An ETF giving 40% pa CAGR. You dare?

 It was the class gathering that only the most successful was most keen to go. 

First the sound of a Maserati. 

Next, she walked in with a swagger, armed with a Himalaya Birkin. 

The girl who consistently did the worst in class. That girl who got the lowest paying first job and now no job. That invisible girl. 

She sat quietly at the corner (as usual), unbeknownst to everyone except me. The Alphas were having a field day, with their identities tied to their jobs, they unleashed a torrent of stories about their work life and which enrichment classes they have been sending their kids to.

The last class gathering was in 2010. The now class gathering is in 2021.

I sat beside her and humbly asked her. 

"Can share?"

"I had nothing to lose. I whacked the UPRO ETF. I was lucky."

The UPRO ETF incepted in 2009. 

It had a price of around USD$2.50 then. Now, it's price is USD$147. 

A staggering compounded annual growth rate ( CAGR) of 40% pa.

The UPRO ETF is a leveraged fund and it seeks to 3x the return of its underlying benchmark (target) for a single day. The underlying benchmark is the S&P500.

Comparing SPY ( another etf which mirrors the S&P500 without any leverage) to UPRO ETF, SPY sucks!

After reading up on UPRO ETF, i realized this girl has balls of steel, having experienced through one of the most volatile investing instrument.

You see, what happened between 2009 and 2011, masked by the beautiful CAGR was terrifying. 

Volatility Decay

Assuming the underlying benchmark starts with 100. It falls to 80. That is a 20% drop. 

For it to rise back to 100, it has to increase by 25% now. 

Let's compare the effect of volatility decay between the benchmark fund and the corresponding 3X leveraged fund.

Both start at 100.

At Day 7, the benchmark is back at 100. Since the 3X leveraged fund seeks to "return" 3X the benchmark return for a single day, on Day 7, it has become 34.3.

That is volatility decay in action. 

This girl is pretty lucky and she knew it. 

She would have lost money if in the long run :

1) The market is flat and is volatile

2) The market goes down and is volatile

3) The market goes up slowly and is volatile

It seems the S&P 500 has been going up very steadily and not very volatile for her.

I am indeed happy for her and shared my observations.

" Oh i didn't think about that, thanks, i have made enough, will be transferring to SPY. "

And handed me a hulk. "You want? No box and cert. Free"

How does your asset allocation compare with others in Singapore

The household networth in Singapore has grown at a rate of about 6.5% pa from 1995 to 2021. Compared with the general inflation of about 2-3% pa, we are not too shabby. No wonder property prices keep rising!

How has the asset allocation change over the years as the country becomes even more developed and the population get more aged? 

What are some trends we can observe?

Over the years, the allocation to property has been reducing.

Allocation to life insurance has been increasing.

Allocation to CPF has been increasing.

Allocation to currency and deposits has been increasing.

How does your asset allocation compare?

2021

2010

1995

Source: Data.gov.sg

There looks like much money on the sidelines ( CPF and currency  & deposits). 

Figure 4

On a whole, is there much distress in the property market?

The amount of mortgage loans to household networth seems to be pretty healthy and having a downward trend.

I use the following for my SRS investments.

Use my Endowus referral code to get $20 in access fee credit. 

I use the following for my cash investments:

Use my IBKR referral code to get free IBKR shares.

Use my Tiger referral code to get free apple shares.

Use my Moomoo referral code to get SGD200 Stock Cash Coupon

[I am not a financial advisor]

Loss of 99.3% investment in Landbanking

Overseas landbanking as an investing trend was popular in the late 2000s in Singapore and may now be forgotten by many. 

One can read more about it here. 

My parents are one of the unfortunate investors. Being like most Singaporeans, a free lunch buffet at a nice hotel is attractive, thinking that one has the will power to resist the hard sell tactics. 

I wouldn't go as far as to say this is a scam even though this company is on the MAS investor list but as a general rule of thumb, if something is too good to be true and have to be sold very hard with nice accompaniments, run far far away from it.

Long story short, the land they bought was a Greenbelt land ( basically land designated by policy to be undeveloped and generally used as agricultural land to control urban growth.) 

