Aboi: Defining Risk Rating Methodology

I am planning to revamp my Portfolio and Watchlist into a single page for ease of maintaining it. Furthermore I will remove all monetary values for personal & security reasons. This time I will likely only show [1] Total Returns [2] Holding Period [3] TWRR. In addition, I will introduce a revised risk rating ranking. In the past it was just Fixed Income -> Mixed Assets -> Equities.

Here's the new definition:-
Riskiness of asset from a scale of 0 to 10. 0 being lowest risk to 10 being highest risk. The risk level is relative to each other. E.g. Asset A has a risk rating of [4] while Asset B has an [8]. Using relative terms, this means Asset B is riskier than Asset A it DOES NOT mean that Asset B is twice as risky.

Also remember the correlation between Risk & Return:

Rating 0 (Lowest Risk)
Fixed deposit instruments, money market funds or cash management instruments.

Rating 1
Malaysian bonds (RM-denominated) with very little foreign currency exposure.

Rating 2
Non-Malaysian bonds invested in govt bonds from a diversified no.of developed nations with low credit risk.

Rating 3
Non-Malaysian bonds mainly focusing in Asian region or Emerging markets.

Rating 4
Non-Malaysian bond funds invested in sub investment grade corporate bonds. Also known as equity exposed bonds.

Rating 5
Balanced funds (mixture of equity and fixed income instruments), a larger percentage of bond holdings would mean lower risk level.

Rating 6
Balanced funds (mixture of equity and fixed income instruments), a larger percentage of equity holdings would mean higher risk level.

Rating 7
Globally diversified equity funds. This means it has exposure across several major regions E.g. Americas, Europe, Asia and Japan.

Rating 8
Equity funds focusing in a major region e.g. Asia Pacific ex Japan. Malaysian equities/local funds/MREITs (although they are single-country focused) as investors are not exposed towards exchange rate changes.

Rating 9
Equity funds invested in riskier emerging markets e.g. Latin America, Russia and etc with foreign exchange risk. Equities that are heavily specialized in certain sector e.g. Technology (where companies usually fails if they are slow to adapt). Non-Malaysian REITs. Real estate/Property.

Rating 10 (Highest Risk)
Commodities for their fair value is very hard to evaluate. Forex. Alternative investments like collectibles E.g. Lego (because I have to hold them physically, store them properly for years), further more not all sets can be profitable.

**I might introduce new asset classes in future, my goal is NOT to move existing ones**

Aboi's Investment Strategy for 2016 - Outlook Added

As of Dec 2015 by EIU

Brief 2016 Economic Outlook
US: Economy that continues to grow moderately. The much anticipated interest rate hike cycle is expected to be conducted at a "gradual pace". I don't think they will raise it up 1% within this year.

China: Multi year rebalancing act has brought growth to a new targeted range of 6.5% a level that is likely to be more sustainable over the long term and down from the double digit growth rates seen prior to the Global Financial Crisis.

Japan and Europe: Bank of Japan to expand its Quantitative and Qualitative Easing in 2016 to try to meet its inflation target of 2%. The cyclical recovery in Europe is expected to take further hold and the central banks of Japan and Europe expected to continue to ease monetary policy to bolster economic growth.

Malaysia: Inflation to edge higher to 3%+. Consumer sentiment is likely to be dampened going forward. Weak ringgit environment is likely to stay for some time, with no immediate catalyst that will strengthen the currency significantly going forward. Various sectors to face headwinds; O&G, plantation, banks, telecommunications and property. Non-oil exports and investments to support growth; e.g. exporters and construction.

Others: Commodity prices and the USD have become increasingly negatively-correlated in recent years, with the recent strength in the USD coinciding with the lowest commodity prices since early-2009. I would caution against mounting expectations of an ever-strengthening USD. Asian and EM currencies are already trading at multi-year lows against the greenback and I think it's already as much as it can go.

