Moobin
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Post by Moobin on Jun 18, 2021 12:10:50 GMT 7
Thank you very much AyG. Your input and suggestions are greatly appreciated. I will definitely look into this in the next few months.
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Post by rgs2001uk on Jun 18, 2021 21:34:39 GMT 7
Most of the funds I'm in have a risk factor of 6, which I can tolerate for now, but B-CARE and B-Innotech are rated 7. What is the maximum risk risk factor you think I should be looking at? Unfortunately, risk factors are extremely misleading and give people a false sense of security. They are basically a measurement of the volatility of the fund (or share) price. (In the case of funds, they're often a measure of the volatility of the fund sector, not the fund itself, which is even less helpful.) Over the long term, volatility isn't that important - it all evens out. What is important, though, is whether the price will fall dramatically, leading to permanent loss. One way of looking at this is looking at the P/E (Price/Earnings) ratio. If it's high, either the investment has to perform phenomenally well over the next few years, or the share price will (probably, not 100% definitely) underperform. As a rough rule of thumb, anything below 20 is fine. 30 looks a bit steepish. 40 or more is definitely cause for concern. So, for example, if you look at TMBPIPF, the P/E ratio is 19.27, so that's not a cause for concern.* For B INNOTECH it's 22.23, which is not bad. It's substantially below the sector average of Thai global technology funds. I do also like to look at the individual top 10 holdings to see their P/E ratios.** In this case I see Salesforce 69.93, with lots of others over 30. That would be enough to make me think at least twice about the fund. I have tried to spread out my savings so they are not all in one area, China, healthcare, technology, etc. Diversification is a great thing. However, sectors like healthcare and technology are very narrow and have a much greater potential for crashing than broader funds which invest in, say a single geographic region. Personally, I don't hold any single sector funds***. Any suggestions on local investments that would give that return? Despite your bad experience with TMBPIPF, I would suggest you invest in property and infrastructure funds. The underlying investments (e.g. hotels) have been hit by COVID, but when things get back to normal they should start paying out 4-5% p.a.. Personally I have 10% in a Thai/Singapore property fund similar to TMBPIPF (PHATRA PROP-D to be precise), and a further 10% in international infrastructure funds held offshore. So, for me, 20% feels right for this sort of asset. Apart from that, I'd suggest investing in broad funds, investing in, for example, the US, Europe, UK, China, Asia-Pacific, etc.. And finally, I'd suggest investing in Thailand funds. For me, that's 10% of my portfolio, but I suspect it may be better for you to hold more than that - perhaps 20-25%. Anyway, that's my 2 baht's worth. * You can find P/E ratios on Morningstar Thailand in the "Portfolio" section for each fund. ** For this, it's best to go to Morningstar UK for the underlying fund. You need to scroll right to see the individual equity P/Es. *** I do hold property and infrastructure funds, but they are rather different, having characteristics intermediate between equities and bonds. Their values are backed by a steady stream of income (mostly inflation-proofed income), and so should not experience the highs and lows of, say single country or healthcare funds. Is the Thai Military Bank still offering their REIT fund? What about this? www.wealthmagik.com/FundInfo/FundPerformance-ONEAM-FIFEQ-ONE%20UGG%20RA-%E0%B8%81%E0%B8%AD%E0%B8%87%E0%B8%97%E0%B8%B8%E0%B8%99%E0%B9%80%E0%B8%9B%E0%B8%B4%E0%B8%94%E0%B8%A7%E0%B8%A3%E0%B8%A3%E0%B8%93%20%E0%B8%AD%E0%B8%B1%E0%B8%A5%E0%B8%95%E0%B8%B4%E0%B9%80%E0%B8%A1%E0%B8%97%20%E0%B9%82%E0%B8%81%E0%B8%A5%E0%B8%9A%E0%B8%AD%E0%B8%A5%20%E0%B9%82%E0%B8%81%E0%B8%A3%E0%B8%A7%E0%B9%8C%E0%B8%98%20%E0%B8%8A%E0%B8%99%E0%B8%B4%E0%B8%94%E0%B8%9C%E0%B8%B9%E0%B9%89%E0%B8%A5%E0%B8%87%E0%B8%97%E0%B8%B8%E0%B8%99%E0%B8%97%E0%B8%B1%E0%B9%88%E0%B8%A7%E0%B9%84%E0%B8%9B
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chiangmai
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Post by chiangmai on Jun 19, 2021 6:12:51 GMT 7
