EM Equity three-way: Aberdeen v First State v JP Morgan

There’s been plenty of interest in the JP Morgan EM Opportunities fund. Inevitably, it’s going to draw comparisons with the two bigger GEM funds out there from First State and Aberdeen. So as an academic exercise, I figured it’s worth comparing the performances of all three.

Richard Titherington, the face of JP Morgan EM Opps, is listed as the manager since October 2009. So examining the time period of end-Sep 2009 to end-Feb 2013 gives about 3yrs of data to play with, with a rolling 12-month timeframe. to be fair, 12-month returns come with quite a bit of market noise, but bearing in mind I’m dealing with 3 years of data, it’s probably a sufficient, if flawed (entirely mine), start.

data: Lipper, in USD terms, dividends reinvested

The two charts above say that the fund does well across the ups and downs of the three years that Titherington has been managing the fund. Most of the time, the performance beats the market, and when it does, it’s by a bigger margin than when it doesn’t.

Performance alone says nothing about how he does it, neither does it say whether he’ll repeat this in the future, which are arguably the two more interesting questions. The next question then is how it compares against Aberdeen and First State GEM funds. 

data: Lipper, in USD terms, dividends reinvested

First State GEM leaders is a defensive machine, with a larger margin of outperformance than JPMorgan EM Opps on the downside. It does less well in stronger-than-average bull markets, compared with JPM EM Opps. Still…a clean sheet in down markets is a tough act to follow, unless the fund in question is one Aberdeen GEM fund.

Defensively, Aberdeen rivals First State GEM, with a clean sheet in down markets. On the upside, Aberdeen GEM in the past three years tends to beat the market, but relative to the other two funds, by a smaller margin. Again, clean sheet = tough act.

So from an investor’s point of view, the question of which fund to choose boils down to whether one is looking for a fund that performs well in up markets and down markets, or one that performs well in up markets, but better in down markets. All three are solid performers, with Aberdeen and First State holding

 an edge when markets head south.

Clearly, there’s a lot of interest in the EM story, and a lot of people are filling up the space, which is great for choice. But I reckon there will be more thematic funds coming up. We already have a few EM small cap funds in the space, infrastructure spending is big in India, and China’s consumption story has already inspired a consumption-themed fund or two.

Of course, so much interest in a relatively immature market does raise caution in several better known bears. Andy Xie for instance, has started writing about a BRIC bubble:

‘Whenever there is a hot concept like BRIC, there is a bubble. There has never been an exception.’

While I was away...

So after disappearing for a good month or so, I resurface to find myself completely immersed in the slightly unfamiliar waters of the broader fund universe. To be exact, over 109,000 funds in 57 registered for sale (RFS) countries, according to Lipper.

I find it rather exciting, although not as exciting as a good WWE match. It's quite a learning curve, which is a phrase I wouldn't mind carved on my gravestone, not so much as a lament for the relentless pace of change than a concise summary on a punctuation mark.

But time spent navel gazing, which I'd much rather not do on a public blog, is time better spent ruminating on how to write better articles, or at least more enlightening ones.

There's a small debate growing about long-form journalism, questioning the decline in 2000-word articles in heavyweight publications like the New York Times, Washington Post, Los Angeles Times, and the Wall Street Journal. First up this is obviously a US-centric view of the publishing world, and I don't think you'll find many people worrying over the same question in Singapore. After all there are more important questions to ask, like, 'Dude, where my car?'

Although, if the data from MAS is any indication, there's enough to pay for many cars. Singapore residents as a whole, are pretty damn flush with cash. Approximately S$500billion worth sits in the banks. That's about 10 million cars, worth S$50k each.

data: Monetary Authority of S,ingapore 

URL: https://secure.mas.gov.sg/msb-xml/Report.aspx?tableSetID=I&tableID=I.4

Tracking Portfolio Performance

I like knowing things. But sometimes I lack the native speaker’s grasp of a language to be fluently knowledgeable in matters foreign to my still-evolving mind. So I’ve been dragging my feet over calculating my portfolio’s return, because I’m not entirely confident of my math.

