My porfolio - seeking advice [Hong Kong]

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Topic Author
cvc
Posts: 3
Joined: Thu Nov 28, 2019 11:24 am

My porfolio - seeking advice [Hong Kong]

Post by cvc » Thu Nov 28, 2019 11:36 am

Hello everyone, I have questions about my porfolio and would like to seek your advice and wisdom. I read some books about asset allocation and also the legendary John Bogle. And am really grateful for the online community and the insight here. Let's start:

Emergency funds: already reserved 6 months salary in cash

Debt: only debt is mortgage which I still has about 18 years to complete.

Tax Filing Status: married, but I am in Hong Kong (“HK” a special administrative region in China), so the tax system is quite different.

Tax Rate: not a US citizen, income tax rate is 15% maximum (I pay around 12% per my income level). No tax on dividends or capital gains in stocks.

State of Residence: Hong Kong ("HK"). The Hong Kong Dollar (HKD) is pegged with USD (USD1=HKD7.8 with smaller fluctuation, same exchange rate for 30+ years already). To simplify, let's use USD for this post and replies.

Age:40

Desired Asset allocation: 75% stocks / 25% bonds (will need your wisdom)

Desired International vs US allocation: 50% HK vs 50% US

Size of current total portfolio: low to mid six figures USD

Current retirement assets

- 27% cash (emergency cash is separated)
- 5% gold
- 13% Value Partner Class Fund Class B (a HK fund house, mgt fee 1.25%+performance fee. High but it outperformed the local index for two decades)
- 17% HK blue chip stocks. Mostly utitlies companies with stable dividend payout.
- 8% US index VTI (would like to increase US index fund further)

Retirement account (mostly managed by Fidelity retirement fund in HK):
- 20% Hong Kong Index tracker fund
- 5% Asian Equity Funds
- 5% HK Dollar Bond Fund

(in HK, the above comes in the form of Mandatory Provident Fund (MPF), similar to pension but one can only withdraw at age 65. The contribution by employer and employee are legally requried. Funds charge a high total expense (0.7 to 1% for index fund, higher for others 1-1.5%)
_______________________________________________________________
Retirement Contributions:
the retirement scheme receives a monthly contribution of USD500 from me and employee together in total. Unfortunately I can only pick from a small set of funds from Fidelity, most expense ratios are 1% or higher. I put most in HK Index Fund (expense 0.75%).

On top of above, I have steady saving about USD1000 every month which I am buying HK bluechip stocks with a dollar-cost averaging approach.

My questions:
1. Does the 75% equity, 25% bond ration sounds reasonable to you?

2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.

4. I know the Boglehead believers are more keen about index funds, but in HK there's no good option for retirement account (no low cost option like VTI or VOO). I wonder any of you also invest in quality stocks with dollar-cost averging appraoch. I appreciate any advice on where to put my monthly saving

Further information about my personal situation:

in medium or longer term, there is a possibility of moving to UK at least for a few years, due to the political unrest in Hong Kong (if you read the recent news about us). Two kids are now small but the plan is that they go to universities in UK about 10 and 12 years later respectively. The tuition fee is obviously something I need to plan for. Therefore I am wondering if I should start investing in some GBP-based assets? Or let's put it aside if it over-complicates the matter.

Thank you for your attention and any question and feedback. I will try to supplement any missing information but may take a while due to time zone difference.

Look forward to hearing from you.

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nedsaid
Posts: 12767
Joined: Fri Nov 23, 2012 12:33 pm

Re: My porfolio - seeking advice [Hong Kong]

Post by nedsaid » Thu Nov 28, 2019 9:54 pm

cvc wrote:
Thu Nov 28, 2019 11:36 am
Hello everyone, I have questions about my porfolio and would like to seek your advice and wisdom. I read some books about asset allocation and also the legendary John Bogle. And am really grateful for the online community and the insight here. Let's start:

Emergency funds: already reserved 6 months salary in cash

Debt: only debt is mortgage which I still has about 18 years to complete.

Tax Filing Status: married, but I am in Hong Kong (“HK” a special administrative region in China), so the tax system is quite different.

Tax Rate: not a US citizen, income tax rate is 15% maximum (I pay around 12% per my income level). No tax on dividends or capital gains in stocks.

State of Residence: Hong Kong ("HK"). The Hong Kong Dollar (HKD) is pegged with USD (USD1=HKD7.8 with smaller fluctuation, same exchange rate for 30+ years already). To simplify, let's use USD for this post and replies.

Age:40

Desired Asset allocation: 75% stocks / 25% bonds (will need your wisdom)

Desired International vs US allocation: 50% HK vs 50% US

Size of current total portfolio: low to mid six figures USD

Current retirement assets

- 27% cash (emergency cash is separated)
- 5% gold
- 13% Value Partner Class Fund Class B (a HK fund house, mgt fee 1.25%+performance fee. High but it outperformed the local index for two decades)
- 17% HK blue chip stocks. Mostly utilities companies with stable dividend payout.
- 8% US index VTI (would like to increase US index fund further)

Retirement account (mostly managed by Fidelity retirement fund in HK):
- 20% Hong Kong Index tracker fund
- 5% Asian Equity Funds
- 5% HK Dollar Bond Fund

(in HK, the above comes in the form of Mandatory Provident Fund (MPF), similar to pension but one can only withdraw at age 65. The contribution by employer and employee are legally requried. Funds charge a high total expense (0.7 to 1% for index fund, higher for others 1-1.5%)
_______________________________________________________________
Retirement Contributions:
the retirement scheme receives a monthly contribution of USD500 from me and employee together in total. Unfortunately I can only pick from a small set of funds from Fidelity, most expense ratios are 1% or higher. I put most in HK Index Fund (expense 0.75%).

