06 June 2016

Beating the Benchmarks

I especially like to read Sunday Times where there are various Personal Finance articles towards the back of the stack each weekend. In recent months, they have been putting up a series on hypothetical investment portfolios for three people with very distinct profiles.

All three portfolios have consistently performed below their equivalent market benchmarks. The common reason stated was transaction costs which eroded the performance, especially for the smaller portfolios. The portfolios have not been around long. So to be fair, they need to be given more time to show results over a longer term, perhaps three years? I wonder if they will ever pan out?

At the same time, the portfolio advisors have decided to start including an Asia-Pacific ETF to diversify the portfolio from a Singapore-centric portfolio to a more diversified one. That seems to be an attempt at coming closer to the market benchmark since the ETF tracks the benchmark anyway. Or are they trying to play around with the benchmarks - e.g. holding Asia-Pac ETF will keeping to STI as market benchmark!?

My personal experience with ETFs on the SGX is that their bid-ask spread are extremely large, yet set against the backdrop of poor liquidity. There just isn't enough of an active market to get good prices? In this regard, Unit Trust turns out to be easier to buy and sell. But of course, the fund management fees are a world of difference.

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