Thursday, January 21, 2010

My experience with funds

My experience with hedge funds and managed account:-
1) underperformed in bull market and outperformed in bear market RELATIVELY (not Absolute returns).

2) redemption typically takes 3-6mths to complete and is subject to their terms. In 2008, 3 of the hedge funds I have freezed their redemption and you can't take your money out even if you know the fund is going to blow up on you.

3) I got one managed by a swiss bank which blows up, refused to let anyone redeemed and now is liquidating their properties portfolio slowly and you see the value dropping every month. They stopped redemption in 2008 and early this year indicated that they will give back all the shareholder the balance after the liquidation by end 2010.

Experience with all funds (inclusive of hedge funds/managed accounts).
1) funds are overhyped and past performance is not indicative of future results. In other words, all the analysis on how the fund performed in the past is absolutely useless. They moved with the markets most of the time.

2) too many variables that are unrelated to the companies invested by the fund to consider in making the fund selection decision.
    i) fund redemption at the worst possible time by other shareholders will cause the fund to sell away holdings at  worst possible value which causes the fund to plummet in value even more.
    ii) When fund value plummets, more shareholders redeemed till the point where the fund might not be cost-effective going forward and you will get them closing the fund and transferring to another. (that's why i go mostly with big funds)
   iii) Change in fund manager or other key personnels in the fund which you need to monitor
   iv) When you looked at the fund managers with all their spanking achievements, somehow it doesn't show up in the results of the fund.

My results with the funds so far..
1) Liquidated a few mutual funds at losses of around 40-50% and redeployed the balance to work in direct equities. Pleased to say the equities have made back most of the losses incurred by the funds. Individual stock tend to move up a lot during upturn , which is why they are perceived as more volatile than funds(which is a selection of the market).

2) For the mutual fund that I am still holding (only 1 left - Asian Templeton Growth Fund), it outperformed the indices xx% in 2009, but it is still sitting at a loss in my portfolio. A 50% loss needs a 100+% gain to breakeven. Probably also because I didn't took the opportunity to dollar-cost average into the position. Though i am hesistant to DCA as I don't know what other retail holders of the fund will do. At least for direct stock, I only need to know what the market is doing, what the company is doing to figure out how stock holders of that specific company will react.

3) Hedge funds that I redeemed in 2009 (after they allowed redemption) showed a loss of only 10-20% in 2008 against the market performance of 50-60% in 2008. However, the money gotten back is again redeployed into direct equities and I am pleased to say I've recouped the 10-20% loss. Again, it is relatively easy to get 30-50% gain in stocks during 2009. If you had waited for the funds to recover.. it might take a few years? As of today, the funds are still under water, if I had not redeemed. Oh, and probably a 50% loss for the other ppty fund that is still in liquidation mode.

4) Managed Account in private bank fell around 30%. Again, I redeemed it but moved a part of the balance into another managed account (give them another chance). The remainder I have put to good use in direct equities.

My take on who is suitable for mutual/hedge funds :-
1) investors who are not in tune to the market and don't want to know about the market. You pay the price for ignorance - a mediocre return.

2) investors who feel strongly about certain fund managers and believe they can outperformed the market RELATIVELY(not absolutely).

3) investors who do not have sufficient capital to achieve adequate diversification of assets (I believe in asset allocation, it's just the weightage). So probably 20% bond, 10% cash/money-market, 50% regional funds, 20% thematic funds.

4) for investors who do not believed in diversification of asset classes but have insufficient capital to buy blue-chips companies they want, a fund might do it.

Though in this age and time, I believe ETFs should be the defacto choice for all the above investor groups.

Myself going forward :-
1) I now have only 1 hedge fund (SHK Corp Arbitrage), 1 mutual fund (Templeton Asian Growth), 1 managed account (Asian Mandate - 70% equities weighted). I intend to hold for another 2 years or whenever I believed market is reverting back to bear cycle before liquidating all and not dabble in funds again. (Yes, heard all the argument about you can't time the market but let's just not debate this. Just assumed I can. Or just assumed that whatever rocks his boat as long as his boat takes him to where he wants to at the end).

2) Maintaining a preference weightage of 15% bonds, 70% equities, 15% cash for the market cycle which I believe is in uptrending mode - In the beginning of Phase 2 of bull. (again, assumed I can time the market).

3) I am more reassured of my portfolio performance by dividends that pay you to wait for the capital appreciation (or appreciation might not come at all). Currently, around 16% of my portfolio is still in non-dividend paying funds. I intend to move into a 100% dividend/interest-bearing portfolio by 2012 so that I can move my dividends up another $xxk assuming a less than optimal yield (yield and performance drag will be inevitable with cash allocation). The dividends are great for people who are investing lump sum and do not want to invest more but don't mind re-investing the dividends and letting compounding worked its magic. I'm sure funds reinvest ur dividends too , but I feel CASH in Hand is better that Units in Fund. I choose to put the cash to work in where I want it to.

Thursday, January 7, 2010

Portfolio Update December 2009

2009 Year to date (YTD) Return

Equity(Include Funds) 

Direct Shareholding

Dividend/Coupon/Interest received for 2009


Absolute Return Since Nov 2007

Equity(Include Funds)
Direct shareholding

1) I made a mistake in calculating the YTD returns for the equity & direct shareholding. I forgot to add in the subsequent capital invested this year. The YTD returns now reflect correctly the new capital infusion this year. I have also changed the 2nd heading of Cumulative Return to Absolute Return to reflect that the 2nd set of figures is to track how my portfolio have grown against the total amount of capital invested since Nov 2007. For anyone who is interested in the exact definition and formula for tracking returns, this is what I am using :-
  • What is Total Return?

    The rate of return that approximates the position's or portfolio's Internal Rate of Return by taking cash flows into account using the Total Return (Money Weighted Return) calculation incorporating realized gains and losses from historical transactions as well as the effects of currency translations of underlying assets held in other currencies translated at historical rates. The calculation includes accounting for return generating events such as dividends and realized gains and losses from purchased and sold positions that occur over the life of the portfolio. Cash flows into and out of the position / portfolio are time weighted to their economic impact to the portfolio.

2) Bought ANZ Convertible Preference Share (CPS2) which is currently yielding 5.85%(after tax) but i figure it could go up to 7+% as the coupon rate is fixed quarterly using the 90 day aussie bank bill rate plus 3.1% * (1-30% tax). The quarterly reset of the coupon rate means CPS2 will be better value-protected as it will be rising in tandem with interest rate as compared to fixed coupon bonds. CPS2 shares pays quarterly and are convertible to ANZ shares in 2016.

3) Not a bad year with the resumption of dividends as I allocate from cash to stocks. Barring any unforeseen circumstances, I should be seeing $150,000 to $200,000 in dividends/interest income in 2010. Let's all pray to our Fortune God and wishing everyone a Happy and Prosperous NEW YEAR! :)