I play the guitar. Within music circles there is the concept of a 3 chord song. It is as simple as it gets. Can portfolio management be made simple? The answer is yes! 3 types of investments can be blended together to make your own portfolio song!
Before I start, please familiarise yourself with categories of investment types, their own characteristic RRTTLLU as well as RDMILT. They need to be integrated into a framework as part of the portfolio management process. You concoct your own blend to match the extent of mental freedom required in your portfolio song.
Like most regulated collective investment schemes in Singapore, by itself it is a portfolio with a mandate capable of standing its ground.
Firstly, smart beta is not new. As I completed acquiring my CFA charter in yr2015, there have been scholarly write ups in Financial Analyst Journal and the listed ones are in the US.
Obviously I did my due diligence on this ETF and found that it made a lot of ticks in my checklist of what makes a good collective investment scheme. Go have a dig on this ETF info because I don’t believe in repeating what is already out there and spoon feeding you all the info.
You might be tempted to go 100% into this but seriously a 1 chord song is just bad taste, monotony is not my style but that’s just me. Valid approach in just solely focusing on diversified portfolios alone. There are many valid approaches to the markets out there, even scalping.
Much of the heavy lifting analytics for stock selection has been done by the fund and you can overweight certain counters in your blend if you so decide. At this stage, expectations need to be managed because blended outcomes may vary and portfolio might even under perform.
Once again, you might be tempted to go 100% into a few choice counters but I am going to say the same thing that a 1 chord song doesn’t speak much too. Valid approach still though if you want to cherry pick from other portfolios. 2 chord songs aren’t so monotonous if you ask me.
Beta is messy to calculate and relevant to the extent of this article in the simple theory which I will now share in a hypothetical scenario.
For a portfolio that tracks the Straits Times Index and pays dividends, an amount of 20% of the portfolio value can be used in a 5x DLC (Daily Leverage Certificate) SIMSCI short to assemble a Market Neutral Dividend Collecting portfolio.
Derivatives serve to hedge or enhance portfolio returns. It is not wise to stay market neutral ALL THE TIME so such an assembly is meant to be temporary only. Once the market exhibit strong directional move, unwind the positions accordingly. If the market continues to tank, unwind the long and maintain short. If the market rises, take profit on the initiated short and average into the long positions.
Once again for the 3rd time, going at this monotone is valid and pretty much closer to trading and scalping the market rather than investing.
There you have it! Your 3 Chord Portfolio Song! Blend it! Mix and match! If you need to explore this further, please do not hesitate to make an appointment!