Which means I’m either going to make a passable effort, or fail spectacularly. Better to make the effort and be a good sport however it turns out.

So for the past few months or so, I’ve been tracking my daily portfolio value, by logging into my FSM account – why – so I can track my portfolio’s daily return – why – so I can compare my portfolio’s return with a risk-free rate of return: a certain 3.5% p.a. courtesy of the CPF-OA interest rate.

If my portfolio of investments fail to beat the risk free rate of return, then I’m just pissing away my time and money, and I’d be better off leaving my money in Singapore Government Bonds, which the CPF invests in. (On a side note, I found no info about the portfolio of the CPF monies i.e. which SGS Bonds they’re invested in…if anyone can point me in the right direction, I’d be grateful).

I thought calculating returns would be a simple task of calculating the difference between how much I put in versus how much I got out. Turns out, like many things in finance, it can get quite a bit more complicated if one so chooses.

Sure I can find out how much I made, but that’s not all there is to returns. I also want to know the magnitude of any positive/negative returns over a given period.

There are other limitations with a simple, 1-number measure of performance. That measure of performance, expressed in a formula is: (current value/initial investment)-1.

Firstly, it doesn't tell you which fund contributed to the portfolio’s performance. If a fund is losing money, I want to know about it, and whether it’s doing so because the market is crap in general or the fund manager has decided to dedicate his life to improving his golf handicap instead of generating returns.

Secondly, realized losses aren't captured. For example,

Say I held two funds from 2011 to 2012, with $1000 in each fund (Initial investment=2000, current value =2000, performance = 0%).

Two months later, one fund drops 50%, while the other remains constant. (Initial investment=2000, current value =1500, performance = -25%).

In a fit of anger, I realize my loss, selling all my units of that losing fund. (Initial investment=1000, current value =1000, performance = 0%).

Presto, I've no longer incurred a loss on my portfolio. This is problematic because it doesn't provide an accurate measure of the performance of my portfolio. (it hides the losers, while illuminating the winners. Survivorship bias anyone?)

So I’m left with the challenge of finding a way to track the performance of my portfolio, adjusting for various ups, downs, ins, and outs of its performance.

In the 1800s, the intelligentsia thought having heretics wear dunce caps would improve their intelligence. Sadly, neither intelligentsia nor heretics have matured much since then. (Source: http://commons.wikimedia.org/wiki/File:Scene_from_an_Inquisition_by_Goya.jpg)

Portfolio looking fair

It’s been a full month, but as 2012 comes to a close, a quick look through my portfolio seems to be in order.

Last accessed 23 Dec 2012, the portfolio’s return from Oct 2011 stands at 4.84%. Everything seems ok, with exception of BNPPL1 Opportunities USA USD, which has yet to recover from its performance in 2011 and 2010.

To illustrate how badly the fund has done, Citywire ranks François Mouté (manager for the fund) at bottom of North American ranking tables over 12 months, and 36 months. 

source: Citywire.com

Each time my eyes glance past those numbers, my mind starts coming up with questions like:

“Has he lost his mojo?”

“Is he more interested in retirement than returns?”

“Is Moute french for Miller?”

It’s a risk all active funds face. The chance that a star manager, for whatever reason – be it personal challenges (i.e. life happens), or professional challenges (i.e. the ceaseless grind of the performance derby on one’s soul) – decides it’s time to cash in the chips and live off bank interest. I claim no expertise in judging the psychology of fund managers. I’ll take a look at the numbers, and decide what to do from there.

New additions: I picked up Amundi Gbl Luxury & Lifestyle SGD, for lack of a better global equity fund. I would love to see something better catch my eye. Funds on the radar include Aberdeen Gbl Opportunities or DWS Invest Top Dividend. 