On top of above, I have steady saving about USD1000 every month which I am buying HK bluechip stocks with a dollar-cost averaging approach.

My questions:
1. Does the 75% equity, 25% bond ration sounds reasonable to you?

Nedsaid: Sounds really good to me, a bit conservative but a good asset allocation.

2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.

Nedsaid: I hold the Vanguard Total Bond Market Index ETF, ticker symbol BND. This should meet your needs for a US Dollar based bond fund.

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.

Nedsaid: Yes, there are a number of US Dollar based ETFs that track non-US Markets. Check out iShares and Vanguard ETFs. There are also the SPDRs you can research. There is actually an embarrassment of riches with ETFs based in the United States.

4. I know the Boglehead believers are more keen about index funds, but in HK there's no good option for retirement account (no low cost option like VTI or VOO). I wonder any of you also invest in quality stocks with dollar-cost averaging approach. I appreciate any advice on where to put my monthly savings.

Nedsaid: I would dollar cost average into ETFs, you said that you can access most US ETFs. There are more efficient ways to invest in stocks than buying individual stocks. There are all kinds of choices. Again research iShares, Vanguard, and SPDRs.

Further information about my personal situation:

in medium or longer term, there is a possibility of moving to UK at least for a few years, due to the political unrest in Hong Kong (if you read the recent news about us). Two kids are now small but the plan is that they go to universities in UK about 10 and 12 years later respectively. The tuition fee is obviously something I need to plan for. Therefore I am wondering if I should start investing in some GBP-based assets? Or let's put it aside if it over-complicates the matter.

Nedsaid: It seems to me that you want your assets in the strong currencies. These include the US Dollar, the Japanese Yen, the British Pound, the Euro, the Canadian and Australian Dollar. It might suit you to have currencies based on the Hong Kong Dollar, the US Dollar, and the UK Pound.

Thank you for your attention and any question and feedback. I will try to supplement any missing information but may take a while due to time zone difference.

Look forward to hearing from you.
A fool and his money are good for business.

bluquark
Posts: 870
Joined: Mon Oct 22, 2018 2:30 pm

Re: My porfolio - seeking advice [Hong Kong]

Post by bluquark » Thu Nov 28, 2019 10:01 pm

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.
Yes, there are many great US-listed index ETFs allowing worldwide investment, for example scroll down to "International Stock ETFs" here: https://investor.vanguard.com/etf/list# ... attributes. A single global fund like VT or SPGM can diversify you across the whole world. But given your account restrictions, I would suggest buying the cheapest-ER foreign fund in your MPF (maybe there is a halfway reasonable US S&P500 in there?) and use the appropriate ETFs in your taxable account to balance against that.

- 13% Value Partner Class Fund Class B (a HK fund house, mgt fee 1.25%+performance fee. High but it outperformed the local index for two decades)
I would never invest in a fund like this in taxable when you have much cheaper options. Keep in mind the total outperformance of stocks over bonds hovers around 5% per year on average so you're losing a full quarter of it right off the bat. Past performance does not predict future performance, but past ER does predict future ER.
Desired International vs US allocation: 50% HK vs 50% US
- 17% HK blue chip stocks. Mostly utitlies companies with stable dividend payout.
I would suggest reconsidering your 50% Hong Kong/50% US plan for your stock. World indices are filled with blue chips with steady dividend payouts, why concentrate so much on the HK ones? In your situation, I instead suggest that within the limits of your retirement plan rules, you try to invest 100% in "world-stock", which at current market cap weightings is 55% US, 35% Developed ex-US (19% Europe, 13% Pacific, 3% Canada), 10% Emerging Markets. Hong Kong is about 8% of Pacific indices, so this would mean holding 1% of your equities in Hong Kong stock, fairly reflecting its proportion of the world economy.

There are various reasons commonly given for overweighting your home country but none of them seem to apply in your case. Hong Kong is just one city to begin with, the currency risk argument doesn't really apply because of the USD peg, your local tax law is favorable to foreign investment, and you are considering moving away.