Investors will make a windfall  if this land is rezoned into productive land use like for residential or commercial purposes. 

There has been cases when such conversion has occured but the problem was, the probability of this happening is extremely, extremely low and it was basically a high risk investment premised on hope. 

Long story short, after 11 years of holding onto this plot of land which they bought at a price of $27,000 from Jardine Smith Singapore, the UK government decided one fine day to compulsorily acquire this land to build a high speed railway line . This project is called HS2. This is a planned high-speed rail network initially set to link London and the West Midlands, with a further phase extending to Manchester and the East Midlands.

Guess what? 

The compensation was a measly $171. From $27,000 to $171. A 99.3% loss of capital. And mind you, this was after 11 years of holding and one would think land would have appreciated.

Lessons to be learnt.

If an investment needs to be hard-sold, the commission or profit margin should be sky high.  If this plot of land is $171 ( actually $342, more of this later) now, it was purchased at $27000 11 years earlier, one can see that the "free" buffet is actually an expensive one.

Sub-divided small plots do not add up in value to large plots. The UK government stated that the valuation of the land is actually further halved compared to if it was valued as a larger piece due to the administrative cost of having to deal with many small land owners. Hence, the original valuation by the UK government was $342 but reduced to $171 due to it being a small parcel of land.

Negotiation is basically futile as the UK government would want the plot owners to engage property agents to negotiate and cost is to be borne by the plot owners. Who in the right mind would do that for $171.

I guess the only upside to this is that the UK government has said they would pay for any necessary , reasonable cost to engage a lawyer to effect the transaction of the compensation but this is still up in the air as they have not replied what reasonable cost means. Imagine trying to get a reimbursement on such fees and they then deem it as unreasonable and one would be effectively out of pocket and wasted time.

One other possibility is to gather all the plot owners together to probably explain to the UK government that the administrative fees are now reduced for them as they are now dealing with a larger land area instead of smaller land parcels but it is nearly impossible due to PDPA issues and the gain is at best another $171.

The Perils of Investing through a very hard selling agent!

The single most important factor for Reit investing

I have probably only broke even or made a little over 6 years of investing in reits on a total basis, meaning including the dividends. This is a bad outcome. We don't have many 6 years of experimenting. 

Upon reflection, i realize that investing in reits is really about trusting the people managing the property portfolio are good at their jobs and most importantly, having as little of the principal-agent problem as possible. 

In my opinion, reits suffer a lot issues related to the principal- agent problem as the underlying properties are rather illiquid and the range of valuation of a property can be very wide and rather subjective. Unit trust ( and for the matter all investments) do have such agent issues too but since the underlying are securities traded on exchanges, there is more transparency in a sense. The more opaque or illiquid the underlying in, the more such agent issues arise.

Principal agent issues related to reits are aplenty with some examples as follow:

• Property is acquired at a high price from sponsor, with rental support given by sponsor to increase the property yield, hence book value is increased. 
• Properties are being bought and sold frequently with transactions being the primary focus as reit managers get acquisition and disposal fees. 
• Reits being the dumping ground of sponsors. 
• Reits managers focus on increasing the asset base as their management fees are a percentage of the assets managed. 

I think it is a given that most, if not all reit investors, invest in reits for their distributions. More specifically , distribution per unit      (DPU).

The effect of sub-par reit managers will certainly tell over time with DPU decreasing. 

Hence, the single most important factor is to select reits whose DPU has shown an increase over time.

Even though i have lost money in reits, i still believe in it as a good asset to have for retirement but being selective is important. 

I have heard many feedback that reits are bad for retirement because of the many rights issues. If one do not have the spare cash, one will be diluted. The Supplementary Retirement Account,especially, gets a lot of flake for this due to the yearly contribution limit. 

But what is the problem with being diluted if the rights-funded acquisition results in an increase in DPU?

In the end, it all boils down to the DPU.

To be clear, reits are leveraged investments and not all rights are for acquisition purposes. In the Great Financial Crisis of 2009, most rights were used to shore up the balance sheet and not for acquisition. Having a large chunk of reits as a percentage in retirement is quite risky.

