their asset allocation for the portfolio with the same risk index.

Stashaway Malaysia in GBP (left) and in USD (right)

Notable is their composition of target asset allocation for North America.

The Singapore portfolio have a target allocation of about 59% for North America while Malaysia portfolio only have around 18%.

(While writing this post I received a welcome call from “Albert” – the deputy country head for Stashaway. It was surprising especially for a small and new customer like me, I asked a few question on the historic performance of both funds and hopefully I will hear back from them and update the post accordingly…..)

I have a few reason for preferring a lesser North America allocation, but it is in line with what Freddy said in yesterday’s seminar of US market being “toppish” currently.

As an added benefit, GBP ETF is traded in UK while US ETF is traded in US. I believe there is estate duties implication for US traded ETF if your total US portfolio exceed the tax free threshold.

As such I was attracted to the GBP portfolio outright.

I dived further into the respective portfolio to understand the allocation better.

Stashaway MY have a lesser weighting for US. Allocation for gold is very high between 32-35%. The Bond allocation is 11% for the 22% risk rating. Equity allocation is between 44-61% of which main difference lie in the 13% Asia Pacific Dividend ETF (majority AU stocks) that substitute the bond ETF holding in the 22% portfolio.

I looked into individual ETF’s top 10 holding and they are reasonably large companies such as Tencent that offer growth potential in the long term and is of the type I am usually reluctant to invest as it is too “risky”.

Stashaway SG by comparison have a very large US allocation. Their Equity allocation range from 42% to 65% investing in the US market directly. This is a less “global” allocation compared to the Malaysia portfolio but have the global reach due to the global nature of US companies (Coca cola, Pfeizer for example).

The gold allocation is at 20%, that is noticeably lower than the Malaysia portfolio of 32%.
I am not familiar with gold but understand its diversifier benefit.

I also highlight that they invest into a China Internet ETF versus a Cybersecurity ETF in its tactical selection. I am not familiar with either ETF but I believe it is not hard to foresee growth opportunity in this 2 respective subsector.

Having compared the 2 countries with the 2 different risk rating (22% was recommended for my time horizon but I notch it up a little bit against their advice) I believe the 30% portfolio for Stashaway is more attractive to me due to their lower US portfolio.

Having said that, I am not against investing into Stashaway SG in the future when the US market as a whole is trading at a level I am more comfortable with.