Saturday, November 03, 2007

CIMB Wealth Advisors Asset Allocation Talk

This morning, attended an Asset Allocation seminar organized by CIMB Wealth Advisors.

I would rate it as quite a good seminar, where it gives people like me more knowledge to learn on various asset allocation. About 400 people attended it, although again, among the crowd of under 30, I think I am one of the very few. Wonder why. Are the youth not interested in such events? It is not that the youth do not know, since it is advertised in The Star many times.

Tan Beng Wah, CEO of CIMB Wealth Advisors started the day, by showing some basic slides. He showed that total Net Asset Value for unit trust in Malaysia has grown from RM33.5 Billion in 1997 to RM152.5 Billion today. That's a 5-fold increase. For market capitalization of Bursa, it was RM375.8 Billion in 1997 and it is now RM1.077 Trillion. That's about 3 fold increase. So, unit trust has grown from about 9% of Bursa to 14% of Bursa.

He shows on how predicting short term market movement would be challenging and it would be crucial to have various asset allocation technique. And diversification can be done within same asset class, for example through different region or different industry or different size of companies.

Among the asset class would include the typical Equities, Bond (Fixed Income), REITs, Structured Product, Alternative Investments etc.

Other speakers of the day include:-
1. Kirk West - Managing Director of Asia Principal Global Investor
2. Arnold Lim - Head of Retail Sales, CIMB Wealth Advisors
3. William Tan - Head of Sales, Franklin Templeton Investment
4. Teng Chee Wei - CEO of HwangDBS Investment Management Berhad
5. Francis Eng - Fund Manager of OSK-UOB Unit Trust Management Berhad
6. Choo Swee Kee - Chief Investment Officer of TA Investment
7. Josephine Yip - Head of Retail Sales Malaysia for Schroder Investment Management Private Limited.

As the talk has touched on too many aspects, I would choose to highlight some of the major take-aways that I get. A lot of those are just classic advice.

1. Time in the market vs timing the market - It has been mentioned many times that what matters is being in the market early. Start investing at younger age and you would be able to ride through it. In the long run, the trend is always on the up side, although it might go up and down within a particular year or even within a particular cycle of about 10 years.

2. People usually perceive that it is risky when prices are low and not risky when prices are high. In fact, it is not so. And sometimes, the opposite could be true. Low prices might mean opportunities for purchase, especially in terms of Value Investing.

3. Risk is quantifiable and can be priced into value of security, whereas uncertainty is a state of mind, typefied by lack of sureness about something and is often subjective. Uncertainty can create market volatility.

4. Control those variables that are controllable.
a) Asset Allocation
b) Investment Selections
c) Time Horizon
d) Risk Level
e) Saving Rate
f) Active/Passive Management Approach

5. Each asset class would have different correlation with each other and often the correlation is quite low. So, it would be a good idea to mix and bundle with various asset class. Construct a portfolio that match with the efficient frontier, and within the risk appetite that we want, as well as with the projected returns that we want. Rebalancing would need to be done from time to time, to ensure that the investment are in tune.

6. Based on a study, variation in an investment, is affected mainly by asset allocation. Would say more than 90% of the effects.

7. For each investor, we would have our own risk profile. When do we want the returns to be reap? Do we want to try and earn as much as we can, while taking more risk? Or we just want to ensure that we do capital protection, where we are protected from inflation and perhaps earn a little more?

8. There are two types of investment style.
a) Target Risk - This would mean that we determine the proportion of each asset class. If we look at high level, perhaps % of equity, % of bond/fixed income, % of REIT/Property? So, we fix the percentage, based on our profile, age, affordability and then we move it strategically from time to time. Perhaps once every quarter or half yearly. This kind of investment is not trading, which means you do not focus on price movement every day. (For me, I am looking at my investment once a month, to track its progress.)

b) Target Date - This would basically set a date that we need the money. The further the time horizon, the more risk, we could afford to take, and then the risk factor would gradually decrease over time. Equity is definitely more risky compared to fixed income, but it also potentially bring in more returns. So, for those with longer term investment profile, that would be something that you might want to overweight. For REIT investment, it would depend on whether we are looking at capital appreciation or rental income.

9. There are top-down, as well as bottom-up approach.
a) Top-down would mean looking at global macroeconomic factors, and then zoom into domestic economy and sector and then asset allocation within the sector.
b) Bottom-up approach would mean looking at each company's fundamentals and then do a stock review and build a recommended list of stock database.
Either means could generate returns. It would depend on how we want to structure it.

10. Value investing vs growth investing
a) For value investing, we look at undervalued companies, as well as companies with low PE, PB and PCF ratios. Focus also on companies with high dividend yield.
b) For growth investing, we look at those with above average earnings growth and profits and typically these companies have higher price relative to PE and PB ratios. Generally, it pays very little or no dividend.

11. According to William Tan, secotrs that have potential include Media and Communications, Pharmaceutical, Energy and IT.

12. 3 Ps of Investing
- Prudence, Preseverence and Patience
- An anecdote was provided "No matter how great the talent and effort, some things just take time. For example, one cannot produce a baby in 1 month, by making 9 women getting pregnant.