I have complied the DPU of reits over the years. The DPU is based on date payable. The page can be found here.

Which jobs give the highest annual leaves in 2020?

As i grow older, time begins to be more important than money. When young, we are usually attracted to jobs which pay the best. When we reach our 30s to 40s, time becomes more important especially when we have children. 

Is it possible to have our cake and eat it too? A job that pays well and also have more annual leave. 

It seems it's possible. 

The data below are taken from the Ministry of Manpower.

https://data.gov.sg/dataset/distribution-of-full-time-employees-by-annual-leave-entitlement?resource_id=1b56422d-73e4-4853-9aab-88a8ddb753af

Those working in the financial services sector have the highest amount of annual leave with 62.7% of them having annual leave of over 21 days. Compare this with those working in the cleaning and landscaping sector where 97% of them have annual leave of 14 days and below.

While the above are just purely based on numbers, it pays to also consider whether one can truly "rest " during annual leave without mental stress or or thinking about work deadlines.

My friend commented that Pilots have the best jobs because not only are they paid quite well, when they are on leave or breaks, they are totally switched off and truly resting.

The Returns of the Supplementary Retirement Scheme

The Businesstimes published an article in November 2021 titled " More Young Investors Turning to SRS Retirement Needs". 

It wrote.

" The share of younger people with Supplementary Retirement Scheme (SRS) accounts has risen steadily over the years, according to data from the Ministry of Finance. As at end-2015, 11 per cent of SRS account holders were between the age of 18 and 35. This share had risen to 19 per cent at the end of 2020. "

18 year olds putting money into SRS already? 

Assuming an 18 year old invested $1000 every year into his SRS account. Let's assume the 18 year old has a marginal tax rate of 7% every year and so pays less tax of $70 every year till age 62. A marginal tax rate of 7% means the chargeable income of the 18yo is between $40,000 to $80,000 already which is pretty high in my opinion at that age!

The SRS account has a base interest rate of 0.05% pa and he leaves money in the SRS account uninvested. 

The interest rate pa (IRR) he would be getting over the 45 years with the yearly 7% tax savings and 0.05% pa SRS base interest rate is only 0.34%pa if he just left the money in the SRS uninvested.

The table below shows the different interest rate pa ( IRR) based on his marginal tax rates if he did not invest his SRS.

IRR(age 18 to age 62)

What the table means is that, if the 18 year old were to diligently place $1000 into a normal bank savings account every year and this savings account gives 0.34% pa every year till age 62, he will be getting the same returns as simply contributing into his SRS account without investing it.

Of course the funds in the SRS account would most likely be invested in some approved investments, say in the stock market which more likely than not yield him about 6%pa for the next 45 years. Add this 6%pa  to the 0.34%pa and he gets 6.34% pa if he is at the 7% marginal tax rate compared to if he had invested using cash, getting only 6%pa.

Is the "extra" returns due to the tax savings resulting in the additional returns of  0.34% pa  justified for a lock-up in liquidity and policy risk over such a long period?

At a marginal tax rate of 22%, he would be getting 6.89%pa using SRS compared to 6% pa if he had used cash. 

Let us look at a 40 year old  and a 50 year old and the interest rate he will get from the tax savings and SRS interest till age 62 if he had just simply left the money in SRS uninvested.

IRR ( age 40 to age 62)

IRR ( age 50 to age 62)

Probably one has to see whether the price of locking up one's cash is worth the additional interest rate ( as shown in the table above) one would get from simply the tax savings and SRS base interest over the years.

Leaving one's SRS uninvested at all will yield one the above interest rates in the tables. Please do something about it if you haven't!

I use the following for my SRS investments.

Use my Endowus referral code to get $20 in access fee credit. 

I use the following for my cash investments:

Use my IBKR referral code to get free IBKR shares.

Use my Tiger referral code to get free apple shares.

Use my Moomoo referral code to get SGD200 Stock Cash Coupon

[I am not a financial advisor]

How much did the top property agent in Singapore earn 2020 - 2021?

Following the announcement by the Council for Estate Agents (CEA) that they have published a complete record of all residential property transactions facilitated in the past 24 months by property agents in Singapore, i just had to fulfil my curiosity to know how much they are making. 