How did my Investment Strategy came about then?
http://aboiwealthpot.blogspot.my/2016/02/abois-investment-strategy-for-2016.html

Looking forward, expected returns no longer justify an overweight position in equities given that expected returns are not as attractive as before, reducing the expected reward for the amount of risk taken. With my current exposure to equities a neutral allocation to equities vis-à-vis bonds is advocated. 
-> (Add) AmDynamic Bond - Class: Malaysia Bond
-> (Add) Affin Hwang Select Bond - Class: Asia Bond

Reits were battered during the second half of 2015 alongside conventional equities, the decline in their share prices had the effect of pushing up yields. It is worth noting that the majority of the Reits are currently trading near book value, suggesting that downside risks are currently minimal.
-> (Add) Malaysian REIT for high dividend yield play - Class: Malaysia Property

At just 12.4X 2015 earnings, Asian equities remain undervalued at this juncture, and I believe that a recovery in the earnings revisions cycle for Asia ex-Japan equities will be a key catalyst for Asian equity valuations to mean-revert higher. A normalisation to 14.5X PE would see the market deliver a 21% annualised return by end-2017 (or nearly 50% upside on a cumulative basis, including dividends), with the North Asian markets accounting for most of the potential returns.
-> (Add) CIMB Principal PRS Asia Pacific ex Japan Equity Fund - Class: Asia ex Japan Equity

As of 17 December 2015, the FBM Small Cap Index traded at 12.5X, relatively lower as compared to the KLCI Index’s 16.4X. As small cap stocks are known to be more volatile than their large cap counterparts, I would advice caution and to allocate no more than 10% weightage of their entire portfolio.
-> (Add) Eastspring Investments Small-Cap Fund - Class: Malaysia Small to Medium Companies Equity

What about Gold? Honestly I do not know yet. It's hard to guess the fair value to be frank this is why it is so damn difficult to decide.

In conclusion, 2016 is likely to be a more challenging year as compared to 2015. Nevertheless, there will undoubtedly be opportunities for those who are well prepared. Good luck!

Aboi's Investment Strategy for 2016

What have I learned?
I'm becoming more fond of funds. They do perform; Kenanga made me +64%, Affin Hwang +40% and there rest are also in +ve territory. They are easier to monitor; one only looks at certain ratios (I do this twice a year only) and since the stock selection is done by the manager most of my focus is on macroeconomics level which IMO is a lot more interesting. Second with FSM platform (see link) it is far cheaper to invest in funds @ sales charge of 0%-2% (normally they are 6%!). FSM also offers relevant educational and research articles.

More importantly is my time constraints due to other commitments & plans. As such I'm not in a good position to do deep down research in a consistent manner (e.g. using DCF model). Nevertheless it was good experience as all my investments made positive returns (the only exception is Genting which I am still holding). Using my experience since 2009 I believe that I am able to leverage other people's research and come with my own conclusion - this will save a lot of time. Therefore I am moving towards equity investments that offers high dividend yield play.

Obviously there are also things that many did not foresee or expected including me; crash of the oil price towards $30 and China's spectacular 2nd stock market crash (a temporary blow for my PRS). This is why macroeconomics is interesting especially on the global level.

What are my plans?
Here I outline my financial plans for 2016 and these are just highlights; I will go thru them in detail as I go along posting more in the coming weeks. Here are some things you should know first.

• Risk correlates with expected returns (per annum); the more risk it has I will certainly expect more returns and vice versa; e.g. you can also lose that much. 
• (New) is something I will add into my portfolio this year. (Add) would mean to increase allocation in an existing holding. (Maintain) is simply holding it for the time being.

Risk: Low; Expected Returns: ~4% or less
(New) RHB Cash Management Fund 2 (see link) - Class: Malaysia Money Market
(Add) AmDynamic Bond - Class: Malaysia Bond (see link)
(Add) Affin Hwang Select Bond - Class: Asia Bond (see link)

Risk: Medium; Expected Returns: 6%-8%
(Maintain) Affin Hwang Select Income Fund (see link) - Class: Asia Ex Japan Conservative 70% Fixed Income 30% Equity
(Add) Malaysian REIT for high dividend yield play - Class: Malaysia Property
(Add) Selected stocks for high dividend yield play - Class: Malaysia Equity

Risk: High; Expected Returns: 10%-12%
(Maintain) Kenanga Growth Fund - Class: Malaysia Equity
(Maintain) Aberdeen Islamic World Equity Fund - Class: Global Equity
(Add) CIMB Principal PRS Asia Pacific ex Japan Equity Fund - Class: Asia ex Japan Equity

Risk: Very High; Expected Returns: ~13 or more
(Add) Eastspring Investments Small-Cap Fund - Class: Malaysia Small to Medium Companies Equity

Others:
(Maintain) 11% for EPF contributions - Tax savings & more retirement surplus.
(Maintain) Continue existing insurance policies and endowment plan. No addition.

