9 months ago, I wrote an article on where I would invest $100,000 as a Singapore Investor.
This was the allocation I proposed:
- Gold – $15,000
- GLD ETF – $15,000
- US – $30,000
- QQQ – $15,000
- JP Morgan – $7,500
- Exxon Mobil – $7,500
- Singapore – $35,000
- UOB – $20,000
- MCT – $15,000
- MIT – $5,000
- China – $20,000
- Vanguard Total China ETF (3169) – $20,000
A lot of things have changed since, so I went to calculate the returns of this portfolio:
21.99% return, for a portfolio with no active investing, and with only 8 counters in it.
In just 9 months, excluding dividends.
Not too shabby.
Debrief on the first $100,000 portfolio
There are a couple of things I could have done better.
Didn’t include small cap tech or Bitcoin
This was probably the biggest mistake.
In building the 8 counter portfolio, I wanted to keep it safe and simple, and stick mainly to blue chips / ETFs.
In hindsight though, had I added a 5% – 10% exposure to small cap tech or Bitcoin, I would be looking at a significantly higher return.
Of course, the risk goes up, but I think the risk-reward is acceptable for a long-term portfolio.
Lack of Active Investing constrained this portfolio
For backtesting purposes, I assumed the entire portfolio was invested at one go on 1 July 2020.
If active investing were possible, there were very nice dips in oil in November 2020 what I could have used to add to positions, to further juice the returns.
Of course, you can argue that I might have mistimed my tech / bank buys, so the active investing works both ways.
This is how a Balanced Portfolio is supposed to work
We didn’t know exactly how the next 9 months would play out in July 2020.
So we spread our chips around, and hit the broad asset classes.
In reality, what happened was a very strong vaccine led recovery, with a rising yield rising economic growth scenario.
So the cyclicals (banks and oil) outperformed, tech and China outperformed, while gold and REITs were flat.
In a balanced portfolio, it’s ok when some stuff underperforms, because that usually means the others are doing well.
And the portfolio was originally designed with a 3 – 5 year horizon, the fact it did so well in 9 months was a bit of a bonus.
How would I invest $100,000 in 2021?
But that’s all in the past now.
Investing like we did last year, is not going to deliver a 22% over the next 9 months again. So how to invest $100,000 in 2021?
Couple of ground rules:
- 8 Counters Max – A lot of you have asked to keep the portfolio simple and easy to execute. So 8 counters maximum.
- Time period – 3 to 5 year investing horizon.
- No active investment – Like the original, active investment is a bonus, not a feature. The main protections should come from asset allocation, not from timing the market.
And of course, this is only for the equity portion of the portfolio.
Holding power is really important, so it assumes there is already cash set aside, and no drawdowns are required from this portfolio.
Here’s where I would invest $100,000 today:
- Gold (or Silver / Bitcoin) – $10,000
- US – $40,000
- NASDAQ 100 (QQQ) – $22,500
- Conoco Philips (COP) – $12,500
- Cloudflare (NET) – $5,000
- Singapore – $25,000
- Mapletree Commercial Trust – $15,000
- Mapletree Industrial Trust – $10,000
- China – $25,000
- Vanguard Total China ETF (3169) – $20,000
- Tencent Music Entertainment (TME) – $5,000
Macro Views for 2021
A big, big caveat to start.
You can look at my recent macro posts for a deeper dive, but broadly I think this year is going to be split into 2 phases.
Phase 1 is a rising yield rising economic growth scenario, and Phase 2 is when interest rates are controlled via Operation Twist or Yield Curve Control.
Of course, it may not play out this way, and feel free to disagree with me on that. I had some really great discussions with readers on the original post.
But if this is right, then Phase 1 is characterized by a lot of volatility. And what does well in Phase 1, doesn’t do so well in Phase 2. And vice versa.
Which makes it super tricky because I can’t do active investing in this portfolio, so I can’t time the Phase 1 vs Phase 2 purchases.
