Wednesday, September 24, 2008

Investments in Singapore

I've been speaking to a money manager over the last week. I will say that I am completely underwhelmed by the investment product offering in Singapore. For one, the product offering shown to me by that money manager (who will remain anonymous) consists largely of managed funds with high front-loads, high rear-loads and high expense ratios.

I have several objections to this.

The first is that I am not paying good money to have people make my financial decisions for me. I will pay some money for being able to get a diversified portfolio with only a few choice picks. I will pay for the convenience of someone administering my money for me. I will even pay for the convenience of not having to remember to get my trade every month, and to make sure my money is locked in for the long term. These are things I will pay for. Not for my decision making process to be taken from me by the same financial engineers yahoos responsible for the current hullabaloo in the markets now.

The second is that my investment on returns, no matter how good the mutual fund is, WILL be eaten away by the outrageous fees charged by the fund managers. An expense ratio of 1% means that the fund needs to perform at least 1% better than average to give me average returns. Excuse me?!

The last is that I get the impression that the money manager wasn't listening. I told her I didn't want managed funds. I told her pretty explicitly. I don't blame her for trying. I just told her that these guys don't seem to be carrying the products I want for my investment.

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For those of you who haven't already figured out, I'm a believer of index fund investing. The problem is FINDING an index fund in Singapore worth investing in. I can hardly believe that some of these funds in Singapore dare call themselves index funds.

Lion Global Investors, I'm looking straight at you when I say this.

Let's take a very simple product offering - the Infinity US 500 Stock Index Fund. It is better than many funds out in the market today. When I say better, I mean "less of a ripoff". Its front load is a lowly 2%, and its expense ratio is 1.17%. Which sounds pretty okay compared to a 5% front load and an expense ratio of 1.75% right?

Wrong. Take a look at this - the fund that the Infinity US 500 Stock Index Fund is supposed to be mirroring. Yes, you saw right. The expense ratio is 0.3%, without a frontload. This flies in the face of every index fund principle I know. Infinity is supposed to be mirroring an index. The whole point of an index fund is to reduce the expenses to a minimum, and bet that the stock market on the whole will do well over time. What is this nonsense about a 2% upfront?! Why are you charging a spread of 0.77% over the US 500 Stock Index Fund for blinding following the S&P 500 index?

I cannot blame people for wanting to earn a living. I can understand earning a living. I cannot understand people wanting to earn a living through exploiting me less than the competition.

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I'm going to take some time to highlight what I think is the only nugget of gold in index-based investing in Singapore - the iShares S&P 500 Index Fund. It's essentially like an index fund that is traded like shares on the Singapore Stock Exchange.

The reason I like the iShares is that it essentially tracks the S&P 500 for about the same expense ratio as a true index fund would, at 0.09% expense ratio. It also doesn't have a front load, which is great. The only catch is that it trades like shares on the stock exchange, so you have to pay brokerage fees, so there is a hidden "front load" of sorts, and there are clearing fees of 0.05% up to $200. However, brokerage fees range from 0.25 to 0.5 % in Singapore (depending on volume traded). That means my front load is 0.25% to 0.5% + 0.05%, and my backload is the same, which makes this FAR less than the Infinity US 500 Stock Index Fund, which is its closest competitor.

Look. I can't do math that well, but even I know that 1 or 2 percentage points compounded over 25 years (which is the timeframe for investment I am looking at) is a massive difference.

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Now all that I am short of is finding a financial institution that will essentially do what I tell them to and STFU about their over-engineered financial products. I am looking for a bank or brokerage that will take a fixed amount every month and buy whatever they can of the product portfolio I tell them to buy, every month, on the month, on the dot.

In short, I'm looking for a system that forces me to be responsible, disciplined and act as my prosthetic memory. The reward for this (which is a pretty simple job if you think about it) is my brokerage fees, on the month, every month for 25 years, longer if I happen not to need the money after that.

Any takers?

8 comments:

Anonymous said...

The problem with what you want is that you expect these financial engineers to do intelligent things with your money.
Understand this:
A financial advisor is a salesperson.
A financial analyst is a
salesperson.
Even if the title on the card says
"Vice President", that's a fancy word for "salesperson".
Most of the people who got rich doing investments did it themselves
and you can be certain they got
burnt a few times learning.
Profit

Khayce said...

I take your point, though you see, I can also see market demand for people who want tools by which they can do intelligent things with their investment.

Simple financial tools like an autoexecuted funds transfer to buy this, this and this investment, in pre-determined ratios. I don't think that's too much to ask for. It's low-cost and people will pay for convenience.

Anonymous said...

try saxobank. the truth is bank officers do not care about you, period. pls sign up for CFA.

Yu Sarn said...

There is certainly a demand for financial services for the intelligent. Problem is, it is harder, less profitable and serves a small client base.

See, most people are dumb, gullible and lazy, and you can sell crap to them for a huge profit.

Proof: the number of people who bought Hi Notes 5 who really had no business playing around with derivatives.

Pendragon said...

Josh here.

I'm interested in learning about the stock mkt and investment. Is there any time, Khayce, that you're free, and willing, to teach?

Khayce said...

Josh,

I don't mind, but there isn't that much to learn really. Don't try to time the market, invest early and often, and don't listen to finance managers.

Pendragon said...

Sounds stabile. Just need to get my capital up 1st. As well as my grades. Thanks for the tip.

Main reasons for wanting to learn: 1. So I'm not clueless when friends (especially my ex *grimaces*) speak about the stock economy (and it pays to be learned about such matters in certain circles, I've learnt) 2. Ken likes to say "Luck is opportunity meets preparedness." I'd like to get prepared, in case Lady Fortune decides to blow me some cash.

Well, among other things, anyway.

The Disappearing Man said...

Sound advice Khayce, to which I'd just add -

Don't get greedy. Small gains, over the long run, are far more secure than trying to hit the big score. And will get you there in the end, rather than landing you with losses.