Monthly Report - August 2020

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A post shared by butainvestor (@butainvestor) on Sep 1, 2020 at 6:54am PDT

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The overall fund return rate for the month of August 2020 stands at a healthy +3.3%. This has also improved my overall IRR (annualised) rate to a respectable 6.2%. However after 5 months of solid gains, I have a strong feeling that a pull back is imminent.
   The TA Global Tech Fund leads the way this month with a strong 9.5% return suggesting that big tech has been the main catalyst for this month's charge. This run is also strongly correlated to United Global (6% return) which also consists of mainly tech stocks.
   Despite 'only' returning 4.8% this month, the United ASEAN actually did incredibly well compared to its ASEAN benchmarks during this COVID recovery. The TWR% of this fund (44.7%) thus very closely matches that of the darling TA Global Tech (49.3%), which says a lot.
   Principal Greater China has returned a modest 2.8% this month. This fund actually did very well in the first week of the month but started to stumble due to the China-US tensions.
   My worst performing fund, Manulife REIT, only gained 0.2% this month just due to the massive beating taken by real estate due to COVID19. That said, I have channeled most of my additional savings this month into this fund based on the "buy low, sell high" mantra.
   My company stock suffered a minor pull back this month (-0.2%) which is likely caused by the overheated rally in the month of July alone (13%).

Forward Strategy:

Some well performing funds like the United Global and StashAway were starting to fly off the handle due to its huge returns and constant DCA. In order to prevent it from happening further, I have decided to cease Dollar Cost Averaging (DCA) and instead deploy a Value Cost Averaging (VCA) method. 

   Basically, I have come up with a system whereby my cash savings for that month will be strategically distributed to each of my funds so they always maintain a fixed weightage. The weightage I have gone with is as follows; United Global Equity (22.5%), StashAway (22.5%), TA Global Tech (20.0%), United ASEAN (12.5%), Principal Greater China (12.5%) and Manulife REITS (10%) 

Analysis - Using Personal Loan to Invest

The calls from my bank to push for personal loan is getting a bit out of hand these days. 

I guess with the record low lending rates nowadays, banks need more volume of retail loans to make up for the dip in profit. The sales pitch would go something like the following, "Get a personal loan right now at record low rates (5% p.a.), invest it all into stocks which are right now averaging more than 5% p.a., and PROFIT. Best of all, you are locked in at the record low rate for the rest of the repayment period!"

As a bored engineer with nothing better to do, I thought it will be a good idea to put that thought into excel. So in this first scenario, I am going to take up a RM 100,000 loan at a fixed rate of 5% p.a. for a 10 year (120 month) tenure. This RM 100,000 will then be placed lump sum into a bond fund that returns me 6% p.a. Theoretically, that should give me a net earning of RM 1,000 (1% of RM 100,000) at month 120. But is that the case though?

From the projection above, we see that at the end of the 120th month, this portfolio would end up at a negative RM 20,000. So what is the problem here? The issue stems from the RM1,250 fixed monthly repayment that has to be made on the loan! With normal investments, the interest compounds on top of the principal. 

However, in this 'scheme', the principal is continuously reduced from the monthly repayment of the loan. The interest is not given a chance to properly compound. So the next question would be, what is the required return of investment to have it break even (return zero) by end of the 120th month? The answer is 8.57% p.a. See below:

That is right. To break even on a 5% p.a. personal loan, we will need the investment to return 8.57%! This figure is multiplicative as well, i.e. to break even on a 10% p.a. personal loan, we will need the investment to return 15.8% p.a.

I guess what I learned from this analysis is that if I ever think of borrowing money to invest, I better be damn sure the investment makes a much larger return than the loan rate.

Monthly Report - July 2020

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A post shared by butainvestor (@butainvestor) on Aug 3, 2020 at 6:25am PDT

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This has been a very good month for all my funds. Every fund saw a month on month increase at an average rate of 6.0% mainly due to the improving sentiment on the COVID19 recovery.

   United ASEAN led the the rally this month with 18.6% mainly due to the huge spike in its glove stock holdings (Supermax & Top Glove).

   Principal Greater China continues to make a consistent recovery at 9.3% this month. While there are several reports of resurgence of COVID19 cases in some other countries, China cases remains under control. With that, its economy is able to grow at a stable rate. 

   Consequently, StashAway, which has most of its ETF concentrated in Greater China also enjoyed a healthy 6.9% monthly growth.

   United Global, which is heavily weighted in US stocks, has a modest 5.5% growth this month. The S&P500 suffered a comparatively volatile 2% growth this month as the COVID19 situation worsens in the states.

   Manulife REITS is the only fund still trying to claw its way back to green but its slow recovery benefits me as I am able to continue purchasing it at a discounted rate.

   I was working on my legacy planning this month and realised that there could be issues with passing over my Bitcoin holdings to my nominee. For that reason, I have decided to exit all my position in Bitcoin and transfer them over to something more 'legit' (StashAway).

Forward Strategy:

A slight change in the investment allocation into FSM Funds. I will now allocate RM300 to each of the 5x FSM Fund (still totaling up to RM1,500). RM500 will still be allocated into StashAway. Any additional saved cash will be added into the same funds.