(One good reason that might apply however is if the ER for HK index fund in your MPF is "only" 0.75% and every single foreign-invested or bond fund available in the MPF has much higher ER. I would consider some HK concentration in that case, but only within your MPF.)
2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.
75/25 stock/bond sounds good to me at your age. It certainly makes sense to hold bonds instead of so much cash, especially as you've already separated out your emergency fund. A commonly recommended bread-and-butter US Bond ETF is BND (Vanguard Total Bond). But, if the "HK Dollar Bond Fund" is among the lower ER options in your MPF, then I would suggest holding most of your bonds in MPF instead. (Basically the game I would play in your shoes is to choose the cheapest ER asset class in your MPF, put "everything" in your MPF in that asset, and put "everything else" in your taxable.)
in medium or longer term, there is a possibility of moving to UK at least for a few years, due to the political unrest in Hong Kong (if you read the recent news about us). Two kids are now small but the plan is that they go to universities in UK about 10 and 12 years later respectively. The tuition fee is obviously something I need to plan for. Therefore I am wondering if I should start investing in some GBP-based assets? Or let's put it aside if it over-complicates the matter.
It would be reasonable but not required to put a portion of your bonds in GBP bonds. There are US-listed ETFs for that too, but the expense ratios are high. I suspect in your situation it would be just as easy to invest in a London-listed ETF like SLXX, so I would suggest that instead. Be warned that GBP bonds will appear volatile in your account balance compared to other bonds given the current instability of the pound, although if you are truly going to spend money in pounds, in truth it is less volatile.
I wonder any of you also invest in quality stocks with dollar-cost averging appraoch. I appreciate any advice on where to put my monthly saving
Most Bogleheads do not, because the same quality stocks are in our index funds already. For those of us who like dividend-paying blue chips, some people choose to buy "Dividend ETFs".

glorat
Posts: 296
Joined: Thu Apr 18, 2019 2:17 am

Re: My porfolio - seeking advice [Hong Kong]

Post by glorat » Fri Nov 29, 2019 3:05 am

Plenty of good advice already given so I'll just focus on helping you avoid classic mistakes, especially given you have the benefits of being HK based with its favourable tax regime.
cvc wrote:
Thu Nov 28, 2019 11:36 am
Desired International vs US allocation: 50% HK vs 50% US
That is both a huge overweight of a tiny market and missing out on diversification benefits of investing in the rest of the world. The world's market is 55% US so that part is at least sort of okay. Why not just invest in the total global stock market?
cvc wrote:
Thu Nov 28, 2019 11:36 am
2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.
VTI/VOO etc. are US domiciled ETFs that incur all sorts of dividend and estate taxes. As a HK resident you're better off investing in Ireland domiciled ETFs. That happen to be denominated in USD still and are traded on the London Stock Exchange. Same reasons for bond funds. If your broker doesn't give you access to these, find a better broker?!

If you want to know precisely what I'd recommend as a starting point for you, check out https://www.boglebot.com and post back what it suggests!

TedSwippet
Posts: 2510
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: My porfolio - seeking advice [Hong Kong]

Post by TedSwippet » Fri Nov 29, 2019 3:57 am

glorat wrote:
Fri Nov 29, 2019 3:05 am
cvc wrote:
Thu Nov 28, 2019 11:36 am
2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.
VTI/VOO etc. are US domiciled ETFs that incur all sorts of dividend and estate taxes. As a HK resident you're better off investing in Ireland domiciled ETFs. That happen to be denominated in USD still and are traded on the London Stock Exchange. Same reasons for bond funds. If your broker doesn't give you access to these, find a better broker?!
Right. Hong Kong has no tax treaties with the US (the treaty with China does not cover HK). So Ireland domiciled VUSD rather than US domiciled VOO would give you much better results, even though both track the S&P 500. For more on why you should avoid US domiciled ETFs and instead hold equivalent Ireland domiciled ETFs, see this wiki page:

Nonresident alien with no US tax treaty & Irish ETFs - Bogleheads

Valuethinker
Posts: 39050
Joined: Fri May 11, 2007 11:07 am

Re: My porfolio - seeking advice [Hong Kong]

Post by Valuethinker » Fri Nov 29, 2019 4:36 am

cvc wrote:
Thu Nov 28, 2019 11:36 am
Hello everyone, I have questions about my porfolio and would like to seek your advice and wisdom. I read some books about asset allocation and also the legendary John Bogle. And am really grateful for the online community and the insight here. Let's start:

Emergency funds: already reserved 6 months salary in cash

Debt: only debt is mortgage which I still has about 18 years to complete.

Tax Filing Status: married, but I am in Hong Kong (“HK” a special administrative region in China), so the tax system is quite different.

Tax Rate: not a US citizen, income tax rate is 15% maximum (I pay around 12% per my income level). No tax on dividends or capital gains in stocks.

State of Residence: Hong Kong ("HK"). The Hong Kong Dollar (HKD) is pegged with USD (USD1=HKD7.8 with smaller fluctuation, same exchange rate for 30+ years already). To simplify, let's use USD for this post and replies.

Age:40

Desired Asset allocation: 75% stocks / 25% bonds (will need your wisdom)

Desired International vs US allocation: 50% HK vs 50% US

Size of current total portfolio: low to mid six figures USD

Current retirement assets

- 27% cash (emergency cash is separated)
- 5% gold
- 13% Value Partner Class Fund Class B (a HK fund house, mgt fee 1.25%+performance fee. High but it outperformed the local index for two decades)
- 17% HK blue chip stocks. Mostly utitlies companies with stable dividend payout.
- 8% US index VTI (would like to increase US index fund further)

Retirement account (mostly managed by Fidelity retirement fund in HK):
- 20% Hong Kong Index tracker fund
- 5% Asian Equity Funds
- 5% HK Dollar Bond Fund

(in HK, the above comes in the form of Mandatory Provident Fund (MPF), similar to pension but one can only withdraw at age 65. The contribution by employer and employee are legally requried. Funds charge a high total expense (0.7 to 1% for index fund, higher for others 1-1.5%)
_______________________________________________________________
Retirement Contributions:
the retirement scheme receives a monthly contribution of USD500 from me and employee together in total. Unfortunately I can only pick from a small set of funds from Fidelity, most expense ratios are 1% or higher. I put most in HK Index Fund (expense 0.75%).

