Saturday, February 2, 2019

SPDR GLD ETF Lot Size Change

OK, I may be “WOLS” (internet-speak for being slow on the news), but I would like to highlight that from 14 Jan 2019 onwards, you are able to purchase the State Street Global Advisors SPDR Gold Trust (or better known as the SPDR GLD ETF) in lot size of 5 shares, down from the previous lot size of 10.

According to an announcement by State Street Global Advisors on 10 Dec 20181, this reduction allows “…more Singaporeans, including Central Provident Fund (CPF) Investment Scheme members, to efficiently invest in gold…”. It also emphasized that gold “…historically acted as a portfolio diversifier, particularly during times of market volatility”, which I agree as I am a believer of diversification.

So what does this mean for The Bedokian Portfolio investors? There are two issues which I will mention here.

Issue #1: Bedokian Portfolio Starting Amount

In my eBook, I used the SPDR GLD ETF as the basis to determine the starting amount for The Bedokian Portfolio2. Taking the ETF closing price of United States Dollars (USD) 124.693, and the exchange rate between USD and Singapore dollars (SGD) of 1.30854(both information as at 1 Feb 2019), one SPDR GLD ETF share is about SGD 163.16. If you have decided to allocate 5% of your Bedokian Portfolio to commodities, under the old 10-share lot, you would need to fork out SGD 32,632 (SGD 163.16 x 10 x 20) to start the portfolio (before any transaction costs and commission fees).

However, with the new 5-share lot size, your starting portfolio can be halved to SGD 16,316 (SGD 163.16 x 5 x 20). 

Issue #2: “Overshooting/Undershooting” Risk

My eBook also mentioned about the deviation tolerance of the asset class allocation5. For asset classes with 5% to 10% allocation, a deviation of 2.5% is acceptable. So in this case, if you allocate 5% to commodities, rebalancing is not necessary unless it goes below 2.5% or above 7.5%.

Depending on the size of your portfolio, when your commodities allocation goes below (or above) the thresholds stated in the previous paragraph, rebalancing with a larger lot size may mathematically cause the portion to go beyond the other limit. For example, if your commodities portion is at, say 2% of your portfolio, and by purchasing 10 SPDR GLD ETF shares, the allocation may go up to above 7.5%. A smaller lot size would reduce this “overshooting/undershooting” risk.

One More Thing…

The above two issues are based on the investor’s preference to start off and rebalance with the SPDR GLD ETF listed in the Singapore Exchange. However, these issues will be moot if you decide to get the SPDR GLD ETF from other markets. Yes, it is the same ETF, and it is listed not just in Singapore, but also in the United States, Mexico, Japan and Hong Kong6. Again as stated in my eBook7, you can buy one SPDR GLD ETF share in the United States market, thus bringing down your portfolio starting amount to a very affordable level. In addition, the overshoot/undershoot problems during rebalancing will be greatly reduced.

A caveat though, if you wish to invest your CPF savings, you could only get the SPDR GLD ETF from the SGX, not from overseas markets, as per CPF regulations.

With all the talk on gold, and since it is a good omen topic in the coming festivities, The Bedokian would like to wish you a Happy and Prosperous Lunar New Year!

1 – State Street Newsroom. SPDR Gold Shares Halves Board Lot Size on Singapore Exchange. 10 Dec 2018. (accessed 2 Feb 2019)

2 – The Bedokian Portfolio, p72-73

3 – Singapore Exchange. (accessed 2 Feb 2019)

4 – US Dollars (USD) to Singapore Dollars (SGD) exchange rate for February 1, 2018. (accessed 2 Feb 2019)

5 – The Bedokian Portfolio, p82

6 – GLD SPDR Gold Shares. (accessed 2 Feb 2019)

7 – The Bedokian Portfolio, p73 

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