Monday, December 12, 2016

Closing off a tranche of LP 'bonds'

I handled my parent's portfolio since end 2013, and I'm still handling them now. Recently, my parents wanted to withdraw out 40k. My parent's portfolio is handled in tranches, according to the timing where they gave a lump sum to me. Since the first tranche of money is 50k, and the portfolio also consisted of Capital mall asia bonds (CapmallA3.8%b220112) that is going to be redeemed back in Jan 2017 (here), I decided to cash out the entire portfolio and return it to them.

When I first started out, the options are pretty limited. I looked back at my older article here on the philosophy behind the allocation. The fixed deposit for foreign banks are giving 1.25% pa for 2 years, while the local banks are giving about 0.55% for the same period. Now, the rates for local fixed deposit for 2 yr is doubled, at 1% pa. For POEMS money market fund (MMF), it was 0.5% pa in end 2013. Now the MMF is giving a return of about 0.9% pa and still rising. You can see the macro environment changing over the last 3 years. There isn't even a singapore saving bonds back then. If it's available, I'll definitely consider putting some money in it since it satisfies the criteria of handling my parent's money, which is a guarantee on capital and also a higher than fixed deposit return.

And so I did the allocation of the 50k. The terms are laid out in this post here. I'll summarise the gist of the terms here too. It's like a bond, with a fixed yearly yield of 2% pa, no fixed duration or maturity period, and I will guarantee that their capital will stay intact when they want to cash it out. So the actual instruments I used to achieve this aims can be found in this post here. Mainly it's pref shares from banks and high quality retail bond. There is a change in the portfolio because the pref shares from OCBC bank (OCC 5.1% NCPS 100), was redeemed back in Dec 2015, which I've mentioned in this article here. The portfolio didn't lose money, but it affected the returns because of the unexpected earlier redemption.

I took the money and reinvested in Frasers centerpoint ltd bonds (FCL Trea 3.65% b220522), and that's all the transactions there is until today. Let's see the returns over the 3 year period where I handled the money.

Initial capital: $50,000
Date of inception: 27th Dec 2013

Total brokerage fees in buying/selling: $342.13
Percentage of brokerage to capital invested: 0.68% total or 0.225% pa
Total amount of dividends given out: $2,000
Cash retained in portfolio: $3,881.43

Current value of portfolio (all in): $53,402.43
Total portfolio returns (inclusive of paid dividends): $55,402.43
Date of closing: 12 Jan 2016 (that's when the capital from the redeemed cap mall bonds will be returned)

Absolute profit: $5,402.43
Percentage return: 10.80%
Time period of handling portfolio: 1112 days
Average returns per year: 3.55% pa

That's fantastic, in my own opinion. I beat the Singapore savings bond over the same period of 3 years. Even at their best of 2.78% per year over 10 years (Issued in Nov 2015), their 3 yr average return per year is 1.48%. Their Dec 2016 issue is worse. At 1.87% per year over 10 yrs, their 3 yr average return per year is 1.03%.

Shit, I should just take a cut of 0.7% pa of NAV, as 'management fees' over the last 3 yrs in which I managed my parent's money. I'll get about $1k, and the average returns per year will drop to 2.86 % pa. Still very decent lol!


It had been a very good learning experience for me to start and close off this tranche of investment money. I had to think deeply about the benchmark I want to set, and also the criteria in which my allocation philosophy is based on. In addition, I also have to think about how to set aside the amount I want to distribute out so that I can retain the cash to pay for things like commission and more importantly, to offset any possible losses from early redemption from my parents and also from the inherent capital loss from buying retail bonds at above par value. In between, there is also switching of the portfolio allocation because of redemption by the issuer. I'm glad I didn't lose any money on my parent's behalf!


Singapore Man of Leisure said...



Now you have the track record, know-how, and more importantly - confidence to handle your own safe, conservative, incoming producing tranche of your portfolio when that time comes;)

No need to rely on SSB liao!

la papillion said...


Haha, the problem is that while there are more options out there to invest in such bond portfolio, the quality of the assets are decreasing. Gone are all the pref shares issued by banks, and those quality corporate bonds and pref shares are also slowly being redeemed away. What's left are those property developer bonds and perps, something I am hesitant to touch.

I can only hope retail investors like myself can one day have as many choices to invest in blue chip bonds as there are in stocks. We shall see :)

simplefolk said...

for simple folk like me who can't even read/analyze company. fixed deposit, MMF, SSB are the only way to go :(

anyway am still contented as it helps to reduce my expenses
next time got good retail bonds, please recommend. Thanks! :)

la papillion said...

Hi simplefolk,

If there's a good retail bond, you can be sure i'll be the first to blog about it :)

simplefolk said...

thanks! :)
now that FED raise interest by 25 basis points, just wondering how will it impacts our bank interests hmm ....

la papillion said...

Hi simplefolk,

It should go up I guess :) But maybe not so fast. I know the money market funds in POEMS is slowly rising. Good for savers, not so good for borrowers I guess :)

Tms said...

Hi LP,I notice you also invest in bond. I also budget some money in capitaland 10y bond @3.8% in first 5y & next 5y @4.5%. But they plan to redeem back this yr. I need to find another alternate bond to invest. Currently looking at hyflux @6% or Genting @5.125% perpetual bond. Any advice on cheaper entry level?


la papillion said...

Hi Tms,

I don't have a lot of bonds, most of it belongs to my parents whom I helped to invest for them. I also have the capmallasia bonds that is going to be redeemed back, but unlike you, I won't be looking for a replacement this time. I'm going to refund them the money and close the shop :)

I won't advise on hyflux nor Genting. If I enter a bond, I want certainty of capital. If the capital is not certain, than I would rather invest in stocks and bear the risk, rather than think a bond is safe and end up losing my capital. So no hyflux and genting, oxley type of bonds for me :)