Meanwhile, I wrote previously about agonizing over the decision to switch out of Legg Mason WA SEA Special Situations. Happily, or from sheer luck, both funds performed pretty much identically since roughly end-Sep 2012:

Source: Fundsupermart.com

Both funds returned around 8% in 3 months, and short of any potential slowdown, I’ll stick with Legg Mason since historically it has done well in rising markets. 

A bet on HK via Aberdeen China has finally paid off, netting about 6% returns, and I might hold that for some time more.

The fixed income segment of the portfolio looks healthy, and thankfully so, since it’s propping up my portfolio against the returns from BNPPL1 Opportunities USA USD. I’m not about to change anything on this area of the portfolio.

Real estate, via Henderson Global Property is another strong performer, returning 10% since it appeared in the portfolio.

While I’m more or less satisfied with Threadneedle Enhanced Commodities, it is pretty volatile, and I’m keeping an eye on DB Platinum Commodity RIC-C SGD Hedged if the former continues to track the latter.

Blissfully Olam Free Funds

I haven’t read anything about fund exposure to Olam, so I figure this would be blogworthy.

19 November, Muddy Waters’ Carson Block is quoted by Jesse Westbrook for Bloomberg, saying he is betting against Olam. Requote: “We think the company will fail.” And with the recent saber rattling between Olam vs Muddy Waters, I’d thought it’d be worth a little time to dig up all the end-October factsheets of the various Singapore equity funds to see if any fund managers had a position in the neck-deep-in-Muddy-Waters Olam.

Based on end-October factsheets, none of the following funds on Fundsupermart have listed Olam in their top holdings.

Olam-free Singapore Equity funds	Olam-free Singapore Bond Funds
Aberdeen Singapore Equity	Eastspring Inv UT SG Select Bd A
Amundi Spore Dividend Growth	Legg Mason WA Spore Bond Class A SGD
DWS SGP small/midCap A SGD	LionGlobal Spore Fixed Inc-A
DWS Singapore Eqty Fd	Manulife Singapore Bond A SGD
HGIF Spore Eq-A USD	PineBridge Singapore Bond Fund
JF Singapore A (dist) USD	Schroder SG Fixed Income Fd CL A
Legg Mason WA Spore Opp Trust ClA S$	United Singapore Bond Fund
LionGlobal Singapore Trust
Manulife Singapore Equity A SGD
Nikko AM Shenton Thrift Fund
Schroder Singapore Trust Cl A
Singapore Dividend Equity Fund
United Singapore Growth Fund
source: respective factsheets, as at end-Oct 2012

This doesn’t discount the possibility of being exposed to Olam; since top holdings are only updated on factsheets monthly, there’s the possibility of a fund taking a position between 1 Nov 2012 and 19 Nov 2012, which would then expose the fund to Olam’s share price movements. 

source: Yahoo!Finance, last accessed 2 Dec 2012

Looking through Olam’s 2012 Annual Report throws up a list of shareholders, with some pretty big names, as well-reported in the media.

Source: Olam 2012 Annual Report, last accessed 2 Dec 2012

As far as I’m aware, the asset management firm there with any sort of retail presence is AllianceBerstein, and parent, the AXA Group. But, as they’re not present in the Singapore equity/bond space, I’ll leave it at that for now.

Why I Choose Funds Over Stocks

Note: This article was originally written for MyPaper. Sadly, due to layout constraints one chart didn't make it.

Here’s the reality: many local investors would be better off investing in a Singapore equity fund.  Am I saying all investors would be better off? No. There’s every chance a savvy stock picker will see their portfolio performance outperform the market. But not everyone has the time or inclination to wade through years of annual reports and mountains of data, and such people are a relatively small part of the population. 

So a good number of local investors would be better off in a fund.

Here’s why.

Singapore fund beat the STI over long time periods

The Straits Times Index is the benchmark index for the Singapore stock market, and consists of the 30 largest companies listed on the Singapore Exchange. Aberdeen Singapore Equity Fund is a portfolio of equities managed by Aberdeen Asset Management Asia. The fund is one of the longest running funds in the business, having launched in December 1997. 

