Thematic Investing

We all know about investing in asset classes, regions and countries, sectors and industries, and of course, individual companies. However, there is a rising trend of investing along the lines of themes. While thematic investing has been around for quite a while, there is a build-up of interest around it in recent times.

So, what is thematic investing? Pulling out from the CNBC news site, thematic investing is “…buying stocks or other investments that may benefit from a particular trend”¹.

Traditionally, investments are usually based along the lines of asset classes and so on as described in the first paragraph. For thematic investing, however, it tends to straddle across these traditional lines and it can be very focused on the theme in particular. For example, investing on the theme of fintech involves not only the technology and financial services sectors, but also across different countries where there are companies in this field. Fortunately, we have exchange traded funds (ETFs) to cater to such investments. There are many thematic ETFs to select from, and most follow an index, though there are actively managed ones that do not, e.g., some of the ARK ETFs.

 

There are many themes that you can invest in, such as the aforementioned fintech, green energy, cybersecurity, biotech, etc.

 

The Bedokian’s Take

 

Thematic investing forms part of an active Bedokian Portfolio strategy, which I had named it as “the next big thing”. I had shared in my eBook on how to go about it², and had identified three fields to go into back in 2017: cybersecurity, payment solutions and alternative energy.

 

It is an interesting area to venture into, but if you are a beginner investor and/or have a limited capital, it is preferred that you start off with the asset classes first, rather than jump straight into thematic. It is important to start off a portfolio consisted of the different asset classes to capture the benefits of diversification. Once you got your feet wet enough and build up enough investible capital, you can then consider allocating part of your portfolio to thematic.

1 – O’Brien, Sarah. ‘Thematic investing’ has skyrocketed. Here’s how to capitalize on trends that could shape the future. CNBC. 29 Jun 2021. https://www.cnbc.com/2021/06/29/thematic-investing-has-taken-off-how-to-capitalize-on-trends-.html (accessed 10 Oct 2021) 

 

2 – The Bedokian Portfolio (2^nd Edition), p153-154

Keep Calm And Stay Invested

Recently we had been inundated by a lot of goings-on in the financial markets and economy, and most of them were not-so-good stuff. If you had paid attention to the recent news, we have a global energy crisis, the Evergrande debt crisis, the ongoing COVID-19 crisis, the United States debt crisis, etc. After knowing these, does it feel like the whole world is falling around you?

 

Well, short of a big catastrophe which involves a large meteorite, a massive alien invasion or extreme weather changes that you see in the movies, life still goes on. In fact, it is at such down times that opportunities come a-knocking in other places. Other asset classes, regions/countries, sectors/industries, and companies may be enjoying some uptime during this period.

 

And if you are diversified well enough, you may be enjoying some slight gains, or experiencing some slight losses. Diversification is meant to protect against such times, so the heartache is not as bad as a concentrated investment portfolio on the affected areas.

 

If you had noticed, this would be my n^th blog post on staying calm / cool / composed / "ohmmmmmm” in trying moments. Though I may sound like a nag, being human however we have the “fight or flight” instinct built in us, and this behaviour extends to our investment decisions, which may likely result in bad ones. So before selling off everything in panic and run for the hills, we should take a step back and take stock of the situations and scenarios.

 

Stay calm and stay invested.

Edited, Extended, Expanded…And It Is Still Free!

Announcing the second edition of The Bedokian Portfolio eBook!

It has been more than five years since the first edition of the eBook was published online and available for free. During this time, a lot of changes and happenings took place in the economy and financial markets. To start off, we are in the middle of a global pandemic due to COVID-19, which saw several sectors and industries being deeply impacted, in both negative and positive lights. Airline, tourism and hospitality were hard hit, but technology and pharmaceuticals benefited. From here, we can see there are diverse responses and results to a given situation, even though as we know the whole economy and market is like one big machine with many different interrelated parts moving together.

 

Two localised developments worth mentioning since 2016 are the emergence of real estate investment trust (REIT) exchange traded funds, which we currently have three listed in the local Singapore Exchange, and robo-advisories taking root and gaining adoption by investors. There is, of course, cryptocurrencies, which is also gaining traction in recent years, though the future direction of it being a real currency or a speculative instrument is very much uncertain.