On top of above, I have steady saving about USD1000 every month which I am buying HK bluechip stocks with a dollar-cost averaging approach.

My questions:
1. Does the 75% equity, 25% bond ration sounds reasonable to you?

2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.

4. I know the Boglehead believers are more keen about index funds, but in HK there's no good option for retirement account (no low cost option like VTI or VOO). I wonder any of you also invest in quality stocks with dollar-cost averging appraoch. I appreciate any advice on where to put my monthly saving

Further information about my personal situation:

in medium or longer term, there is a possibility of moving to UK at least for a few years, due to the political unrest in Hong Kong (if you read the recent news about us). Two kids are now small but the plan is that they go to universities in UK about 10 and 12 years later respectively. The tuition fee is obviously something I need to plan for. Therefore I am wondering if I should start investing in some GBP-based assets? Or let's put it aside if it over-complicates the matter.

Thank you for your attention and any question and feedback. I will try to supplement any missing information but may take a while due to time zone difference.

Look forward to hearing from you.
1. You should have global equity weighting. Not overfocused on one country.

If fund restrictions compel you to be overweight in HK, you can treat that as your Emerging Market weighting.

2. If you are going to live in the UK then you should have some GBP assets. Preferably bonds. Unfortunately university tuition rises in real terms, so nominal bonds are a poor hedge right now for a period of at least 5 years. It you are going to be paying overseas student fees in the UK (£27,500 pa in many cases) then some European universities (that teach in English) are now viable alternatives. Right now, if you are living in Scotland, you pay no tuition fees at a Scottish university. England & Wales you pay £9,500 pa (ie for children of legal residents).

User avatar
nedsaid
Posts: 12767
Joined: Fri Nov 23, 2012 12:33 pm

Re: My porfolio - seeking advice [Hong Kong]

Post by nedsaid » Fri Nov 29, 2019 10:52 am

TedSwippet wrote:
Fri Nov 29, 2019 3:57 am
glorat wrote:
Fri Nov 29, 2019 3:05 am
cvc wrote:
Thu Nov 28, 2019 11:36 am
2. if it makes sense to hold more bonds, what are some good recommendation of investment vehicles? I can trade most US stocks and ETFs but not mutual funds. I know VTI and VOO are good index trackers, but I know little about bonds.

3. I like to move my equity from local HK to overseas: more in US and possibly other international markets. Are there USD-based ETFs that track non-US markets' indexes? Just like to explore the possible options.
VTI/VOO etc. are US domiciled ETFs that incur all sorts of dividend and estate taxes. As a HK resident you're better off investing in Ireland domiciled ETFs. That happen to be denominated in USD still and are traded on the London Stock Exchange. Same reasons for bond funds. If your broker doesn't give you access to these, find a better broker?!
Right. Hong Kong has no tax treaties with the US (the treaty with China does not cover HK). So Ireland domiciled VUSD rather than US domiciled VOO would give you much better results, even though both track the S&P 500. For more on why you should avoid US domiciled ETFs and instead hold equivalent Ireland domiciled ETFs, see this wiki page:

Nonresident alien with no US tax treaty & Irish ETFs - Bogleheads
Thank you for bring up the tax implications of owning US based ETFs.
A fool and his money are good for business.

Topic Author
cvc
Posts: 3
Joined: Thu Nov 28, 2019 11:24 am

Re: My porfolio - seeking advice [Hong Kong]

Post by cvc » Fri Nov 29, 2019 12:15 pm

Thank you all for the reply and helpful advice. It's eye-opening and give me good reasons to learn more and get the right investment vehicles.

@nedsaid Clear and I now have some direction to focus on. I will deep dive and do research especially on the bond assets

@bluquark agree that "past ER does predict future ER", so will definitely look into switching the fund to a index/tracker ETF.
Also agree that the country mix should be more diversified. Afterall the focus should be on the best risk/return options.
Unforuntately the ER of the MPF (HK-type pension fund) is very high (an extremely poor public policy that gives an unreasonable level of profit to fund houses). Will surely consider ER since it's such a long term investment

@glorat thanks for pointing out the over-weighting on HK market (again). Also I just know about the part on the benefit about Ireland domiciled ETFs which I will look into

@TedSwippet thanks for the wiki page link about the tax treaty/domicile

@Valuethinker agree again on the diversification of country/market. Really appreciate the information on UK tuition fee. It's a tricky situation for GBP since the Brexit issue brings so much uncertainty.

My reply is brief but I am thankful for all the guidance and insight here! Appreciate all your valuable time. :sharebeer

pin
Posts: 25
Joined: Sat Aug 26, 2017 5:32 am

Re: My porfolio - seeking advice [Hong Kong]

Post by pin » Tue Dec 03, 2019 4:21 am

Hi. Fellow HK permanent resident, UK citizen, 40 year old with two small children.

Going through what you and others have said in this thread, here are my thoughts:

- Desired asset allocation seems fine. I've personally gone for something closer to 65% stocks / 35% bonds, but I am probably a bit more conservative.