13. For Real Estate investing, it would be divided into 4 types:-
a) Private and Equity - Core, value added and opportunistic property
b) Private and Debt - Commercial Mortgage, Bridge, Mezzanine
c) Public and Equity - Real Estate Investment Trust
d) Public and Debt - Commercial Mortgage Backed Security

14. Case for Global Property Security
a) Diversification - more efficient portfolio
b) Large Opportunity set - high total return portfolio to large and rapidly growing investment opportunity
c) Liquidity - liquid and efficient method of investing in real estate

15. Global Real Estate has a much higher Sharpe Ratio than Global Equity and Global Bond. So, for real estate, for each unit of risk, it is being rewarded with much better returns.

16. On subprime problem, Kirk West shows that U.S. is a $10 Trillion market and mortgage is a USD1.5 Trillion market. 80% of mortgage are in Triple A and 15% are in Alternate A. So, only 5% of mortgage or USD75 billion are affected by sub prime.

17. Thematic investment. We were shown aspects of investing in Global Infrastructure, Environmental opportunities and natural resources.

18. Infrastructure are divided into 4 groups.
a) Social infrastructure - courts, hospital, school, police & army
b) Regulated asset - transmission asset, distribution asset, water and sewerage
c) User Demand asset - road, railway and airport
d) Competitive asset - Communications, Power generation, energy trading

19. For Environmental, it is focused on energy, water and waste, and main drivers for it, is market liberalization, environmental policy, new business model, scarcity of resources and corporate activity.

20. For natural resources, year-to-date, growth has been very solid for lead, wheat, crude oil etc. However, there is still a lot of room for commodity like coffee, sugar, cocoa, cotton etc. Essentially, arable land and resources are limited, so there is only upside in the long run.

21. Strategy for natural resources investment are that when commodity prices are high, invest in upstream, where the commodity is generated. When prices are low, invest in downstream activity, where the industrialization/production of products from natural resources are done. For example, when rubber price is high, invest in rubber production company. When rubber price is low, invest in companies that purchase rubber to produce rubber-related product, and during that stage, cost is low when rubber price is low.

22. European market. Employment in Europe went through cycles.
a) 1994-1998 - Employment slow
b) 1998-2001 - Employment growth
c) 2002-2005 - Employment slow
d) 2006 to now - Employment growth
So, this means lots of room for consumer purchasing power to grow. Euro is at all-time high against USD as well.

23. On why invest in Euro?
a) Global infrastructure spending
b) Restructuring to raise returns
c) Global trade growth
d) Europe has been neglected lately
e) Merger and acquisitions are growing
f) Secular growth opportunities
g) Domestic recovery

24. China has been opening up, and now foreigners can purchase A and B share in Shanghai and Shenzhen bourse. Whereas Mainlanders can now purchase H shares from Hong Kong and other parts of the world.

25. Dollar cost averaging and value averaging are being shared as potential ways of investing and main theme is that it is crucial to be committed and discipline in maintaining asset allocation.

26. 4 types of asset allocation are shown as example:-
a) Conservative Portfolio - 77% Fixed Income, 8% Global Property, 5% Malaysia Equity, 5% Asia Equity, 5% World Equity
b) Moderate Portfolio - 48% Fixed Income, 15% Global Property, 25% Asia Equity, 5% World Equity, 7% Malaysia Equity
c) Moderate Aggressive Portfolio - 25% Fixed Income, 15% Property, 44% Asia Equity, 11% Malaysia Equity, 5% World Equity
d) Aggressive Portfolio - 70% Asia Equity, 5% Malaysia Equity, 5% World Equity, 5% Fixed Income, 15% Global Property

I would say that I enjoy attending such public lectures and I would definitely encourage all those people who read my blog (I know there are not many, perhaps around 20-25 people a day), but I would encourage everyone to continue pick-up knowledge as you go.

As a conclusion, I would review my own investment portfolio, although total amount is not much. I would say that I should increase on my investment in global property and Asia Pacific Equity, while try to reduce my investment within our local bourse.

How about yours?


FP said...

I wish the younger generation would be as concern as you on their investments and road to a successful retirement. Thanks for sharing as I miss the talk. - FP

Chen Chow said...

Thanks for reading.

It is my pleasure to share. Writing it also is a way for me to learn, and also to share with my friends, who couldn't make it.

Great that you have a blog for financial planning to share with everyone!

FP said...

Malaysians generally have very high savings rate. However they put their money in wrong places like fixed deposits instead of safe investments the earn higher returns, like unit trust and blue chip shares. Its an education process and I am involve in it. This is something I am passionate about. So young man keep investing and learning. You got a good attitude. - FP

Chen Chow said...

FP, great that you are involving in this process to share and change the mindset of fellow Malaysians~!

Would try to follow on the posting of the . Would be happy to link any good article here.

Anything I can help, do feel free to contact me via chenchow (and it is a gmail). I am not writing full email here, to avoid getting spams from those crawlers.