Saturday, July 27, 2019

Turning Three (!) Tips For You!

The Bedokian Portfolio blog is turning three soon! And since all good things come in threes, I shall give you three tips and opinions for you to ponder about!

One: Are S-REITs Overvalued?

Singapore real estate investment trusts (S-REITs) are currently enjoying a boom. Based on the iEdge S-REIT 20 Index, since 1 Jan 2019 it has risen from 1208 to 1436 as at 26 Jul 20191, an 18.9% rise. Recently in some of my investment chats with others, very often REITs were creeping into the conversations. So with all the talk about REITs, is it a sign that this asset class is getting overheated?

Based on my own aggregation from data sourced from REIT Oracle2, the average price-to-book (P/B) ratio is about 1.13, meaning in general S-REITs are 13% above its net asset value, so can say it is not cheap. However, quantitatively there are still S-REITs that are below the P/B ratio, though you may have to exercise extra analysis to see if they are worth getting.

If you are holding onto existing S-REITs, you may consider doing an averaging up. And/or, if you are rebalancing your portfolio due to the surge in S-REIT prices, you could practice the “sell extreme winners and buy false losers” with other REITs or other asset classes. You can look them up in my previous post here for more information.

Two: Happy Or Sad? Don’t Transact

Humans are emotional creatures, period. No matter how hard you try, you cannot escape times when feelings overwhelm you, be it happy or sad. If that happens, objectivity is somewhat thrown out of the window.

With no objectivity in place, your presence in the financial markets is at best unstable. You cannot make sound judgements and execute clear decisions, and these may be costly. Therefore if you are aware that there is an emotional tsunami inside you, deal with it first and forget about the markets.

Three: Doing Nothing Is Doing Something

OK, this statement may sound a bit philosophical, but if you look deep enough, there is some sense and meaning to it. For example, in a battlefield, if the enemy is seen doing nothing, it could be that they are waiting for your next move, resupplying their logistics, or probably even falling asleep! Anything goes.

In the field of active investing (and trading), doing nothing is not just chucking your portfolio aside and leave it as it is (and on the other extreme end, you do not need to watch it every minute and hour either). Rather, it is like watching and observing from the sidelines. You could be waiting for the moment to execute a buy/sell, or see how things pan out after rumours and news, good and bad, make their rounds in the markets.

Remember, not everything warrants an action to be made. Sometimes waiting out and doing nothing could be a better option.

1 – Singapore Exchange, iEdge S-REIT 20 Index. (accessed 26 Jul 2019)

2 – Reit Oracle. All Singapore REITs. (accessed 26 Jul 2019)

Thursday, July 11, 2019

Asset Class Correlation For 1H2019

Someone I knew made a remark that for 2019, the price of everything is going up; equities, REITs, bonds and even gold. So that begs the question: is there still correlation between the asset classes?

Using U.S. ETFs representing the various asset classes, plus an equities ETF for the Singapore market (EWS), we shall now turn to Portfolio Visualizer to find out.

Vanguard Total Stock Market ETFVTI-0.930.53-0.400.360.0418.67%
iShares MSCI Singapore Capped ETFEWS0.93-0.33-0.300.460.2413.93%
Vanguard Real Estate ETFVNQ0.530.33-
Vanguard Total Bond Market ETFBND-0.40-0.300.25-
SPDR Gold SharesGLD0.360.460.120.23-0.569.86%

Fig. 1 – Correlation results based on monthly returns for the period 1 Jan 2019 – 30 Jun 2019. For full data click here.

All asset classes had positive returns in 1H2019, yet we see negative correlation between bonds, and the U.S. and Singapore equities. Surprisingly, gold had a positive correlation with the other asset classes.

The above is based on monthly returns. Let us see what would the correlation be like on daily returns.

Vanguard Total Stock Market ETFVTI-0.730.40-0.38-0.170.1618.67%
iShares MSCI Singapore Capped ETFEWS0.73-0.22-0.29-0.040.2213.93%
Vanguard Real Estate ETFVNQ0.400.22-
Vanguard Total Bond Market ETFBND-0.38-0.290.16-0.54-0.056.14%
SPDR Gold SharesGLD-0.17-

Fig. 2 – Correlation results based on daily returns for the period 1 Jan 2019 – 30 Jun 2019. For full data click here.

For Figure 2, we can clearly see that bonds and gold had a negative correlation with the equities ETFs, though gold’s was only slight. 

So what is the conclusion of all these? Correlation is still very much alive even though none of the asset classes had negative returns in the said period. Also, correlation is not hard fixed and can go plus and minus with one another.

So therefore, stay diversified.