 

Though my overall strategies, methodologies and approaches of The Bedokian Portfolio remain similar between the two editions, there are some subtle differences. Between then and now, and after observing the markets for several years, I had developed nuanced views and opinions on certain points and issues, resulting in the differences. Adjustments and adaptations are part and parcel of evolvement, and that is applicable to portfolio management. Nevertheless, the general gist of The Bedokian Portfolio remains the same.

 

I hope you will enjoy this new edition. And remember, keep calm and carry on investing.

 

The new eBook is available for download here! You can also scan the QR Code located on the top right of the blog (if viewed on web version) to download.

Battlefield Lessons On Investing

As an individual, I believe in reading up and gaining additional knowledge for the betterment of oneself, for learning is a lifetime activity. A big advantage of having lots of general knowledge is the contextualization of one knowledge domain onto another, from which we could derive useful real-life applications. We can apply this onto investing as well. 

As a war history buff, I shall share an interesting bite on World War 2: 

 

In the second half of 1944 on the western European front, the Allied commanders were debating on whether to approach Germany on a broad front (i.e., keeping and moving the front line as even as possible), or to adopt a narrow front (i.e., one part of the front move further in than other part(s)). Eventually the broad front strategy, favoured by the Supreme Allied Commander, General Dwight D. Eisenhower (who went on to become the President of the United States in the 1950s), prevailed.

 

The rationale behind both sides of the argument were not without merit. The proponents of the narrow front would want to end the war quickly with a single decisive stroke at a particular location that would cause the Germans to capitulate, while supporters of the broad front pointed out the precarious logistical supply situation they were in. Though the German forces were routed earlier in France (thus giving the assumption of a potential quick victory had the Allies went for a narrow front), they were still a formidable foe, as demonstrated later in end 1944/early 1945 during the Ardennes Counterattack (known as the Battle of the Bulge). Furthermore, a narrow push runs the risk of the attack being cut off at the rear by the defenders.

 

So, what can we apply the above to the field of investing?

 

#1: Never Underestimate The Markets

 

Just as the Allies began to underestimate the Germans who eventually dealt them a surprising blow during the Battle of the Bulge, as an investor we should not be underestimating the markets. Though the markets are not our enemies, but our approach towards them should not be that of overconfidence and we cannot bank on them behaving as we thought they should be. Like situations on a battlefield, markets are erratic and unpredictable, and may spring a surprise that may benefit or frustrate you.

 

#2: Concentration May Bring High Returns, But High Risks, Too

 

If we plowed our entire investable resources into one asset class / region / country / sector / company, and that thing generated huge returns, we could say that we had hit the jackpot. However, if the thing went downhill, so would our resources and we could end up worse off. An example would be a play into technology back in 2020, after which the sector flourished and massive returns were enjoyed. However, if we did not know the coming of COVID-19 and went all-in the tourism sector, that would be catastrophic. 

 

#3: If You Are Not Sure, Go For A Broad Approach

If you are unsure of how to go about investing (or knowing the future of) a certain asset class / region / country / sector, the safest and easiest way would be to go for a broad approach using exchange traded funds (ETFs). In this way, your risks would be distributed and thus reduced. Always start from the asset class level, then go down to the region / country / sector levels after you are familiar with them. For example, for equities you could begin with global equities ETFs before going into region or country specific ones, and then into sectoral ones, and so on. The returns of the broad approach may not be as high as a concentrated one, but at least your capital is better preserved when things go downhill.

Inside The Bedokian’s Portfolio: Vanguard FTSE Developed Markets ETF

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what we have in our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will briefly give an overview of the counter, why I had selected it and what possibly lies ahead in its future.

 

For this issue, I will talk about the Vanguard FTSE Developed Markets ETF (ticker: VEA).

