Balancing Act

This is in response to my September's Portfolio update -> "Because much of the weight of the portfolio is invested in Bursa, it has also been performing up and down. I will need to diversify more.". It is absolutely obvious that my portfolio has several if not major shortfalls. Although it has met my expectation as well as my needs over the last four years there is certainly more room for improvement. I will explain how I revamp my portfolio while minimizing the impact as much as possible.

[1] Define what is my "Inter-asset allocation"
I allocated my investments into the big three: bond, equity and supplementary. These allocations have different weightings according to an investor's profile. My profile is set to 'Aggressive' primarily because I am still young (less than 40 years old). The ideal column serves as an allocation benchmark and the current (or actual) portfolio allocation may deviate from that depending on the investment climate and market conditions.

[2] Define what is my "Intra-asset allocation"
Now I can sub categorize my holdings into either of the three major positions. The bond position (25%) is responsible for preservation of capital and serves as diversification into safer asset classes. Because Malaysia is considered a defensive but boring market I have allocated 80% (which includes REITs from Malaysia). Under the equity position (65%), I have Global (incl Japan), Malaysia, Asia ex Japan, Emerging Market. The ideal percentage is solely based on my exposure comfort and investing capability, NOT computed using efficient frontier model. Lastly the supplementary position (10%) crucially acts as buffer in times of market downturn and corrections. It also holds cash should suitable opportunities arise.

My thoughts:
I am seriously too heavy weighted on Malaysia. Even with the introduction of my US portfolio, I will still have huge exposure gaps on Asia and EM.

For the bond position, I should look into securing exposure in Malaysia short term bond tenure and a new REIT which I have been talking about for months.

Gold has been on my radar for a couple of months but have yet to materialize. This will sit nicely into my supplementary position.

I already have some sound ideas and blogged for both bond and supplementary. Equities is what worries me, I have yet to do any substantial research other than listening to The Economist on macro economics. This will need to be addressed as soon as possible.

[3] What's Missing
Portfolio revisions are never final and so is this. I will need to consider how to add my Costco and P&G holdings under Equity global. There might be other sub categories that may be added in the future. I would also like to explore using efficient frontier model for portfolio construction. The old benchmark of 50% FBM Top 100 Index + 50% Maybank 12-Month Fixed Deposit Rate is no longer appropriate and will need to find a suitable replacement.

[4] What's Changed

The old composition has been simplified. Mixed Assets is now weighted into Equities and Bond respectively. REITs will go into Yield Enhancements as part of the Bond position. Cash is now considered Supplementary.

Old portfolio composition. Equities 60%, Mixed Assets 15%, REITs 10%, Bonds 5% and Cash 10%.

New portfolio composition. Equities 65%, Bonds 25% and Supplementary 10%.

Old targets for returns p.a. Equities 12%, Mixed Assets 8%, REITs 6%, Bonds 5% and Cash 3.75%

New targets for returns p.a. Equities 12%, Bonds 5% and Supplementary 3.5%

The resulting impact is that my Time Weighted Annual Return Rate is now 9.4% (previously 8.80%). This is expected as the weightings in equities is 5% higher. You will see the updated portfolio table in next month's market update post.