The above constitutes my active wealth management strategy; a life long learning process and funds can be adjusted on need basis. The only true purpose for this portfolio is to simply make more money from money. EPF remains the core passive retirement fund which is not really adequate therefore I need my active strategy. Insurance forms the basis of wealth protection as well as last resort emergency funds (from policy surrender value).

Summary
I did mentioned before that one should "look for safer alternatives even though it offers lower returns". This is where RHB Cash Fund, AmDynamic Bond & Malaysian REIT/selected equities come into the core strategy. Here is where the bulk of the allocation will go.

PRS continues to be an auto include for three reasons; [1] Cheap valuation; more so after the recent selldown (see link) [2] Tax deductible up to RM3k [3] In for the long haul e.g. until retirement age; this reason compliments [1].

Es Small Cap fund is an opportunistic investment ONLY as the small cap index (see below) is experiencing correction. If it falls further say towards 13000-14000 I would say that it is a good chance to load it up. The potential of +ve return comes from starting at a low base that has good upsides going forward.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Aboi's Portfolio Review For September/October 2015

Highlights
- Volatile coming month and October: Weekly Market Highlights September (1)
- Continue to maintain all ratings, similar to June, July and Sept'2015: Archive
- No new additions in September.
- Sold all my US holdings. Cash is king now.

Portfolio target composition. Equities 65%, Bonds 25% and Supplementary 10%.

Notes

- AFFIN HWANG SIF, 0.005 (MYR / UNITS), UNIT REINVESTMENT, SEP-08-2015

Comments
- Changed format for security reasons; no longer quote values. Instead it's a simply profit and loss calculation (including dividend & unit reinvestment).
- Next month I will revise Fair Value and add Margin of Safety (MoS) column. Also I will add Trade History as well my Watch List.

Supermax (Equity Malaysia)
- Maintain HOLD. Uncertainty in local stock market.
- Raised fair value (RM2.11) - following BursaMKPLC consensus target price. 
- Declared interim single tier dividend of 4% to be paid on October 22, 2015. 
- Q2'15 results are out. It was a weak quarter due to lower-than-expected sales volume and margin.
- Stronger USD did help exports albeit a small extend (2.8% revenue incr q-o-q)
No new developments - stronger USD will help due to exports. See below for previous month June'2015 update.
- Growth in capacity from two new plants in Meru, Klang which will double nitrile gloves production from 6.9b to 12.3b pieces p.a.
- SUPERMAX CORPORATION - 27 AUG 2015

Genting (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.
- Maintain fair value (RM10.69). 
- Announced an equity buyback for 4% of its issued share capital after getting mandate during AGM held on June 11, 2015.
- Q2'15 results are out. 8% decline in casino revenue across
all geographical segments. Poorer luck factor and the sustained decline in CPO prices. 

- However most of its current investments will only come to fruition in 2H15/2016 so there is no short term catalyst to prop up share price.
- GENTING BHD - 27 AUG 2015

Freight (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.

- Lowered fair value (RM1.44) - following BursaMKPLC consensus target price. No new developments. See below for previous month June'2015 update.

- Stock took a beating due to cessation of a 3PL contract and temporary closure of a warehouse for renovation but expected to slowly recover.

- Growth will be supported by its core Sea Freight division and trade within Asia-Australia region.
- BIMBSEC - FREIGHT MANAGEMENT - 20150827 - 4QFY15 - RESULTS REVIEWS


ICapital (Closed-End Fund Equity Malaysia)
- Maintain BUY.
- Huge discount from current price to NAV (-17.27%)

Affin Hwang Select Income Fund (Equity & Bond - Asia)

- Maintain BUY.
- Asia Pacific's healthy credit market more or less can offset stronger USD in the coming months. See below for previous month June'2015 update.
-Strong USD will make headwinds for Asia markets as such fund pare down exposure in equities (30% -> 20%). 
- Also doubled cash levels to 7% and continue exposure on Asian credit market pending US Fed's direction in the 2H15 (possible hike in Oct / Dec).   