- Desired allocation, why so high on HK vs US, especially if you think you may move back to the UK soon. I would strongly suggest sticking to a standard well diversified "international" allocation.

- Current retirement assets:
You very high in cash (noting your emergency cash is separated). For cash I would only be keeping what you need for your monthly expenses and no more.
Gold, that's up to you, but I really see no value in gold as an asset (but that is my personal view)
Value Partners - ditch it. Fees are way too high.
HK stocks - OK I get this and I do this as well. There are some very stable HK utilities with pretty much guaranteed % dividend payments due to the monopolistic nature of how HK is run. Allocation at 17% though seems quite high.
Asian equity fund and HK Bond fund. Is this an ETF or a fund? If a fund what are the fees? I would probably ditch these
VTI - this is not tax efficient, you are getting whacked with a 30% WHT on dividends and a possible hit on estate duty in the future. I think someone has already posted a wiki link explaining the reasons for not holding US listed stock in HK.
MPF - the biggest con in the world and pretty much legalised robbery. Stick to the absolute minimum you have to put in and find at fund with the lowest fees (i.e. either HK index fund or DIS). For reference the HK index fund fees are 0.75% an all Fidelity does is buy shares in the HK Index Fund, who's fees are 0.09%, so Fidelity is making 0.66% of just pure profit on this.

- Future moves to the UK. This is tricky. You get paid in HKD I presume and therefore would prefer to invest in HKD / USD to avoid any currency fluctuations but at the same time you may need GBP in the future. To keep things simple I would just suggest investing in HKD / USD denominated stock at the moment.

- Suggestions
Based on the amount of assets you have (six figures USD) you should be looking at two to three LSE listed, Irish incorporated ETFs which will cover both global stocks and global bonds. Examples include for stocks: IWDA, SWRD, VWRL, VWRD and for bonds: AGGU, IGLO, IGIL (these are all LSE tickers for the etfs).

For the above you will need to open a broker account. Brokers in HK that allow you to trade on LSE stocks include Interactive Brokers and Saxo. You can also open a broker account with Interaxx, based out of Luxembourg. There are a few banks in HK that allow you to trade on LSE stocks, the easiest is probably DBS but you do need HKD1M in assets with them (which shouldn't be a problem if your net worth is six figures USD).

Hope this helps.

Valuethinker
Posts: 39050
Joined: Fri May 11, 2007 11:07 am

Re: My porfolio - seeking advice [Hong Kong]

Post by Valuethinker » Wed Dec 04, 2019 5:13 am

cvc wrote:
Fri Nov 29, 2019 12:15 pm
Thank you all for the reply and helpful advice. It's eye-opening and give me good reasons to learn more and get the right investment vehicles.

@nedsaid Clear and I now have some direction to focus on. I will deep dive and do research especially on the bond assets

@bluquark agree that "past ER does predict future ER", so will definitely look into switching the fund to a index/tracker ETF.
Also agree that the country mix should be more diversified. Afterall the focus should be on the best risk/return options.
Unforuntately the ER of the MPF (HK-type pension fund) is very high (an extremely poor public policy that gives an unreasonable level of profit to fund houses). Will surely consider ER since it's such a long term investment

@glorat thanks for pointing out the over-weighting on HK market (again). Also I just know about the part on the benefit about Ireland domiciled ETFs which I will look into

@TedSwippet thanks for the wiki page link about the tax treaty/domicile

@Valuethinker agree again on the diversification of country/market. Really appreciate the information on UK tuition fee. It's a tricky situation for GBP since the Brexit issue brings so much uncertainty.

My reply is brief but I am thankful for all the guidance and insight here! Appreciate all your valuable time. :sharebeer
If you have future expenses in GBP you want to hedge into GBP assets.

That means currency hedged bond funds (or equity funds, but I don't think the cost outweighs the gain - ie you are better with currency unhedged global equity funds).

However the gilt yield right now is significantly below inflation. License to lose money. Indexed linked gilts in particular have strongly negative yields.

Tough. Owning a property is not a bad hedge, but it's not remotely diversified. There's no doubt that in the long run a flat in Greater London has been a very good investment. But post Brexit? A new government might bring in rent controls and right to buy for renters (that has been mooted) -- and we are not thinking just the 2019 Election but also the 2023/4 one etc.

Solution? Put some of your money (say 10%?) of your portfolio into a GBP hedged ETF.

WhiteMaxima
Posts: 2024
Joined: Thu May 19, 2016 5:04 pm

Re: My porfolio - seeking advice [Hong Kong]

Post by WhiteMaxima » Wed Dec 04, 2019 12:06 pm

resident of HK.If I were you, I would have an exit plan due to the political stability issues there, then I would consider a USD denominated investment, HK's status as the Asia financial center and democratic way of life is shaky due to the rise of mainland and recent political situation. If I were you, I would sell real estate in HK. Singapore is a better alternative to HK in my view. Or Vancouver, Sydney, all these Commonwealth country cities is a good place for HK people. World is changing. Be safe. I am been HK many times., I love the city dearly and hate to see her freedom being taking away.

