Hi Friends,
As I work on my more lengthy annual investment report, I will like to share with you an interim report for the annual performance of the portfolio.
The average return for the cash portfolio is -1.35% and CPF-OA/SRS is -1.85%.
The portfolio suffered two major setbacks during the January China market crash and the June Brexit panic and the portfolio lost 8% at one point of time. The heavy allocation into European equities have cost us greatly as the region is the worst performing during the two incidents. I had to perform a cut loss during the Brexit incident to preserve the capital, in the case of a systematic crash, considering that the UK politicians may make true of their pledges and perform an immediate exit from the European Union at that point of time. Fortunate for the stock market and unfortunate for us, the UK leadership delayed the decision till March of 2017. Heavy allocation into USD and US equities allowed us to claw back most of the losses thanks to the shock US election result. The global stock market for year 2016 has basically been flat this whole year and it is the events of the US election that delivered most of the returns with the market rallying strongly in that 6 weeks till the end of the year.
We did not invest fully during that period of time in consideration that the rally is based on pure speculation on what Donald Trump will do and any rally as a result of speculation will unwind quickly if the pledges are not met.
Business Cycle Portfolio Allocation Update
A new year end update which I have incorporated into this update is the Business Cycle Investment allocation.
The basic concept is that we allocate the portfolio based on the maturity of the market cycle. Be more aggressive during the early stages and more conservative during the later stage as the market risk get higher. An average business cycle takes 5-7 years to complete. I started the business cycle investment approach in 2011 and I have been tracking the returns of the portfolio ever since I started on the scheme. The strategy is simple: Reduce the equity proportion by 10% until the market crashes and reallocate back to the initial aggressive strategy. The objective of the plan is to protect the portfolio as much as possible during the recession period and preserving the ammunition to be aggressive during the down times.
However, this business cycle has been abnormally long due to the effects extremely low global interest rate and quantity easing for a prolonged amount of time. To compensate for this lengthened business cycle, there has been tactical reallocation to the portfolio whereby I deviated from the actual plan.
For the year of 2017, I have moved the allocation to another notch down and targeting a 30-40% allocation to equity allocation which deviates from the proposed 10% allocation. I may adjust the targeted allocation based on 3 major factors: Donald Trump, Brexit and China. The current allocation is at 40% equity and 60% fixed income.
I was also told by a few of my friends and clients that my usual annual report is too long and comprehensive and most people have little patience to read through every blow and punch throughout the year. Please do give me feedback if you prefer this short and concise report or your prefer my usual more lengthy report.
Yours Sincerely
Lye Wen Song Xeo
As I work on my more lengthy annual investment report, I will like to share with you an interim report for the annual performance of the portfolio.
The average return for the cash portfolio is -1.35% and CPF-OA/SRS is -1.85%.
The portfolio suffered two major setbacks during the January China market crash and the June Brexit panic and the portfolio lost 8% at one point of time. The heavy allocation into European equities have cost us greatly as the region is the worst performing during the two incidents. I had to perform a cut loss during the Brexit incident to preserve the capital, in the case of a systematic crash, considering that the UK politicians may make true of their pledges and perform an immediate exit from the European Union at that point of time. Fortunate for the stock market and unfortunate for us, the UK leadership delayed the decision till March of 2017. Heavy allocation into USD and US equities allowed us to claw back most of the losses thanks to the shock US election result. The global stock market for year 2016 has basically been flat this whole year and it is the events of the US election that delivered most of the returns with the market rallying strongly in that 6 weeks till the end of the year.
We did not invest fully during that period of time in consideration that the rally is based on pure speculation on what Donald Trump will do and any rally as a result of speculation will unwind quickly if the pledges are not met.
Business Cycle Portfolio Allocation Update
A new year end update which I have incorporated into this update is the Business Cycle Investment allocation.
The basic concept is that we allocate the portfolio based on the maturity of the market cycle. Be more aggressive during the early stages and more conservative during the later stage as the market risk get higher. An average business cycle takes 5-7 years to complete. I started the business cycle investment approach in 2011 and I have been tracking the returns of the portfolio ever since I started on the scheme. The strategy is simple: Reduce the equity proportion by 10% until the market crashes and reallocate back to the initial aggressive strategy. The objective of the plan is to protect the portfolio as much as possible during the recession period and preserving the ammunition to be aggressive during the down times.
For the year of 2017, I have moved the allocation to another notch down and targeting a 30-40% allocation to equity allocation which deviates from the proposed 10% allocation. I may adjust the targeted allocation based on 3 major factors: Donald Trump, Brexit and China. The current allocation is at 40% equity and 60% fixed income.
I was also told by a few of my friends and clients that my usual annual report is too long and comprehensive and most people have little patience to read through every blow and punch throughout the year. Please do give me feedback if you prefer this short and concise report or your prefer my usual more lengthy report.
Yours Sincerely
Lye Wen Song Xeo
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