Portfolio Management - Opinions

[csl123]

Hi all,

I would like to tap some valuable experience from the visitors of this forum in the area of fund management. In the new normal of low growth and high volatility,

1) In terms of Strategic Asset Allocation, how do you mitigate risk and volatility, while still managing a decent return (9-10%) ?

2) In terms of Tactical Asset Allocation, what is your outlook for the next year? Are you reducing your equity exposure in favor of cash or bonds?

Thank you.

[Jacmar]

Hi all,

I would like to tap some valuable experience from the visitors of this forum in the area of fund management. In the new normal of low growth and high volatility,

1) In terms of Strategic Asset Allocation, how do you mitigate risk and volatility, while still managing a decent return (9-10%) ?

2) In terms of Tactical Asset Allocation, what is your outlook for the next year? Are you reducing your equity exposure in favor of cash or bonds?

Thank you.

to answer your question base on my experience only:

1. to get 9-10% is extremely difficult on a yearly basis. you can get this kind of returns or better if your portfolio is all equities and small. Temasek 8.6% is very credible but I don't know the details of their portfolio...so does many people. according to WB returns of 4-6% is more likely on a long term basis. how to mitigate risk is make sure you are comfortable with the level of equity and fixed income exposure in your portfolio so that you can sleep well.

2. next year, who knows. if you listen too much to the talking heads you will be totally confused. they said more volatility. since when is the mkt non volatile.as for me I am actually increasing my equity exposure simply because cash and fixed income is killing me with the kind of returns.

[greengiraffe]

Hi all,

I would like to tap some valuable experience from the visitors of this forum in the area of fund management. In the new normal of low growth and high volatility,

1) In terms of Strategic Asset Allocation, how do you mitigate risk and volatility, while still managing a decent return (9-10%) ?

2) In terms of Tactical Asset Allocation, what is your outlook for the next year? Are you reducing your equity exposure in favor of cash or bonds?

Thank you.

to answer your question base on my experience only:

1. to get 9-10% is extremely difficult on a yearly basis. you can get this kind of returns or better if your portfolio is all equities and small. Temasek 8.6% is very credible but I don't know the details of their portfolio...so does many people. according to WB returns of 4-6% is more likely on a long term basis. how to mitigate risk is make sure you are comfortable with the level of equity and fixed income exposure in your portfolio so that you can sleep well.

2. next year, who knows. if you listen too much to the talking heads you will be totally confused. they said more volatility. since when is the mkt non volatile.as for me I am actually increasing my equity exposure simply because cash and fixed income is killing me with the kind of returns.

Hi Jacmar,

I certainly agree with your strategy and it sounded like TINA still.

With global central bankers continuing to take the easy way out, equities will be outperformer over the long term.

Of course, I will stick to my 10 year cycle theory - 3 quick and sharp bear years with 7 painful and torturing bull years.

Cheers
GG

[CY09]

Hi all,

I would like to tap some valuable experience from the visitors of this forum in the area of fund management. In the new normal of low growth and high volatility,

1) In terms of Strategic Asset Allocation, how do you mitigate risk and volatility, while still managing a decent return (9-10%) ?

2) In terms of Tactical Asset Allocation, what is your outlook for the next year? Are you reducing your equity exposure in favor of cash or bonds?

Thank you.

Answering your first question. 9-10% returns is a bit hard. This is because our average market (SG) is only 8%+. However, this is still achievable; It has been argued that higher returns can be found in the small/medium caps space because these companies are relatively less-researched than their bigger counterparts. Hence hidden gems can be uncovered. Secondly, they are able to grow faster than the big caps. Hence you will be able to obtain returns slightly above 8% if you play your cards right. However, because of their small size, it is inevitable that you are taking more risk due to illiquidity and higher risk of going under. The risk can be mitigated by ensuring you do your thorough research on these small companies, understand them well enough, see value in them and then invest. Using hindsight, we have seen many forum members uncover hidden gems long before majority of the market takes notice (e.g. MTQ, Kingsmen Creatives, Boustead, The Hr glass, Vicom). Use a portfoilo composition of large caps and small/mid caps to diversify and mitigate risk.

Volatility is another question and something that I am not proficient to answer. But importantly, learn to sit through risk and volatility and be Medium/long term

I am not reducing my equity exposure in favour of cash and bonds. And I am not inclined to invest in bonds.

[Temperament]

If you want to invest in the stock market, you can't escape volativity. In fact because of volativity that's why most people invest in the market.

[rokcradle]

If you want to invest in the stock market, you can't escape volativity. In fact because of volativity that's why most people invest in the market.

Agree with the forummers that equities should be good at least in the mid term (money printing by central banks, economic growth are expected to come back and unemployment rate to go down). However in the near term, I think there might be some volatility with tapering of QE.

With this macro-environment in mind, for SAA, I do 30% cash, 70% equities. TAA comes in when, for example, there is a market dip, then i'll use some of the cash to buy in at a lower price. When i feel the market has been happy for a while, i'll overweight even more on cash.
TAA is only done on counters that I have analysed the fundamentals, and that I'm comfortable "trading" more.

To get 8-10% returns, i think that is possible. STI index returned 12% CAGR over the past 10 years. One simple way to look at it would be to first look at the dividend yield. If a counter has a consistent dividend payout, and that translate to say, 5%. That means that if i buy that counter, i can be "assured" that i will get at least 5% return. I'll then ask myself if the current valuation of the counter will allow me to have 3-5% capital gain in the next year. If the current valuation of the counter is cheap compared to the intrinsic vlaue, there is a good chance that you can hit your objective.

As for stock market volatility, I'm not sure if there is a way to overcome it. I just make sure that for every trade i made, the downside is protected (ie. margin of safety). And then keep faith that the upside will take care of itself.

[csl123]

High return could met by investing in risky assets. (think of lottery as an example)
However, some believed that it is possible to optimize the return and risk based on the right level of bonds, equities and other instruments in the portfolio.

The intent behind the post is to ask if anyone have insights from a SAA or TAA perspective to do so.

Thank you all for your comments.

[KopiKat]

From Vanguard,

A primer on tactical asset allocation strategy evaluation

Was wondering what's this SAA & TAA thingy and found the above pdf that looks useful... Have not read in detail...

[davidsim]

Hi all,

I would like to tap some valuable experience from the visitors of this forum in the area of fund management. In the new normal of low growth and high volatility,

1) In terms of Strategic Asset Allocation, how do you mitigate risk and volatility, while still managing a decent return (9-10%) ?

2) In terms of Tactical Asset Allocation, what is your outlook for the next year? Are you reducing your equity exposure in favor of cash or bonds?

Thank you.

1) Why are you afraid of the volatility?

Mitigating risk is simple. Buy when price is low relative to value. Low price = low risk = high return and vice versa.

2) 70% equities. 30% cash. No bonds.

[smallcaps]

Maybe not so straightforward. High volatility might result in very low price and give chance for management to delist at low price.