Valuethinker
Posts: 39050
Joined: Fri May 11, 2007 11:07 am

Re: My porfolio - seeking advice [Hong Kong]

Post by Valuethinker » Wed Dec 04, 2019 12:45 pm

pin wrote:
Tue Dec 03, 2019 4:21 am


- Future moves to the UK. This is tricky. You get paid in HKD I presume and therefore would prefer to invest in HKD / USD to avoid any currency fluctuations but at the same time you may need GBP in the future. To keep things simple I would just suggest investing in HKD / USD denominated stock at the moment.
Not that if not clear, the currency in which a fund reports is irrelevant. The underlying investments will simply correct for any currency translation effects (a USD fund in Singapore stocks will have the same value as the same fund that reports in GBP and invests in Singapore stocks). Holding your home currency funds does not insulate you from exchange rate risk.

Exceptions:

- some funds, and most bond funds, hedge into the currency which they report. Otherwise the FX volatility would well outweigh the returns from the bond fund, you'd basically be owning a foreign exchange bets fund, that held its currency assets in bonds

- if you are buying more units, you can save yourself transactions costs. If I am paid in GBP, I generally want to buy the GBP reporting units of the UCITS VI fund/ ETF, thus avoiding the conversion cost into USD to buy USD units, say, and another conversion cost in the future when I sell the USD investment and buy GBP again

If you own a home and have a career that pays in a given currency, there's a strong case for diversifying your currency exposure. This is particularly true for non US investors. We all live in relatively small stock market countries, why would we not want to own shares in Apple, Intel, Amazon, Google, Facebook, Pfizer, P&G, Caterpillar, Exxon- Mobile etc?

Andrew9999 makes a pretty strong case that as you get closer to retirement you cannot ignore exchange rate fluctuations, even in your equity funds. And thus a global equity fund hedged into your home currency is to be preferred. The reason being that although in the long run currencies may converge based on their different inflation rates (higher inflation currencies devalue against lower deflation ones) the deviations from that trend can be decades long (a lot of economic research says it doesn't work at all - Purchasing Power Parity - although I think the most recent thinking tends to be it does exist, but not in a simple, strong form).

When and how this crossover point comes I am not sure. But probably within 10 years of retirement.

My own case, where I have large home equity (by default, because I live in London), a career in GBP, some defined benefit pension in GBP, basic state pension in GBP, bond investments in GBP ... you get the picture. I want international diversification in my equities. Perhaps as a rule of thumb we could say that almost all of us should have at least 35% of our total portfolio in foreign currency assets? (i.e. typically global equity funds, currency unhedged). "almost all of us" meaning from other developed countries - Canada, Australia, UK, HK, Sing, rest of Europe?

Topic Author
cvc
Posts: 3
Joined: Thu Nov 28, 2019 11:24 am

Re: My porfolio - seeking advice [Hong Kong]

Post by cvc » Thu Dec 05, 2019 10:45 am

@pin:
appreciate the advice. I think the MPF is the worst retirement solution in the whole world, and can't imagine how much money the fund houses are making. I have been taking the approach you mentioned to minimize the fees through index fund.

I plan to put the VTI and further index funds/etf through the Irish incorporated ETFs. The LSE tickers are helpful.

I heard a lot about Interactive Brokers (IB) and other brokers like Saxo, but I have always invest through banks which I felt more safe. Can I ask a rookie question: how safe are these brokers or how well are they regulated? Or perhaps I am such an oldie. Appreciate if you can shed some light or point me to a link for a bit more assurance. Thanks in advance.

@Valuethinker:
Yea it's a tough one especially with the Brexit in horizon. I do plan to allocate some on a GBP ETF regularly to de-risk especially the children's education cost. And thanks for the second post as reminder on the exchange rate risk. I fully agree that those correction sometimes can take a decade or more.


@WhiteMaxima:
Grateful to have someone who can empathize the situation we are going through. This forum is not for politics, but if not I can go on for days. This is just the most difficult time for Hong Kong in last 40 years I dare to say

I do am planning an exit in terms of asset and others, step by step. Singapore is a better alternative for sure in terms of stability. The future is not bright, especially for someone with kids and treasure the freedom we use to have.

ohai
Posts: 1132
Joined: Wed Dec 27, 2017 2:10 pm

Re: My porfolio - seeking advice [Hong Kong]

Post by ohai » Thu Dec 05, 2019 10:59 am

I would not want anywhere near 50% of my equity holdings in stocks of Hong Kong, a tiny country (?) of less than 8 million people, and one that is constantly vulnerable to political risk. I also would not count on even the most basic assumptions about Hong Kong's economy holding for the next 10 years; the currency peg or even Hong Kong's special economic status are all fair game for China to change any time they decide Hong Kong is not important enough to deal with the unrest any more.

pin
Posts: 25
Joined: Sat Aug 26, 2017 5:32 am

Re: My porfolio - seeking advice [Hong Kong]

Post by pin » Thu Dec 05, 2019 10:29 pm

Hi @cvc

On the broker point it really depends. They are supposed to be regulated etc and they are considered safe. Your money should be segregated but well you never really know. for what its worth we have spread out holdings through different brokers and banks. There are a few banks in HK that offer UK shareholding like DBS and BOC but sometimes the cost can be quite high.

There are some some offshore bank options like HSBC Expat as well.

Shoot me a PM if you want to meet for a coffee.