This is not just an issue of being a 'kaypoh' which i won't deny but yours truly did consider being a property agent many many years back. You see, from my adolescent eyes back then, i have observed that property agents drive nice cars. Usually their cars are continental ones and i can't be faulted for thinking that a property agent career is a one worth considering right?

Until i went for my first NS reservist and had a conversation with a property agent who drove a Audi TT back then who told me that their managers " persuaded " their downlines to drive flashy cars because a salesperson in debt is a hungry one. 

From the CEA data from the years 2020 and 2021, the transactions by the top property agent are as follows. 

2021 has not ended, so transactions in 2021 are up to October, inclusive.  

https://data.gov.sg/dataset/cea-salesperson-residential-transaction-record

I don't know how this salesperson did it but its amazing. 

There are a total of 607 transactions in 22 months. This means on average,  there are 27.6 transactions in a month. 

Basically, this salesperson is closing a deal every day. Respect.

The data from CEA is only for residential properties and it does not contain data for commercial properties, so the number of property transacted may actually be higher.

In Singapore, there is no fixed rules for commission rates. But for HDB and private properties, the industry practice for commissions are generally different. For HDB resale, the buyer has to pay 1% while the seller has to pay 2% in commissions. For private property, only the seller has to pay 2% commissions. The commission may also have to be shared if there is co-broking involved. 

For simplicity and to be conservative, the commission rates will be assumed 1%. For rental, the industry practice is 0.5 months for 1 year of rental which will be used for the calculation. 

Due to the very varied prices of property, let's further assume that the average HDB transacted cost $600,000. The average condominium and apartment transacted cost $1.2 million and the average landed property cost $3 million. 

Accordingly, let's assume the rental for HDB is $2000 per month. Based on the CEA data, this property agent does whole room HDB rentals only.

The rental for condominium and apartment cost $3500 per month and the rental for landed cost $8000 per month.

These figures above, in my opinion, are very very conservative. 

This makes the one month revenue to be $1.73 million. If one is to take into consideration the number of lock downs and covid restrictions for 2020 and 2021, this figure is even more supreme.

Of course, their actual earnings are much lower after considering marketing fees, petrol and so on.

Before you jump on the property agent band wagon after salivating at the earnings above, it would be better to delve deeper and check if it is indeed a rosy career...as rosy as for the agent above who made 607 transactions.

There are a total of 19,742 agents that transacted in these 22 months in the CEA data. Transactions in the data also include one room rentals which the alpha agent above did not do. 

The alpha agent did 607 transactions in 22 months but the median number of transactions sold by property agents are 6, which may include one room rentals as some of the transactions. 

All is not what it seems.

I use the following for my SRS investments.

Use my Endowus referral code to get $20 in access fee credit. 

I use the following for my cash investments:

Use my IBKR referral code to get free IBKR shares.

Use my Tiger referral code to get free apple shares.

Use my Moomoo referral code to get SGD200 Stock Cash Coupon

[I am not a financial advisor]

Mapletree Logistics Acquisition of China and Vietnam Properties - Effect of Income Support

I think it is important for people to take note of income support for reits and things may not look as rosy as it seems based on the headline figures.

For example in 2018, it was reported that  Keppel reduced its rental support for Keppel Reit and its DPU fell.

Source.

The recent headlines about Mapletree Logistics Trust acquiring 13 China properties and 3 Vietnam properties through issuing rights must have gotten little attention due to many new Reits having IPOs lately, Daiwa House Logistics and Digital Realty.

Headline figures for the China and Vietnam properties paint a very rosy picture of a forecasted rise in DPU, post acquisition of 1.2% .

Sounds good right?

But take note that this includes rental support for 1 year post acquisition by the sponsor.

Stripping out the rental support, the DPU remains unchanged.

Not all rental supports are bad and in theory, the reason for such a practice is to stabilize  the rental income of new properties before they reach their "potential" .

But one can see the potential for exploitation. 

This "potential" may never materialize but only serve to inflate the acquisition price, causing shareholder value destruction.

Only time will tell. 

Investing is having faith too.