Tuesday, December 11

Value ETF Portfolio - 11 Dec update

Our ETF value portfolio is doing well! It is up 4.0% since launch in 1st November. Total value at US$10,395.

Since 1st November this year:

Emerging market ETF (ticker: EEM) up 8.3%
Real estate (ticker: RWR) up 7.3%
Non-US developed countries ETF (ticker: EFA) up 4.5%
S&P500 ETF (ticker: IVV) up 3.6%
10-year bond ETF (ticker: IEF) up 1.0%
Inflation-protected bond ETF (ticker: TIP) up 1.2%

Note that bonds are supposed to give lower but more stable return and they are important in lowering the overall risk of the portfolio.

Monday, November 13

Value ETF Portfolio - 13 Nov update

This week our ETF portfolio has inched up in value, now at US$10,079, or 0.8% return since launch at the beginning of this month.

So far in November, the strongest growth (2.5%) comes from emerging market equity, followed by non-US developed market equity(mainly Europe and Japan) at 1.3%, then US equity at 0.95%. Bond ETFs also rose slightly given a slightly gloomier economic outlook in 2007. Real estate decreased by 0.17% due to the gradual cooling of the US housing market.

Sunday, November 12

Congrats to Vietnam!

Vietnam has officially become a member of the WTO this week. Congratulations!

Besides the good news, I've got information on two newly-launched Vietnam Funds last week alone, and also heard from a few friends in the investment community studying the country's real estate market.

Guess it's time to look at Vietnam more closely.

The country is such a, well, sentimental country (especially to the US) that everyone should've had a basic knowledge on its history. But in terms of investment opportunities, it may give you some surprises:


  • Strong economic growth: Since the country's gradual change from centrally-planned to market economy, GDP zooming at 7.4% in the last 10 years (2nd only to China in Asia) and Government has a 7.5-8% target until 2011.
  • Successful reform: the "Doi Moi" (modernization) program has been successfully privatizing ~2,500 state owned enterprises (SOEs) and encouraging numerous business start-ups.
  • WTO in 2007: the entry is expected to pave way for strong, healthy long-term growth.
  • Excellent demographics: literacy rate at a very impressive 90+% and half of the 84M population is under the age of 25. The local culture also encourages strong work ethics.

As a result, Vietnam has been attracting lots of foreign investments, propelling the growth of both exports and domestic consumptions.


  • Still a baby: The Vietnamese market is still at the early development stage and the illiquidity (low trade volume) may lead to high volatility. This is not a market for people with short-term investment horizon.
  • Single-country risk: Investing in one single (and emerging) country pose a significant risks, e.g. from possible political turmoil, sudden changes in economic policies and a large withdrawal of foreign investment.

Investment Products available

As far as I know:

My thoughts:

  • JF and DWS Funds need time to build track record: In short, they are brand new. On the other hand, VOF delivered a 54% return in the last 12 months and has been around for a number of years.
  • All are expensive: they command a 1.7-2% management fee plus a hedge-fund like performance fee (20% of every dollar earned when the investment return is over 8% for the year). While the higher fee is somewhat understandable due to the higher trading cost in Vietnam, emerging market funds/ETF in other regions are more affordable.

Conclusion: be careful but be open-minded! Take a close look at the performance, and why not book a ticket to Vietnam and have a first-hand observation before making a decision? The tourism industry there is booming!

* note: these two funds may not be available to investors in certain countries

Wednesday, November 8

If Democrats are to win the mid-term elections...

The US mid-term election results will be out soon. Looks like Democrats are ahead in the polls. Who would be the likely winners and losers?

  • Oil Majors: Democrats may start to dismantle a number of Oil/Energy-friendly legistrations put in by Bush and the Republicans. Also, expect more regulations that would hamper domestic explorations.
  • Pharmaceuticals: expect that Democrats will push Medicare to directly negotiate pricing with the drugmakers, which would benefit generic drugmakers and hurt Pharmaceuticals.
  • Discount retailers: Democrats, leaning towards anti-China policies and protectionism, may introduce legistrations that limit imports from China and development countries. These retailers will suffer from a reduced supply of cheap imports.