Valuethinker
Posts: 39050
Joined: Fri May 11, 2007 11:07 am

Re: My porfolio - seeking advice [Hong Kong]

Post by Valuethinker » Fri Dec 06, 2019 1:19 pm

cvc wrote:
Thu Dec 05, 2019 10:45 am
@pin:
appreciate the advice. I think the MPF is the worst retirement solution in the whole world, and can't imagine how much money the fund houses are making. I have been taking the approach you mentioned to minimize the fees through index fund.

I plan to put the VTI and further index funds/etf through the Irish incorporated ETFs. The LSE tickers are helpful.

I heard a lot about Interactive Brokers (IB) and other brokers like Saxo, but I have always invest through banks which I felt more safe. Can I ask a rookie question: how safe are these brokers or how well are they regulated? Or perhaps I am such an oldie. Appreciate if you can shed some light or point me to a link for a bit more assurance. Thanks in advance.

@Valuethinker:
Yea it's a tough one especially with the Brexit in horizon. I do plan to allocate some on a GBP ETF regularly to de-risk especially the children's education cost. And thanks for the second post as reminder on the exchange rate risk. I fully agree that those correction sometimes can take a decade or more.
Remember holding UK stocks is not a GBP hedge. Roughly speaking, a 10% rise in GBP exchange rate against the dollar and the Euro, reduces profits by UK companies in the FTSE 100 6-7%. Similarly when the pound dropped 10% the night of the Brexit result, the stock market then rose by 6-7% in the next few days.

15%+ of the UK index is BP & Royal Dutch Shell. 2 companies whose entire revenues (almost) are US dollar based (oil & gas), and who have relatively small operations in the UK.

The mid cap index, FTSE250, is more UK focused. But that is only 12% of the All-share, and the condition of the domestic economy post Brexit is a big question mark.

If you want a genuine GBP hedge, you have to hold 1). bonds 2. money market instruments & bank deposits 3. property (but then you have property price risk, costs etc). Something which has definite cash flows in GBP. Not some company that happens to have a headquarters in London and a home market listing of London, but which is really a global operator.

I am just reminded that recent stamp duty (SDRT) changes mean that buying UK residential property from offshore is somewhat prohibitive - check on that.

You could simply hold a portfolio of UK REITs. Retail property is in trouble - M&G has just had to freeze redemptions from its property fund (34% retail). And of course the demand for office & industrial property post Brexit is a big unknown.

If I had to own one REIT it would be Land Securities - which is heavily exposed to prime, blue chip, London commercial buildings but has little retail exposure. Again because the buildings are in the UK and the rents are paid in GBP, this is a genuine GBP hedge. Lloyds Bank, being an almost totally UK focused bank, would be another example (although not as pure a play).

Good luck with all the politics. It is difficult. Singapore is a very controlled kind of place, almost antiseptically so - one challenge is the culture does not encourage entrepreneurialism, but it is a rule of law state.

ying_yang
Posts: 34
Joined: Sun Nov 19, 2017 10:18 am

Re: My porfolio - seeking advice [Hong Kong]

Post by ying_yang » Sun Dec 08, 2019 1:00 am

Valuethinker wrote:
Fri Dec 06, 2019 1:19 pm
cvc wrote:
Thu Dec 05, 2019 10:45 am
@pin:
appreciate the advice. I think the MPF is the worst retirement solution in the whole world, and can't imagine how much money the fund houses are making. I have been taking the approach you mentioned to minimize the fees through index fund.

I plan to put the VTI and further index funds/etf through the Irish incorporated ETFs. The LSE tickers are helpful.

I heard a lot about Interactive Brokers (IB) and other brokers like Saxo, but I have always invest through banks which I felt more safe. Can I ask a rookie question: how safe are these brokers or how well are they regulated? Or perhaps I am such an oldie. Appreciate if you can shed some light or point me to a link for a bit more assurance. Thanks in advance.

@Valuethinker:
Yea it's a tough one especially with the Brexit in horizon. I do plan to allocate some on a GBP ETF regularly to de-risk especially the children's education cost. And thanks for the second post as reminder on the exchange rate risk. I fully agree that those correction sometimes can take a decade or more.
Remember holding UK stocks is not a GBP hedge. Roughly speaking, a 10% rise in GBP exchange rate against the dollar and the Euro, reduces profits by UK companies in the FTSE 100 6-7%. Similarly when the pound dropped 10% the night of the Brexit result, the stock market then rose by 6-7% in the next few days.

15%+ of the UK index is BP & Royal Dutch Shell. 2 companies whose entire revenues (almost) are US dollar based (oil & gas), and who have relatively small operations in the UK.

The mid cap index, FTSE250, is more UK focused. But that is only 12% of the All-share, and the condition of the domestic economy post Brexit is a big question mark.

If you want a genuine GBP hedge, you have to hold 1). bonds 2. money market instruments & bank deposits 3. property (but then you have property price risk, costs etc). Something which has definite cash flows in GBP. Not some company that happens to have a headquarters in London and a home market listing of London, but which is really a global operator.

I am just reminded that recent stamp duty (SDRT) changes mean that buying UK residential property from offshore is somewhat prohibitive - check on that.

You could simply hold a portfolio of UK REITs. Retail property is in trouble - M&G has just had to freeze redemptions from its property fund (34% retail). And of course the demand for office & industrial property post Brexit is a big unknown.