Hence I had to play around with the allocations to work around this constraint.
But if you can or are willing to try market timing, then this is a constraint you can work around. Your call entirely.
Gold (or Silver / BTC) – $10,000
I know I know, Gold is going to underperform short term because of a rising real yield environment.
I get that, and I agree with that. See discussion above.
But I think if I’m building a 3 to 5 year portfolio, some form of inflation hedge or hedge against fiat currency devaluation is required.
Whichever way things play out, in the next 3 to 5 years, I think governments will try to print their way out of this mess.
Which means a lot more money floating around, chasing after the same amount of goods. Which means inflation.
This isn’t the 1980s anymore so gold isn’t the only option.
Which to use really depends on your risk appetite.
Gold is the traditional hedge. An ETF like GLD or IAU is a great way to access gold quite cheaply. Stable, low risk-reward.
And if you want more leverage you can go with the gold miners (GDX or GDXJ).
Silver is the crypto version of precious metals. Very high volatility – so higher upside or downside.
And Bitcoin is well, Bitcoin. You either love it or you hate it.
I don’t necessarily see Bitcoin as a hedge but more of a risk-on asset, but I won’t deny that it’s grown to a point where it can no longer be ignored from an asset allocation perspective. Anyway, I’m not here to convince you either way, and if you’re not comfortable just skip it. I shared more views and how to buy Bitcoin here.
US Markets – $40,000
NASDAQ 100 (QQQ) – $22,500
I was choosing between the NASDAQ 100 and S&P500 for this one.
I probably would go with both in a real-world scenario, but the beauty of this portfolio is that it really forces you to choose which are your highest conviction picks.
And between the two, I think with a 3 – 5 year horizon, I probably prefer my money in QQQ over the S&P500.
It’s close though.
Conoco Phillips (COP) – $12,500
But to make up for picking QQQ over the S&P500, I wanted real world exposure via commodities.
Energy isn’t where it was 9 months ago when everyone was freaking out over the death of oil.
Oil has staged a very powerful comeback, and it’s very clear that in the next 1 to 2 years, all those planes and cars are still going to run on oil.
So even after the big rally, I think some exposure to oil is still prudent for a medium-term portfolio. Great hedge if we move into a more inflationary scenario midterm.
Because oil has recovered to $60, the oil sector is no longer in big bankruptcy risk anymore.
So unlike in 2020, there’s no need to stick with the big oil majors like Exxon or Chevron (for balance sheet strength), and I decided to move out the risk curve slightly to a mid-cap oil player.
Conoco Phillips comes with big exposure to the Permian basin after their acquisition of Concho Resources, which would do well if oil continues to chug higher.
But if you want something lower risk, feel free stick with the oil majors (Exxon, Chevron, Shell, BP etc). And if you want higher risk there’s always the small cap exploratory players.
Cloudflare – $5,000
So one of the lesson from the first portfolio that I didn’t include stocks with the potential to 10x.
Which meant slow and steady returns, but no potential to strike it big.
Subconsciously or not, I was capping my potential upside.
So I wanted to change that for the new portfolio.
The options are:
- Stock pick
- Use a passive ETF
- Use an active manager like ARK ETF (Cathie Wood)
The problem with the passive ETF, is that it goes back to a low risk low reward situation. When you buy all the stocks, you basically accepting the average market returns.
The only way the passive ETF does a 10x from here, is if the entire sector goes up 10x.
In which case had you active invested you probably would have seen similar returns unless you were really unlucky.
Active ETF is another option, similar to betting on a hedge fund, but you must believe in the manager.
Ultimately a personal preference.
For me, I decided to stock pick, and I chose Cloudflare because I like how they’re positioned in the cloud space.
I think there’s potential to grow over the next 5 to 10 years.
But don’t think of this like a DBS or UOB. It’s more like buying a lottery ticket. You either stay flat or may even lose your principal, but in exchange you get a chance to strike it big.