 

Overview

 

VEA is an ETF from Vanguard, one of the largest and established ETF providers in the world. VEA uses the FTSE Developed All Cap ex US Index as the benchmark, and previously it was tracking the MSCI EAFE Index, in which EAFE stands for “Europe, Australasia and the Far East”. As indicated in the current and previous index names, the ETF does not contain any US listed companies in its holdings. In addition, the ETF contains listed companies from the developed countries in the said regions, such as Japan, United Kingdom, South Korea, Australia and Canada, to name a few.

 

Why VEA?

 

As I had mentioned in my eBook¹, since passive income is prerogative for The Bedokian Portfolio, it is advisable to go for financial markets that are developed, in which the economies are matured and stable and hence, a steady stream of dividends can be expected from the established listed companies. Also, for my overseas investment strategy, rather than going for a global-wide ETF, I decided to break it into US-based and EAFE-based as I believe there are merits in holding a sub-portfolio of US-listed equities (both ETFs and individual securities) and a sub-portfolio of EAFE ones.

 

The choice of VEA as the ETF to go for is obvious; it has the largest assets under management (AUM) (currently USD 102,820 million) and has one of the lowest total expense ratio (TER) (0.05%)². An ETF with a high AUM tends to be more liquid in the market and brings about an economies of scale in fund expense management, and interestingly VEA’s TER is relatively low compared to others.

 

EAFE Going Forward

 

The growing polarisation between the United States and China could bring a scenario of what I described as “the dichotomy” of the world’s two largest economies. Though geo-political and historical wise, some of the EAFE countries tend to side one faction over the other, but as a “third party” there could be some positive spillover effect resulting from “the dichotomy”.

 

Disclosure

 

Bought VEA at:

 

USD 41.47 at Feb 2014

USD 40.65 at Sep 2014

USD 38.05 at Oct 2014

USD 37.695 at Dec 2014

USD 36.00 at Aug 2015

USD 35.10 at Mar 2016

USD 33.20 at Jun 2016

USD 39.50 at Aug 2019

 

Disclaimer

 

1 – The Bedokian Portfolio, p107

2 – ETFDB.com (accessed 23 Aug 2021)

Bedokian Portfolio Blog’s Fifth Anniversary (Short) Message

Today marks The Bedokian Portfolio blog’s fifth anniversary. 

It has been more than a year and a half since the COVID-19 outbreak, and we are still seeing second or third waves cropping up in parts of the world. Vaccination is in full swing in most countries as governments want to protect its citizens from the virus and bring back normalcy in daily lives. 

 

Despite all these happening, we are seeing the rapid recovery of the financial markets; as of 29 July 2021, the S&P 500 had gone up slightly over 90% since its lows back in March 2020. Similarly, the local STI index had gone by about 30% in the same period. Some see it as a divergence which indicated a sort of mismatch between the state of the economy and the markets, which implies a bubble. Others view sectoral/regional play is at work here and capital just flow from one sector/industry/region/country to another.

 

Whatever it is, we should always go back to the basis of portfolio management, and that is diversification. Regardless of whether tech is facing a slowdown, or a country’s sector is being regulated and facing relegation to a non-profit model, being diversified meant that you are protected from being over-exposed to a certain asset class, region/country, sector/industry, company or events/occurrences.

 

And this is my fifth anniversary message.

 

Stay diversified, stay safe.

Rebalancing Bob’s Bedokian Portfolio

Bob had done his rebalancing on 30 June 2021, which I had reflected here, with another SGD 5,000 injection.

Bob had opened another brokerage account for the purpose of investing in overseas securities. For his inaugural overseas investment, Bob had purchased five SPDR S&P 500 ETF (SPY) shares as his first step into the U.S. market. 

 

Also, he had added some positions to the ABF Singapore Bond ETF, given the decline of its price in the last six months.

 

In a related development, from 30 June 2021, the SPDR Gold Shares ETF can be traded in both USD and SGD on the Singapore Exchange¹, which means going forward, Bob could choose either currency for his gold ETF.

 

1 – SPDR Gold Shares ETF Now Traded in Both USD and SGD. SGX.com. 29 June 2021. https://www.sgx.com/research-education/market-updates/20210629-spdr-gold-shares-etf-now-traded-both-usd-and-sgd (accessed 3 July 2021)