If I had to own one REIT it would be Land Securities - which is heavily exposed to prime, blue chip, London commercial buildings but has little retail exposure. Again because the buildings are in the UK and the rents are paid in GBP, this is a genuine GBP hedge. Lloyds Bank, being an almost totally UK focused bank, would be another example (although not as pure a play).

Good luck with all the politics. It is difficult. Singapore is a very controlled kind of place, almost antiseptically so - one challenge is the culture does not encourage entrepreneurialism, but it is a rule of law state.
This post has got me thinking about currency hedging a bit more and I am curious to understand the following:

If I own a foreign bond, it is quite straightforward to determine the FX exposure I have and hedge accordingly, since it is essentially a set of future cashflows in a fixed currency.

If I own global equities I believe the currency of denomination should be as redundant as the reporting currency of a fund in terms FX risk, and should be the underlying cash flows which drive FX risk? If so, how do fund managers quantify the FX risk that needs to be hedged for equities, taking into account the intrinsic FX exposure from the companies activities?

Valuethinker
Posts: 39050
Joined: Fri May 11, 2007 11:07 am

Re: My porfolio - seeking advice [Hong Kong]

Post by Valuethinker » Sun Dec 08, 2019 8:35 am

ying_yang wrote:
Sun Dec 08, 2019 1:00 am
Valuethinker wrote:
Fri Dec 06, 2019 1:19 pm
cvc wrote:
Thu Dec 05, 2019 10:45 am
@pin:
appreciate the advice. I think the MPF is the worst retirement solution in the whole world, and can't imagine how much money the fund houses are making. I have been taking the approach you mentioned to minimize the fees through index fund.

I plan to put the VTI and further index funds/etf through the Irish incorporated ETFs. The LSE tickers are helpful.

I heard a lot about Interactive Brokers (IB) and other brokers like Saxo, but I have always invest through banks which I felt more safe. Can I ask a rookie question: how safe are these brokers or how well are they regulated? Or perhaps I am such an oldie. Appreciate if you can shed some light or point me to a link for a bit more assurance. Thanks in advance.

@Valuethinker:
Yea it's a tough one especially with the Brexit in horizon. I do plan to allocate some on a GBP ETF regularly to de-risk especially the children's education cost. And thanks for the second post as reminder on the exchange rate risk. I fully agree that those correction sometimes can take a decade or more.
Remember holding UK stocks is not a GBP hedge. Roughly speaking, a 10% rise in GBP exchange rate against the dollar and the Euro, reduces profits by UK companies in the FTSE 100 6-7%. Similarly when the pound dropped 10% the night of the Brexit result, the stock market then rose by 6-7% in the next few days.

15%+ of the UK index is BP & Royal Dutch Shell. 2 companies whose entire revenues (almost) are US dollar based (oil & gas), and who have relatively small operations in the UK.

The mid cap index, FTSE250, is more UK focused. But that is only 12% of the All-share, and the condition of the domestic economy post Brexit is a big question mark.

If you want a genuine GBP hedge, you have to hold 1). bonds 2. money market instruments & bank deposits 3. property (but then you have property price risk, costs etc). Something which has definite cash flows in GBP. Not some company that happens to have a headquarters in London and a home market listing of London, but which is really a global operator.

I am just reminded that recent stamp duty (SDRT) changes mean that buying UK residential property from offshore is somewhat prohibitive - check on that.

You could simply hold a portfolio of UK REITs. Retail property is in trouble - M&G has just had to freeze redemptions from its property fund (34% retail). And of course the demand for office & industrial property post Brexit is a big unknown.

If I had to own one REIT it would be Land Securities - which is heavily exposed to prime, blue chip, London commercial buildings but has little retail exposure. Again because the buildings are in the UK and the rents are paid in GBP, this is a genuine GBP hedge. Lloyds Bank, being an almost totally UK focused bank, would be another example (although not as pure a play).

Good luck with all the politics. It is difficult. Singapore is a very controlled kind of place, almost antiseptically so - one challenge is the culture does not encourage entrepreneurialism, but it is a rule of law state.
This post has got me thinking about currency hedging a bit more and I am curious to understand the following:

If I own a foreign bond, it is quite straightforward to determine the FX exposure I have and hedge accordingly, since it is essentially a set of future cashflows in a fixed currency.

If I own global equities I believe the currency of denomination should be as redundant as the reporting currency of a fund in terms FX risk, and should be the underlying cash flows which drive FX risk? If so, how do fund managers quantify the FX risk that needs to be hedged for equities, taking into account the intrinsic FX exposure from the companies activities?
Currency hedged bond or equity funds usually use a rolling programme of currency forwards to hedge the NAV of the fund. A GBP fund will hedge its EUR face value of bonds for example.

Because the cost of a currency forward or future is the difference in interest rates between the 2 currencies, the longer you hedge the more expensive it is.

Afaik they don't hedge future bond coupon payments or expected dividend payments. Note though to the extent those accrue in the price of the asset, they are hedging that price.

As to the actual fx exposure of stocks in the portfolio that would be very hard to quantify so generally they do not. Again as far as I know.

Companies typically hedge orders or payments that are contracted back into their home currency. Eg if Boeing has a big order in JPY they will hedge the future payments back into USD so they do not take a loss on movements in USD.

For longer term hedging companies typically borrow to the level of assets in that currency so currency swings have no effect on net assets on the balance sheet.

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