Most of the funds I'm in have a risk factor of 6, which I can tolerate for now, but B-CARE and B-Innotech are rated 7. What is the maximum risk risk factor you think I should be looking at? Unfortunately, risk factors are extremely misleading and give people a false sense of security. They are basically a measurement of the volatility of the fund (or share) price. (In the case of funds, they're often a measure of the volatility of the fund sector, not the fund itself, which is even less helpful.) Over the long term, volatility isn't that important - it all evens out. What is important, though, is whether the price will fall dramatically, leading to permanent loss. One way of looking at this is looking at the P/E (Price/Earnings) ratio. If it's high, either the investment has to perform phenomenally well over the next few years, or the share price will (probably, not 100% definitely) underperform. As a rough rule of thumb, anything below 20 is fine. 30 looks a bit steepish. 40 or more is definitely cause for concern. So, for example, if you look at TMBPIPF, the P/E ratio is 19.27, so that's not a cause for concern.* For B INNOTECH it's 22.23, which is not bad. It's substantially below the sector average of Thai global technology funds. I do also like to look at the individual top 10 holdings to see their P/E ratios.** In this case I see Salesforce 69.93, with lots of others over 30. That would be enough to make me think at least twice about the fund. I have tried to spread out my savings so they are not all in one area, China, healthcare, technology, etc. Diversification is a great thing. However, sectors like healthcare and technology are very narrow and have a much greater potential for crashing than broader funds which invest in, say a single geographic region. Personally, I don't hold any single sector funds***. Any suggestions on local investments that would give that return? Despite your bad experience with TMBPIPF, I would suggest you invest in property and infrastructure funds. The underlying investments (e.g. hotels) have been hit by COVID, but when things get back to normal they should start paying out 4-5% p.a.. Personally I have 10% in a Thai/Singapore property fund similar to TMBPIPF (PHATRA PROP-D to be precise), and a further 10% in international infrastructure funds held offshore. So, for me, 20% feels right for this sort of asset. Apart from that, I'd suggest investing in broad funds, investing in, for example, the US, Europe, UK, China, Asia-Pacific, etc.. And finally, I'd suggest investing in Thailand funds. For me, that's 10% of my portfolio, but I suspect it may be better for you to hold more than that - perhaps 20-25%. Anyway, that's my 2 baht's worth. * You can find P/E ratios on Morningstar Thailand in the "Portfolio" section for each fund. ** For this, it's best to go to Morningstar UK for the underlying fund. You need to scroll right to see the individual equity P/Es. *** I do hold property and infrastructure funds, but they are rather different, having characteristics intermediate between equities and bonds. Their values are backed by a steady stream of income (mostly inflation-proofed income), and so should not experience the highs and lows of, say single country or healthcare funds. Presumably the risk level rating in a KIID changes over time, as the composition of the fund changes, presumably the risk rating must change also? I like to understand the risk rating from the KIID but also, as discussed previously, the Trustnet risk rating is useful, I think. The TN risk rating is measured over three years and measures volatility on a weekly basis with more recent behavior weighted more heavily. The relationship between the KIID and the TN rating is also very interesting, the two often deviate substantially. For example, two KIID level 3 funds may have a TN risk rating of either 38 or 65 (where 0 equals cash and 100 equals the FTSE 100) as in the case of Ruffer and PAT. LT Global on the other hand is KIID risk level 5 but has a TN risk rating of 70. So a person using KIID risk rating alone may try and buy only funds with a risk level lower than 3 (below average) and in doing so, end up holding a fund that is level 5 (above average). And all of that is without considering the other elements of risk, apart from volatility. All in all, trying to accurately assess risk of a fund is nightmarish and involves assessing a whole series of factors, just using the KIID level alone is pointless, IMO and gives a false sense of security. The problem gets worse when you start to compare risk rating calculated by other sites such as Morningstar. MS says that Baillie Gifford Int. is rated High for risk and TN agrees it's 95, even their KIID says it's level 6. But then MS says that FSSA Asia Focus is Below Average Risk and has a KIID rating of 5. The problem is different proprietary systems for measuring risk that don't equate or agree.