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -0.2 -0.6 0.3 2.5 6.3 8.7 16.4 20.4 46.9 115.4 Performance figures are absolute returns based on the price of the fund as at September 17, 2015 (Last updated on September 21, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date

Kenanga Growth Fund (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.
- Because fund held so much cash, impact from recent KLCI selloff activity is not too worrisome yet as year-to-date return is still in positive territory.

- Lack of catalyst in the short term, fund holding high level of cash ~20-25%.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS) Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 2.7 7.0 0.8 3.2 13.61 4.5 36.7 60.7 131.5 379.8 Performance figures are absolute returns based on the price of the fund as at September 17, 2015 (Last updated on September 21, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

AmDynamic Bond Fund (Bond Malaysia)
- Maintain BUY.
- No change in my previous commentary. BNM has maintained the base lending rate in the 5th MPC.

- Mainly invested in local corporate bonds ~80%.

- BNM will likely continue its policy pause and maintain cautious stance with a "wait-and-see" approach on US Fed direction (a possible hike in Oct / Dec).

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS) Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -0.2 -1.3 -0.3 1.6 2.74 4.7 7.4 10.6 32.2 110.3 Performance figures are absolute returns based on the price of the fund as at September 17, 2015 (Last updated on September 21, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

Aberdeen Islamic World Equity Fund (Equity Global)

- Maintain BUY.
- European markets recovered and with fund's medium exposure in Europe, fund has done well. Also it has USD exposure further strengthening its returns since the MYR has weaken considerably in July.
- Fund has no exposure to China's overheated stock market and slowing economy. Fund also has 18% exposure to the already lofty valuations in US equities so impact is minimized if a correction occurs.
- Fund continues to be very diversified globally; Healthcare (21%), Materials (16%), Energy (15%), Industrial (13%), Consumer Staples (13%).

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS) Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -0.6 -2.6 1.8 4.7 8.82 11.1 22.5 - - - Performance figures are absolute returns based on the price of the fund as at September 15, 2015 (Last updated on September 21, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

CIMB Principal PRS Asia Pacific Ex Japan Equity Fund (Equity Asia)

- Maintain BUY.
- Shanghai's stock market continue to weight down to date but fund's exposure is minimal so I'm safe there is enough safety margin to absorb it. 
- Fund holding exposure to China is minimal ~10%.
- Positive on Asian Equities but growth will be more scarce moving forward as regional portfolios are fully invested hence earnings will depend highly on stock selection.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS) Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -0.3 -1.0 -0.7 2.3 9.14 15.9 35.9 - - - Performance figures are absolute returns based on the price of the fund as at September 17, 2015 (Last updated on September 21, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Aboi's Portfolio Review For August 2015

Highlights
- Portfolio's increased in value slightly. Fears of Grexit have abated (hence my Aberdeen's fund returns doubled), meanwhile in the home front we continue to get battered on several fronts (currency, growth and the stock market). It is a crisis of confidence (see my previous post).
- Continue to maintain all ratings, similar to June and July'2015. Aboi's Portfolio Review For June 2015.
- No new additions in July, Fed interest rate hike in Sept is still a possibility.
- Postpone my integration of US holdings (I didn't have the time).

Portfolio target composition. Equities 65%, Bonds 25% and Supplementary 10%.

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

Notes

- SUPERMAX CORP BERHAD, 0.03 (MYR), CASH DIVIDEND, JUN-22-2015
- GENTING BERHAD, 0.03 (MYR), CASH DIVIDEND, JUN-26-2015
- FREIGHT MNGEMENT HLDG BHD, 0.015 (MYR), CASH DIVIDEND, JUN-26-2015
- AFFIN HWANG SIF, 0.005 (MYR / UNITS), UNIT REINVESTMENT, JUN-09-2015

Comments
- Portfolio target for the 5th year @ RM156k for April 2015: Still slightly OFF. 
- Portfolio target for the 6th year @ RM171k for April 2016.
- The TWRR (time weighted annual return rate = 7.95% 
- TWRR up by 0.07% from July'15 vs portfolio target = 9.40%).