  • Alternative Energy: In general, anti-bush/oil implies pro-alternative energy. Also, Democrats are believed to be more concerned about pollution and global warming, and this favors alternative energy development.
  • Metals: possible protectionist legislation will favor metal stocks, e.g. US Steel.

Can you think or other winners and losers?

Tuesday, November 7

Unconventional Success: a book review

David Swensen has written an excellent book for individuals investors. He boldly criticizes (by name in some instances) the greed and evil of the mutual fund industry, and advocates individuals to create simple, but broadly diversified and passively managed investment portfolios with not-for-profit fund management companies. He also discuss each investment product in detail and the benefits of sticking with the core asset class.

  • Most fund managers try to beat the market. However, this proves so difficult to be done that most individual investors are better off using market-mimicking, passively-managed strategies.
  • These strategies involve picking investments only from core asset class (US/non-US stocks, US Treasuries and real estate). The proportion can vary based on the investor’s risk appetite, knowledge and personal preference for any of the investment products.
  • Rebalancing is very important as the action is a way to ensure “buy low sell high”. For example, the current environment favors energy stocks and shuns tech stocks. A rebalancing act would mean selling energy (at high price) and buying tech (at low price), thus achieving the “buy low sell high” principle.
  • Rebalancing often means a contrarian approach – only a very rational investor can do this in a consistent basis, but he believes this is one of the success factors behind his own Yale Endowment Fund.

On Mutual Funds and Hedge Funds

  • Active management by mutual funds and hedge funds only makes sense if the manager can deliver a superior return. Unfortunately most don’t.
  • He believes the Morningstar rating system of statistical, backward-looking analysis does not make sense because it encourages the tendency to invest based on past experience, a conventional (but wrong) way of investment.
  • Don’t pick the funds based solely on performance. The ones with best performance this year often have dismal performance in the next (e.g. internet funds).

On Selecting Fund Houses

  • If possible, pick the non-profit fund managers, such as Vanguard and TIAA-CREF (teacher Insurance Annuity Association and the College Retirement Equities Fund).
  • ETFs are good alternatives because of their low cost and passively-managed nature. The best ones are offered by State Street and Barclays. Beware of the sophisticated ETFs offered by retail-oriented banks as they carry a much higher management cost with no value.


  • Mr. Swensen's advice is so elegantly simple that even a beginner in investment can reap much benefit from reading his book.
  • In fact, I have constructed a balanced, diversified and easy-to-manage portfolio based on his advice. You can join my learning experience here.
  • However, for a financial professional like myself, I have to say I still prefer active management / stock picking for a big part of the portfolio because it has been proved successful in my case. Unlike his $14 billion Yale Fund, my portfolio is small enough for individual stocks to make a difference. Maybe this is the reason?

Monday, November 6

Introducing a balanced and easily managed portfolio

I am currently reading Unconventional Success, a book written by David F. Swensen, the chief investment officer of Yale University's US$14 billion Endowment Fund. The fund has a return of 16.1% per annum over 20 years, an outstanding achievement even among the experts in the fund industry.

I will write about my thoughts on the book later, but in summary Mr. Swensen advocates the following:

  • Stick with the core asset class (stocks, bonds and real estate) for best risk/reward ratios
  • Work out the asset allocation based on your own risk appetite and be disciplined in rebalancing the portfolio based on this allocation
  • If not buying individual stocks and bonds, pick low-cost, non-profit fund managers or ETFs instead of the expensive (and often poor-performing) for-profit mutual funds

With that in mind, I have come up with a balanced portfolio consist of ETFs. The performance will be shown in the chart at the upper right hand side of this blog starting from today, and a weekly post will be written to explain the movement of the fund. Please join me in this learning experience!

