Unit Trust Portfolio Construction and Selection Philosophy

Unfortunately Singapore don’t have a good ETF investing platform that support monthly investment programme. The best alternative we have is invest via unit trust though we understand that majority of fund managers fail to beat the index over Long term due to higher management cost and lack of consistency in investment performance.
Hence we aim to minimise the performance GAP between unit trust and index fund via the following selection philosophy:
a) Long term track record
b) Low expense ratio than its peers
c) Beating index since inception and on a 3, 5, and 10 years basis. One year and shorter duration Performance poorer than index is acceptable. Historical performance is for reference and we know it’s not indicative of future performance l
d) Preferably no star manager and management by a team so performance of fund is not due to any individual. Returns will be more sustainable and consistent.

In terms of portfolio construction, Simple and fuss free is key. Core funds include
a) global equity
b) global bond
c) Asian equities

Weightage to be based on risk appetite and current equity market valuation. Global equity is made up of 50 percent us stocks which is overvalued hence weightage is Low to minimise risk. Overall we are 50 percent in bonds and around 15 percent in global equity with remaining 35 percent in Asian and emerging market equity which is relatively lower in valuatiOn. Together with DCA and periodic portfolio rebalancing to sell winners and buy losers, we aim to get a relatively less volatile returns of 4-5 percent on a Long term duration. This is based on long term equity return of 7 percent and bond return of 3 percent.

10 percent of the portfolio will also be reserved for tactical sector exposure which we felt price has been beaten up badly. For example, oil and energy and turkey equities. We will initiate small position via DCA and reduce risk due to poor market entry timing.

With current market conditions, we believe such conservative approach will give us better sleep at nights knowing that we will not be subjected to individual stock risk and instead will only be subjected to general market risk as a result of general economic performance or geopolitical issues. With this mechanical approach, we aim to remove and if not, reduce the amount of emotions in the investing operation to minimise the mistakes we made when the market corrects. Last thing you want is to sell Low when the market corrects and later miss out on the subsequent recovery.