Saturday, July 1, 2017

Bob Is Rebalancing

I had mentioned here that Bob would be rebalancing his Bedokian Portfolio with an S$5,000.00 capital injection on 30 June 2017. Let us go through how he did it step by step.

In The Morning

When the market opened at 9:00 AM on 30 June 2017, Bob checked the opening prices of the securities in his portfolio. He then translated the prices to the table below (Fig. 1).

Fig. 1
Note: USD 1 = SGD 1.38

Bob added S$5,000.00 to the cash component, bringing it up to S$7,019.22 (see Fig. 2).

Fig. 2

Purchasing The Securities

There are now a few ways to allocate this newly injected cash amount among the different securities. If the asset class allocation is still within the designated percentages, he could just make the cash portion at 5% and split the rest accordingly.

Another way is he could work out the ideal percentage allocation of each asset class and purchase the securities as close to the shortfall amount. For example, using Fig.2, the current STI ETF stands at 31.22%. The 35% amount of S$36,991.01 is S$12,946.85, so he would try to purchase about S$12,946.85 – S$11,550.00 = S$1,396.85 worth of STI ETF.

Bob followed the second method, and then purchased the following securities, using the Last Done prices of 30 Jun 2017 (all transaction costs included):

STI ETF x 400 shares x S$3.27 = S$1,335.31
Philip Dividend REIT ETF x 1,700 shares x S$1.295 = S$2,229.20
ABF Bond ETF x 1,200 shares x S$1.16 = S$1,419.35

Bob did not purchase the GLD ETF as firstly, the commodities portion is still within percentage deviation of 2.5% (5% - 4.43% = 0.57%). Secondly, for SGX, he would need to buy at least 10 GLD ETF shares, the minimum required, which would upset the asset allocation if purchased.

After rebalancing, Bob’s Bedokian Portfolio would look like this (Fig. 3).

Fig. 3


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