An Equity-oriented, Broadly Diversified Portfolio

Our portfolio (starting at US$10,000) is made up of the following:

  • US equities 30% ($3,000): ishares S&P500 Index Fund (ticker: IVV)
  • Foreign developed market equities 15% ($1,500): ishares MSCI EAFE Market Index Fund (ticker: EFA)
  • Foreign emerging market equities 5% ($500): ishares MSCI Emerging Market Index Fund (ticker: EEM)
  • Real estate 20% ($2,000): Dow Jones Wilshire REIT Index Fund (ticker: RWR)
  • US Treasury bonds 15% ($1,500): 7-10 year T Bonds Index Fund (ticker: IEF)
  • US Treasury Inflation-Protected Securities 15% ($1,500): Lehman TIPS Fund (ticker: TIP)

Target investment return

Given the balanced approach, I believe a 8% return (5% above long-term inflation in US) per year is reasonable. To put things in perspective, if you are 35 and plan to retire at 60, a 8% return per annum in these 25 years will multiply your intial capital by more than 6 times, and much more if you keep putting fresh money into the portfolio.

For those who are looking for double-digit returns:

  • You can increase the proportion of higher risk/return investments (e.g. emerging market equities) and decrease the stable but low-yielding investments (e.g. US Treasuries). Please note that a revised portfolio may give more volatile returns.
  • Be realistic: a top-notch fund manager like Mr. Swensen delivers a 16% return every year. I guess it is rather difficult to expect ourselves to achieve, say, 20%.

You may also refer to our "When and How to Invest" workshop for more details.

What I will do

  • Daily: monitor the portfolio
  • Weekly: review portfolio and update chart / investment return data
  • Monthly: rebalance portfolio
  • Yearly: decide whether the asset allocation needs to be adjusted based on macro trends
I will explain the reason of picking each of these ETFs in the next post.

Surprise in non-farm payroll figures

Last week the traders have been focusing on the release of one economic data: the change in non-farm payrolls.

Reason: people have been worrying about the exceptionally low increase in non-farm payroll in September (at 51K) and whether the trend will continue. If so, this is a strong signal of recession.

Result: The October data shows a 92K increase in payrolls, lower than the expected 123K but much higher than the Sep data. More importantly, the 51K number is now revised upward to 148K (!) so the earlier worry about the exceptionally low figure is unwarranted.

You know, sometimes I wonder if we should pay this much attention to economic data if the revised figure can be so much different from the original. It is better to focus on longer-term trend than short term fluctuations based on this rather misleading data points.

Saturday, November 4

Phone Banking at the Next Level

Have you thought about settling your bills, checking balances and transferring money via your mobile phones? It's already a reality in Japan and Korea, but it has the greatest potential in developing regions such as Africa, Eastern Europe and Asia.

There are already half a million people in South Africa using the mobile phone as a bank*. Encouraged by the uptake, banks are teaming up with mobile companies to offer mobile banking services to those who have never touched an ATM machine nor visited a bank. Meanwhile in Philippines, mobile phone banking is available locally and it has a great potential to cater the thousands of Filipinos who work abroad and remit money to their homelands on a regular basis.

Great for banks and mobile companies...
This is certainly good news to innovative banks and especially to mobile companies, which has seen mobile phone usage reaching saturating points in many countries. Think about the millions of migrant workers looking for cheap(er) ways of remittance: Eastern Europeans working in EU, Mexicans in the US, Chinese from inland provinces working in big coastal cities... According to a UN estimate, the global remittance amount is more than US$230 billion, of which 20% is lost through bank charges and fraud*. What an inefficiency (and opportunity)!

... but bad for Western Union
If mobile phone banking is a success, it would be a big, big challenge to Western Union (ticker: WU), which specializes in remitting money to remote places and charges a hefty fee (can reach 30%+ of remitted amount). The company is still enjoying a double-digit growth and a >20% profit margin, but the threat is obvious.

Not happening in mass scale yet
For mobile phone banking to take off across countries and continents, there are still a lot of hurdles, e.g. infrastructure, standard platform, security, money laundering issues and time needed for the general public to accept this radical technology. No one knows when it will happen, but when it does it is going to be huge.

* source: The Economist (Oct 28 edition)