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AyG
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Post by AyG on Jun 19, 2021 7:09:36 GMT 7
Presumably the risk level rating in a KIID changes over time, as the composition of the fund changes, presumably the risk rating must change also? The KIID must be updated annually in January/early February and the risk rating recalculated. Since the rating is simply 5-year volatility, the rating is typically going to change only very slightly, if at all. The problem is different proprietary systems for measuring risk that don't equate or agree. I see the problem is that the systems are measuring volatility and calling it "risk", which it isn't. I'd go as far as to say that it is grossly irresponsible for the UCITS rules to demand this terminology on KIIDs.
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chiangmai
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Post by chiangmai on Jun 19, 2021 7:21:33 GMT 7
Presumably the risk level rating in a KIID changes over time, as the composition of the fund changes, presumably the risk rating must change also? The KIID must be updated annually in January/early February and the risk rating recalculated. Since the rating is simply 5-year volatility, the rating is typically going to change only very slightly, if at all. The problem is different proprietary systems for measuring risk that don't equate or agree. I see the problem is that the systems are measuring volatility and calling it "risk", which it isn't. I'd go as far as to say that it is grossly irresponsible for the UCITS rules to demand this terminology on KIIDs. We continue to have differing views on whether volatility is a component or measure of risk, I believe it is and obviously the industry does also since volatility is included in most risk assessments. I think the real problem is that volatility have become a proxy for risk in many peoples minds, they seem to think that volatility alone is the main ingredient of the risk profile which it clearly isn't. Volatility is just one of many factors which which you would neither use on its own , nor would you disregard it.
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chiangmai
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Post by chiangmai on Jun 19, 2021 7:44:58 GMT 7
AyG: why do you think volatility (or standard deviation) is any different from P/E ratio when assessing company risk? Both are measures of the extent and speed with which the value of the company changes except volatility is backwards looking whilst P/E is a forward estimate. Let me guess, past performance is not an indicator of the future?
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AyG
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Post by AyG on Jun 19, 2021 7:58:30 GMT 7
I think the real problem is that volatility have become a proxy for risk in many peoples minds, they seem to think that volatility alone is the main ingredient of the risk profile which it clearly isn't. Volatility is just one of many factors which which you would neither use on its own , nor would you disregard it. I agree 100%. Volatility can be a useful metric, but it's not a synonym for risk, despite its often being presented as such.
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AyG
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Post by AyG on Jun 19, 2021 8:12:40 GMT 7
AyG: why do you think volatility (or standard deviation) is any different from P/E ratio when assessing company risk? Both are measures of the extent and speed with which the value of the company changes except volatility is backwards looking whilst P/E is a forward estimate. P/E has nothing to do with "the extent and speed with which the value of the company changes". It's a measure of how the price of the share stacks up against the company's earnings. A high P/E ratio suggests that the company's share price is not backed by its earnings, so may be overpriced. A negative P/E ratio shows that the company is not profitable, so there are no earnings to justify the share price. Of course, it's more complicated than that. One needs to look at the company's growth prospects, whether they have a unique product which can't easily be replicated by other companies, &c., whether the capital costs involved in starting make it unlikely a competitor will arise, brand recognition, and so on. Let's take a couple of examples: If you look at Amazon, for instance, its P/E ratio is 66 - uncomfortably high. However, given that it's a household name and its infrastructure would be difficult to recreate, it may be justified. Netflix is at 52. Here the share price is unrealistically high. There are plenty of other companies which have entered the entertainment streaming business and now compete strongly. I can't imaging Netflix' profitability growing sufficiently to justify the high P/E.