Supermax (Equity Malaysia)
- Maintain HOLD. Uncertainty in local stock market.
- Lowered fair value (RM2.07) - following BursaMKPLC consensus target price. No new developments - stronger USD will help due to exports. See below for previous month June'2015 update.

- Stock crippled due to fire at its Alor Gajah plant but has since recovered.

- Growth in capacity from two new plants in Meru, Klang which will double nitrile gloves production from 6.9b to 12.3b pieces p.a.

- Still has attractive valuations vs peers e.g. PER & Div Yield.

Genting (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.
- Maintain fair value (RM10.69). No new developments. Stock took more beating and is further undervalued, no reason to sell as fundamentals have not changed. See below for June'2015 update.

- However most of its current investments will only come to fruition in 2H15/2016 so there is no short term catalyst to prop up share price.

Freight (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.

- Maintain fair value (RM1.65). No new developments. See below for previous month June'2015 update.

- Stock took a beating due to cessation of a 3PL contract and temporary closure of a warehouse for renovation but expected to slowly recover.

- Growth will be supported by its core Sea Freight division and trade within Asia-Australia region.

ICapital (Closed-End Fund Equity Malaysia)
- Maintain BUY.
- Huge discount from current price to NAV (21.05%)

Affin Hwang Select Income Fund (Equity & Bond - Asia)

- Maintain BUY.
- Asia Pacific's healthy credit market more or less can offset stronger USD in the coming months. See below for previous month June'2015 update.
-Strong USD will make headwinds for Asia markets as such fund pare down exposure in equities (30% -> 20%). 
- Also doubled cash levels to 7% and continue exposure on Asian credit market pending US Fed's direction in the 2H15 (possible hike in Sept / Dec).   

Kenanga Growth Fund (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.
- Because fund held so much cash, impact from recent KLCI selloff activity is not too worrisome yet as year-to-date return is still in positive territory.

- Lack of catalyst in the short term, fund holding high level of cash ~20-25%.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -4.3 -2.4 -3.0 2.6 10.87 2.4 32.1 56.7 135.6 365.8 Performance figures are absolute returns based on the price of the fund as at August 11, 2015 (Last updated on August 13, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

AmDynamic Bond Fund (Bond Malaysia)
- Maintain BUY.
- No change in my previous commentary. BNM has maintained the base lending rate in the 4th MPC meeting as expected.

- Mainly invested in local corporate bonds ~80%.

- BNM will likely continue its policy pause and maintain cautious stance with a "wait-and-see" approach on US Fed direction (a possible hike in Sept / Dec).

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 0.1 0.6 2.2 3.4 4.2 6.7 7.6 12.8 35.1 116.9 Performance figures are absolute returns based on the price of the fund as at August 11, 2015 (Last updated on August 13, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

Aberdeen Islamic World Equity Fund (Equity Global)

- Maintain BUY.
- European markets recovered and with fund's medium exposure in Europe, fund has done well. Also it has USD exposure further strengthening its returns since the MYR has weaken considerably in July.
- Fund has no exposure to China's overheated stock market and slowing economy. Fund also has 18% exposure to the already lofty valuations in US equities so impact is minimized if a correction occurs.
- Fund continues to be very diversified globally; Healthcare (21%), Materials (16%), Energy (15%), Industrial (13%), Consumer Staples (13%).

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 2.7 3.2 2.5 5.0 9.59 13.3 28.3 - - - Performance figures are absolute returns based on the price of the fund as at August 10, 2015 (Last updated on August 13, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

CIMB Principal PRS Asia Pacific Ex Japan Equity Fund (Equity Asia)

- Maintain BUY.
- Shanghai's stock market continue to weight down to date but fund's exposure is minimal so I'm safe. With Grexit off the table, fund has started to recover.
- Fund holding exposure to China's overheated stock market is minimal ~10%.
- Positive on Asian Equities but growth will be more scarce moving forward as regional portfolios are fully invested hence earnings will depend highly on stock selection.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 0.9 1.6 -1.4 2.8 8.99 18.0 36.8 - - - Performance figures are absolute returns based on the price of the fund as at August 11, 2015 (Last updated on August 13, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.