Disclosure: I have a position in the Aberdeen Singapore Equity Fund.

Source: iFAST compilations, in S$ terms, dividends reinvested, extracted 2 Nov 2012.

The data shows, S$100 invested in the STI and the Aberdeen Singapore Equity Fund would have seen remarkably different growth over more than 14 years. From end-97 to end-Oct 2012, $100 in the STI would have grown into $202, while $100 in the Aberdeen fund would have grown into $472. I’d wager few, if any, stocks on the STI can boast similar growth over the same time period.

Singapore fund beats the STI over good and bad market conditions

To get a clearer picture of how the fund does in good and bad markets we look at the yearly returns of the fund against the STI. For simplicity, a year that sees positive returns is ‘good’, while a year that sees negative return is ‘bad’. A fund does better when it beats the benchmark.

Source: iFAST compilations, in S$ terms, dividends reinvested, extracted 2 Nov 2012.

More often or not, the fund beats the benchmark. In 9 good years, the fund did better 6 times. In bad years, the fund did better 5 times. Again, I’d wager few, if any, individual stocks can post similar performance.

Granted, an individual stock might outperform the STI and the fund for an extended period of time. But bearing in mind many of us, the author included, are not savvy stock pickers, the question is, “What are the odds of an individual picking such a stock?”

Many Funds Beat The STI in 2012

Passive investing purists will rightly point out I’ve only considered one fund. What about the rest? 

To be fair, Aberdeen Singapore Equity is the rare fund with 14+ years of track record we can pit against the STI to show an actively-managed fund can indeed beat an index. From end-2011 to end-Oct 2012 (also termed as ‘year-to-date’), a total of 12 Singapore equity funds have posted returns greater than the 15% STI return. 

I’ll just name three, including the Singapore Dividend Equity Fund, Amundi Spore Dividend Growth, and JF Singapore, but if you’re really curious, you can head down to Fundsupermart.com, and generate a list of Singapore Equity Funds to look at.

And that’s why, in the case of Singapore equity at least, I’ll choose a fund over a stock any time.

Why Finance Needs Bloggers

Like Hugh Young says, the finance industry is essentially venal. I wish I could read the entire interview where he says it, but because the financial publishing industry covers, well, finance, the interview is hidden behind a venal paywall.

So I tend to think financial blogging is a good idea when it comes to exchanging opinions about all things financial. Singaporeans in general don’t have a whole lot in the way of unbiased financial advice. Possibly because the word advice has subverted by financial advisors, 80% at least 30% of which are well, venal.

The other side is the mainstream media, which, rather than cultivate a diversity of financial viewpoints, has focused almost exclusively on the local stock market. Sure, there is some basis for this approach, after all, it’s a safe story to write, and you know there are a ready pool of stock investors in the local market that you’ll never have to worry about no one reading about SIA’s disappointing 1H2013 or the Heineken/Thai Bev tussle over Asia Pacific Breweries.

But what you gain in safety you lose in experience, and when you cover a world as fast-moving as finance, a diversity of experience is required to keep tabs on all the innovative ways this industry works to speculate on uncertainty. How many people did you know said anything about DBS High Notes 5 prior to the Lehman Brother’s collapse? Could this have been avoided by more honest opinions and better discussions among individuals? No one really knows, but it wouldn’t hurt.

If one were to do a poll right now, and asked the average equity-only investor on the features of a managed futures is, or a fixed income fund, or a multi-asset strategy, or a hedge fund, or a macro strategy fund, or a structured product, or a foreign currency time deposit, or a finglefangledoodletwat, I think most would have better luck describing that last term.

I’m not calling for people to take a position on where the market is going or trying to bet on the next financial crisis; only to venture authentic opinions, clearly backed by evidence, logic and data where available. Like one Chan Chun Sing says, “Diversity is a survival strategy.”

And now I’m going to attempt to come to terms with quoting the same guy who made the Lanfang Republic of ancient China famous. At least his speeches have gotten better over time.