There are others I like, eg. Palantir, Salesforce, Hubspot, Crowdstrike etc, but it all goes back to risk-reward. Can’t cover all of them here, so check out the FH Stock Watch for the full thinking.
Singapore Markets – $25,000
Mapletree Commercial Trust – $15,000
I don’t think MCT needs any introduction.
I’ve talked about this REIT to death on Financial Horse.
Vivocity and Mapletree Business City. At a decent valuation.
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Mapletree Industrial Trust – $10,000
Industrial REITs are having a tough time in 2021.
JP Morgan came out with a report to say that industrial REITs are going to have a tough 2021, and I completely agree.
2021 is the undoing of the COVID trade, so whatever did well last year doesn’t do so great this year.
But as a longer-term investor, I’m going to use any sell-off to accumulate.
Really excited about this space, especially with the rising yield environment we’re in. REITs may stay weak for the next 3 to 6 months.
China Markets – $25,000
Vanguard Total China ETF (3169) – $20,000
And of course, no portfolio is complete without some allocation to China.
This ETF gives you exposure to Alibaba and Tencent, and also some banks and industrials in China.
Pretty basic stuff.
Tencent Music Entertainment (TME) – $5,000
For the final wildcard China small cap play, I was choosing between quite a few like Bilibili, Ping An Healthcare etc.
Again – full views and my portfolio on FH Stock Watch. Don’t forget that in the real world this 8 counter is not a real constraint, so you can always go higher.
But in the end I settled on Tencent Music Entertainment .
I really like how dominant they are in the audio space in China.
For those familiar with China, they own Kugou and Tencent Music, and they also recently acquired Lazy Audio and a stake in Universal Music Group.
Valuation is very rich, but I’m excited to see what they do with their dominance in the audio space over the next 3 to 5 years.
Lots of potential if they execute well, given their monopoly position.
Why no banks?
And of course – the big question is why did I take out banks entirely from this 2021 portfolio.
Banks were really big in my 2020 portfolio, with $27,500 allocation there.
In the 2021 portfolio, there’s only some limited exposure via the China ETF.
To clarify – I don’t necessarily think banks are a bad investment. I still hold DBS and UOB in my own portfolio, though I may trim the stakes in the coming months.
I just think that at today’s prices, there’s better places to deploy the funds.
And for a portfolio with only 8 counters, every share really has to pull its weight.
I think 3 to 5 years, yield curve control or some kind of artificial capping of interest rates is a real risk. And potential competition from fintech is a concern as well (less so in Singapore because of the regulatory climate).
At 2020 prices they were a no brainer, at today’s prices, not such a huge fan.
Broad Asset Allocation
So broad asset allocation looks something like this:
- 10% – Gold/Silver/Bitcoin
- 22.5% – US Tech
- 12.5% – Commodities
- 25% – REITs
- 20% – China
- 10% – Small cap Tech
For obvious reasons, don’t take this as financial advice. You do need to understand your own risk appetite and investment objectives before building a portfolio.
This may work for me, but it may not work for you. Every investor is different.
Full disclaimer – I hold positions in all of the counters mentioned above.
For those who want to try their hand at active investing, I would say the biggest macro factor to watch today is the Feds, and when they step in (if at all).
The Feds won’t come in so quick, but if rising yields spill over into equity markets, they may be forced in at some point in 2021.
Watch the 10 year treasury, and watch the pace of increase. Short term there will be carry buyers coming in so it’s not a one way street up (if you’re a European / Japanese investor the 1.7% on the 10 year treasury is a fantastic carry), but the broader direction here should be upwards. Which will create big volatility in markets.
For the first time in 40 years, we’re going to be investing in a secular rising yield environment.
So throw whatever lesson you have from the past 40 years out. The new paradigm will be different – approach it from first principles.
As always, this article is written on 20 March 2021 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patron.
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