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chiangmai
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Post by chiangmai on Jun 19, 2021 8:23:00 GMT 7
AyG: why do you think volatility (or standard deviation) is any different from P/E ratio when assessing company risk? Both are measures of the extent and speed with which the value of the company changes except volatility is backwards looking whilst P/E is a forward estimate. P/E has nothing to do with "the extent and speed with which the value of the company changes". It's a measure of how the price of the share stacks up against the company's earnings. A high P/E ratio suggests that the company's share price is not backed by its earnings, so may be overpriced. A negative P/E ratio shows that the company is not profitable, so there are no earnings to justify the share price. Of course, it's more complicated than that. One needs to look at the company's growth prospects, whether they have a unique product which can't easily be replicated by other companies, &c., whether the capital costs involved in starting make it unlikely a competitor will arise, brand recognition, and so on. Let's take a couple of examples: If you look at Amazon, for instance, its P/E ratio is 66 - uncomfortably high. However, given that it's a household name and its infrastructure would be difficult to recreate, it may be justified. Netflix is at 52. Here the share price is unrealistically high. There are plenty of other companies which have entered the entertainment streaming business and now compete strongly. I can't imaging Netflix' profitability growing sufficiently to justify the high P/E. "P/E has nothing to do with "the extent and speed with which the value of the company changes". It does when it keeps climbing, case in point Tesla.
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AyG
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Post by AyG on Jun 19, 2021 8:30:32 GMT 7
"P/E has nothing to do with "the extent and speed with which the value of the company changes". It does when it keeps climbing, case in point Tesla If a company's earnings are constant and the share price increases, the P/E ratio will increase. A high and rising P/E ratio simply says that people are paying an increasingly high price not backed by earnings for a company's shares.
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chiangmai
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Post by chiangmai on Jun 19, 2021 19:49:23 GMT 7
"P/E has nothing to do with "the extent and speed with which the value of the company changes". It does when it keeps climbing, case in point Tesla If a company's earnings are constant and the share price increases, the P/E ratio will increase. A high and rising P/E ratio simply says that people are paying an increasingly high price not backed by earnings for a company's shares. .....ergo, P/E is a risk metric, just as is standard deviation, a measure of behavior that is out of the norm.
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GavinK
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Post by GavinK on Jun 20, 2021 12:21:54 GMT 7
As a rough rule of thumb, anything below 20 is fine. 30 looks a bit steepish. 40 or more is definitely cause for concern. Interesting exercise. My highest is 35.6 (Martin Currie) followed by 33.33 (Scottish Mortgage) which together represent 15% of my portfolio. Perhaps a bit high ? Everything else is low 20's or high teens so probably balances out the above.
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AyG
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Post by AyG on Jun 20, 2021 12:46:16 GMT 7
Interesting exercise. My highest is 35.6 (Martin Currie) followed by 33.33 (Scottish Mortgage) which together represent 15% of my portfolio. Perhaps a bit high ? Everything else is low 20's or high teens so probably balances out the above. It really depends upon your personal circumstances. If you feel you're pretty well off, then there's no problem with speculating with a small part of your portfolio. You might win handsomely, or you might come a cropper. If that doesn't cause you sleepless nights or leave you sleeping on a park bench, then go with it (if you want). However, probably best not to go more than 10-15% with the high risk stuff. However, I've struggled to find a definitive PE ratio for Martin Currie (I presume this is Martin Currie Global Portfolio Trust - MNP on the LSE). My usual sources have nothing. Google Finance (and a few other sources) put it around 6 (which I find suspiciously low). www.google.com/finance/quote/MNP:LON
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chiangmai
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Post by chiangmai on Jun 21, 2021 3:51:23 GMT 7
Interesting that Fundsmith, a hugely popular fund, has a P/E of 32. It is rated below average for risk by MS yet is a KIID Risk Level 5. Presumably, this is a case of excessive buying by consumers that has caused the P/E to rise.
Good luck trying to find a P/E on MC, 7 doesn't seem credible.
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AyG
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Post by AyG on Jun 21, 2021 10:27:16 GMT 7
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